<PAGE> 1
U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 31, 1997
----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
--------------- ----------------
Commission File No. 33-2249-FW
MILLER PETROLEUM, INC.
----------------------
(Name of Small Business Issuer in its Charter)
TENNESSEE 75-2072206
--------- ----------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
3651 Baker Highway
Huntsville, Tennessee 37756
----------------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (423) 663-9457
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
<PAGE>
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the Issuer has filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a Plan confirmed by a court. Yes No X
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:
December 8, 1997
6,535,666
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Financial Statements of the Registrant required to be filed with
this 10-QSB Transition Report were prepared by management and commence on the
following page, together with related Notes. In the opinion of management,
the Financial Statements fairly present the financial condition of the
Registrant.
<TABLE>
MILLER PETROLEUM, INC.
Consolidated Balance Sheet
(Unaudited)
<CAPTION>
ASSETS
October 31, April 30,
1997 1997
<S> <C> <C>
CURRENT ASSETS
Cash $52,808 $64,531
Accounts receivable - trade, net 126,531 149,459
Total Current Assets 179,339 213,990
FIXED ASSETS
Machinery and equipment 910,198 481,862
Vehicles 227,537 227,537
Buildings 181,956 173,375
Office Equipment 36,479 27,272
Less: accumulated depreciation (509,653) (466,819)
Total Fixed assets 846,517 443,227
OIL AND GAS PROPERTIES 472,859 275,500
OTHER ASSETS
Land 511,500 11,500
Investments 22,241 17,436
Inventory 377,679 354,163
Total Other Assets 911,420 383,099
TOTAL ASSETS $2,41O,135 $1,315,816
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $72,645 $96,277
Accounts payable - related 55,799 16,090
Accrued expenses 14,556 16,963
Notes payable - current portion 228,233 254,449
Total Current Liabilities 371,233 383,779
LONG-TERM LIABILITIES
Notes payable 88,960 142,573
Notes payable - shareholder 122,482 -
Total Long-Term Liabilities 211,442 142,573
Total Liabilities 582,675 526,352
STOCKHOLDERS' EQUITY
Common Stock: 500,000,000 shares
authorized at $0.0001 par value,
6,535,666 and 6,055,000 shares
issued and outstanding 654 606
Additional paid-in capital 1,531,501 684,532
Note receivable - shareholder - (304,355)
Retained earnings 295,305 408,681
Total Stockholders' Equity 1,827,460 789,464
TOTAL LIABILITIES AND
STOCKHOLDERS'S EQUITY $2,410,135 $1,315,816
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE> MILLER PETROLEUM, INC.
Consolidated Statements of Operations
(UNAUDITED)
<CAPTION>
For the Six Months Ended
October 31,
1997 1996
<S> <C> <C>
REVENUES
Service and drilling revenue $293,444 $268,867
0il and gas revenue 83,502 113,196
Retail sales 43,400 79,069
Other revenue 22,268 10,805
Total Revenue 442,614 471,937
COSTS AND EXPENSES
Cost of oil and gas sales 133,115 60,243
Selling, general and administrative 155,790 196,188
Salaries and wages 186,693 146,895
Depreciation, depletion and amortization 66,630 86,143
Total Costs and Expenses 542,228 489,469
INCOME (LOSS) FROM OPERATIONS (99,614) (17,532)
OTHER INCOME (EXPENSE)
Interest income 10,564 10,621
Interest expense (24,326) (17,930)
Total Other Income (Expense) (13,762) (7,309)
INCOME TAXES
NET INCOME (LOSS) ($113,376) ($24,841)
NET EARNING (LOSS) PER SHARE ($0.02) ($0.00)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 6,370,480 5,750,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements. <TABLE>
MILLER PETROLEUM, INC.
Consolidated Statement of Stockholders' Equity
(UNAUDITED)
<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, 1996 3,501,197 $350 $263,583 $356,688 - $620,621
Common stock
issued for
acquisition of
subsidiary 2,081,333 208 314,990 - - 315,198
Recapitalization 167,465 17 (17) - - -
Common stock
issued for cash
at $1.83 per
share 55,000 6 100,544 - - 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 6,056,000 606 684,532 408,681 (304,355) 789,464
Net note receivable
from shareholder
with note payable
to shareholder - - - - 304,355 304,355
Common stock
issued for cash at
approximately
$1.75 per share 336,222 34 586,984 - - 687,018
Common stock
issued for equipment
at $1.8O per
share 144,444 14 253,986 - - 260,000
Net loss for the six
months ended
October 31, 1997 - - - (113,376) - (113,376)
Balance October 31,
1997 6,535,666 654 1,531,502 295,305 0 1,827,461
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements<TABLE>
MILLER PETROLEUM, INC.
Consolidated Statement of Cash Flows
(UNAUDITED)
<CAPTION>
For the Six Months Ended
October 31,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($113,376) ($24,841)
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operating Activities:
Depreciation, depletion and amortization 66,630 24,452
Disposition of equipment and property 4,306 125,391
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts receivable 22,928 (47,262)
Decrease (increase) in inventory (23,516) (5,000)
Increase (decrease) in accounts payable 16,077 31,350
Increase (decrease) in accrued expenses (2,407) (2,374)
Net Cash Provided (Used) by Operating
Activities (29,358) 101,716
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (181,818) (26,625)
Purchase of land (500,000) -
Loan to shareholder - (305,622)
Purchase of investments (4,805) (16,375)
Purchase of oil and gas properties (217,029) -
Net Cash Provided (Used) by Investing
Activities (903,652) (348,622)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments from notes receivable 52,138
Sale of common stock 587,018
Proceeds from borrowings 407,981 230,611
Payments for notes payable (125,850) (1,415)
Net Cash Provided (Used) by Financing
Activities $921,287 $229,196
NET INCREASE IN CASH ($11,723) ($17,710)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 64,531 68,785
CASH AND CASH EQUIVALENTS,
END OF PERIOD 52,808 51,075
CASH PAID FOR
Interest $24,326 $17,930
Income taxes - -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for equipment $260,000 -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
October 31, 1997 and April 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted accounting
principles have been condensed of omitted. It is suggested that these
financial statements be read in conjunction with the Registrant's April 30,
1997 Annual Report on Form 10KSB. The results of operations for the periods
ended October 31, 1997 and 1996 are not necessarily indicative of operating
results for the full year.
The consolidated financial statements and other information furnished herein
reflect all adjustment which are, in the opinion of management of the
Registrant, necessary for a fair presentation of the results of the interim
periods covered by this report.
NOTE 2 - RELATED PARTY TRANSACTIONS
During the six months ended October 31, 1997, the Company purchased real
property from a major shareholder's wife. The property is located in
Huntsville, Tennessee and is currently used as an office, shop and equipment
yard by the Company. The appraisal price is $550,000 The Company paid $82,470
cash, assumed a $39,906 note payable with the First National Bank of Oneida,
and issued a note payable for $377,624 to the seller. The note is secured by
the real property and bears 7% interest. An annual payment of $92,019 plus
interest is due beginning August 1, 1998. The total purchase price of the
above real property is $500,000.
The Company purchased drilling equipment for the sum of $360,000. $100,000
cash was paid by the Company and 144,444 shares of its common stock was
issued for the balance of $260,000. The equipment was appraised at $383,000.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
Plan of Operation
- -----------------
Plan of Operation for Existing Leases
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 ("Citizens") 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
and is negotiating to purchase all of the gas that the Company may develop
there. The Company is also working to build a 4.4 mile, 6-inch pipeline
extension to connect to Citizens' pipeline near Jellico, Tennessee, to produce
gas from recent drilling as well as provide marketing options for existing and
future productions.
The Company's operations include the operation of gas and oil wells,
acquisition and development of gas and oil leases, rebuilding and sales of
oilfield 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 nine gas wells in the Jellico, Tennessee area northwest
of the Pine Mountain Thrust Fault. The ninth well, the Billy Bowlins #3, was
completed naturally in the Big Lime and put on line October 17, 1997, at over
600 thousand cubic feet per day ("MCFD"). A tenth well, the Tiller #1, was
recently stimulated with a four stage foamed sand frac job and is expected to
be on line before the end of the year.
Management believes that the leases that are held jointly with
Delta Producers contain a minimum of three more drilling prospects, and three
drilled wells will benefit from well stimulation.
Additional recent wells drilled include the Robert Cox #3 testing
1,510 MCFD absolute open flow ("AOF") natural, the Cox #1 testing 250 MCFD AOF
natural, and the Cox #2 testing 707 MCFD AOF natural, all from the Big Lime.
These wells are located in the Jellico Field near the Company's more than
9,000 acres under lease, and will be produced through the 6-inch pipeline
under development into the Citizens' system. Management believes that Cox #1
will benefit from well stimulation.
On September 15, 1997, Dr. Gary Bible was appointed Vice President
of Geology of the Company. Dr. Bible earned his BS Degree in Geology from
Kent State University and his Msc. and PhD degrees in Geology from Iowa State
University. Formerly with Phillips Petroleum Corporation and LAMCO, Dr. Bible
brings to the Company 19 years' experience as a Petroleum Geologist. In
addition, Dr. Bible has spent 9 years in the Appalachian Basin in the
exploration and development of reserves in the Big Lime, Devonian Shale and in
deeper horizons.
On November 1, 1997, which is subsequent to the period covered by
this Report, John Bonar was appointed Vice President of Engineering. Mr.
Bonar earned his BS Degree in Petroleum Engineering from the University of
Wyoming. Formerly with Marathon Oil Company and Penn Virginia Oil and Gas,
Inc., he brings to the Company 14 years in the Appalachian Basin in the
exploration and development of reserves and management of operations.
The Company has signed a letter of intent dated November 21, 1997,
which is subsequent to the period covered by this Report, to purchase the
assets of AKS Energy Corporation ("AKS"), a subsidiary of Arakis Energy
Corporation of Calgary, Canada. The assets include over 40,000 acres of
leaseholds in the counties of Leslie, Bell, Knox, Harlan and Clay, Kentucky,
and Campbell County, Tennessee. Included are 23 wells producing a net 500
MCFD and 12 barrels of oil per day. Also included is an Ingersoll-Rand RD10
drilling rig, four service rigs, support equipment and a shop near Corbin,
Kentucky. Management expects the terms of the sale to be finalized in mid-
December, 1997. In the event that the transaction is completed, the Company
will timely file with the Securities and Exchange Commission a Current Report
on Form 8-K disclosing its terms.
Reserve Analysis
- ----------------
The acquisition of the AKS assets would add substantially to the
reserves of the Company. In August, 1997, Wright & Company, Inc., of
Brentwood, Tennessee ("Wright") performed a reserve analysis on the AKS
leases. This report shows that, as of June 30, 1997, the AKS leases contain
total proved net oil and gas reserves of 45,038 Bbls. and 5,294,837 MCF. of
these amounts, a total of 13,898 Bbls of oil reserves, and 2,661,082 MCF of
gas reserves were proved but undeveloped. Net profit from all of the AKS
reserves would be $11,229,400, with a net present value, discounted at 10%, of
$3,450,468. Management believes that the AKS acquisition would effectively
increase the Company's proven developed producing oil reserves by 57% and its
proven developed producing gas reserves by over 1500%.
D. Randall Wright, a Registered Petroleum Engineer, has no interest
in AKS or the Company, and performed the reserve analysis for AKS at his
standard rate.
Other Significant Plans
- -----------------------
In addition to the AKS acquisition, the Company intends to take
advantage of other 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.
Results of Operations
- ---------------------
During the six months ended October 31, 1997, the Company
received total revenues of $442,614, including service and drilling revenue of
$293,444 and oil and gas revenue of $83,502. Total costs and expenses during
this period were $542,228, and the Company had a net loss from operations of
$99,614. Net loss during the six month period ended October 31, 1997, was
$113,376, or $0.02 per share.
Liquidity
- ---------
During the quarterly period covered by this Report, the Company
increased its liquidity by $813,207.20 through the sale of a total of 466,886
"unregistered" and "restricted" shares of common stock to 35 accredited
investors. These sales were made pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None; not applicable.
Item 2. Changes in Securities.
None; not applicable.
Item 3. Defaults Upon Senior Securities.
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None; not applicable.
Item 5. Other Information.
None; not applicable.
Item 6. Exhibits and Reports on Form 8-K.*
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
* A summary of any Exhibit is modified in its entirety by reference to the
actual Exhibit.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
MILLER PETROLEUM, INC.
Date: 12-12-97 By: /s/ Deloy Miller
----------------- -----------------------------
Deloy Miller, President and
Director
Date: 12-12-97 By: /s/ Lawrence LaRue
----------------- -----------------------------
Lawrence L. LaRue,
Secretary/Treasurer and Director
Date: 12-12-97 By: /s/ Herman Gettelfinger
----------------- -----------------------------
Herman Gettelfinger, Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> OCT-31-1997
<CASH> 52808
<SECURITIES> 0
<RECEIVABLES> 126531
<ALLOWANCES> 0
<INVENTORY> 377679
<CURRENT-ASSETS> 179339
<PP&E> 1356170
<DEPRECIATION> 509653
<TOTAL-ASSETS> 2410135
<CURRENT-LIABILITIES> 371233
<BONDS> 0
0
0
<COMMON> 654
<OTHER-SE> 1826806
<TOTAL-LIABILITY-AND-EQUITY> 2410135
<SALES> 43400
<TOTAL-REVENUES> 442614
<CGS> 133115
<TOTAL-COSTS> 542228
<OTHER-EXPENSES> 409113
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24326
<INCOME-PRETAX> (113376)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (113376)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
