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, 1998
[ ] 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 62-1028629
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State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
3651 Baker Highway
Huntsville, Tennessee 37756
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(Address of Principal Executive Offices)
Issuer's Telephone Number: (423) 663-9457
N/A
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(Former Name or Former Address, if changed since last Report)
Securities Registered under Section 12(b) of the Exchange Act: None.
Securities Registered under Section 12(g) of the Exchange Act: None.
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
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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 - $1,699,003.
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 15, 1998 - $4,597,518. There are approximately 1,532,506 shares of
common voting stock of the Registrant held by non-affiliates. On July 15,
1998 the average bid and asked price was $3.00.
(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, 1998
6,646,067
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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 40,000 acres in Kentucky 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. Miller continues to be a leader
in technology, utilizing the latest computer graphics and analytical tools for
geologic exploration, drilling and development.
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., and the
Citizens Gas Utility District, have opened up the Campbell County, Tennessee,
area for development. The Company is also working to build a 4 mile 6"
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 production. This pipeline is scheduled for completion the
first week of August, 1998.
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 twelve gas wells in the Jellico, Tennessee area northwest of
the Pine Mountain Thrust Fault. The ninth well, the Billy Bowlin #3, was
completed naturally in the Big Lime and put on line October 17, 1997, at 680
MCFD .
Additional recent wells drilled include the Robert Cox #3 testing
1,510 MCFD 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 Miller's more that 9,000 acres under lease,
and will be produced through the 6" pipeline under development into the
Citizens' system.
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.
On December 29, 1997, the Board of Directors appointed Deloy
Miller to the position of CEO, and appointed Ronnie Griffith to the position
of President and Director.
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) Miller purchased 100% of the assets of AKS Energy
Corporation ("AKS"), a subsidiary of Arakis Energy Corporation of Calgary,
Canada, on December 1, 1997. 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 BOPD, along with over 17 miles of pipeline. Also included was an
Ingersoll-Rand RD10 drilling rig, four service rigs, support equipment and a
shop and 30 acres of land near Corbin, Kentucky.
With the AKS Energy acquisition, Miller currently controls over
80,000 acres of leasehold in Kentucky and Tennessee.
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.
Reserve Analyses
James Engineering of Marietta, Ohio ("James") performed a reserve
analysis on the Company's leases as of April 30, 1998. Based on the data and
parameters provided, the wells evaluated should recover approximately 191,864
barrels ("Bbls") of oil and 7,305,048 thousand cubic feet ("mcf") of natural
gas. Of this gross production, the interests appraised will recover 100,660
Bbls of oil and 3,937,985 mcf of natural gas. Of these amounts, a total of
1,399,675 mcf of has reserves were proved but undeveloped. The net reserves
should yield an undiscounted future net income of $7,874,277 after royalties,
operating costs, development costs and severance and advalorem taxes, but
before Federal and State income taxes. The present value of this future net
income is $4,157,108 when discounted 10%. The reserves presented in this
report were evaluated according to the standards recommended by the Securities
and Exchange Commission. The report assumes constant oil and gas pricing and
the use of a 10% discount factor to estimate present value of the future net
income.
Reserve 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 attribute to these leases exist or will be
economically recoverable. See the Risk Factor entitled "Uncertainty of
Reserve Estimates," herein.
It is the opinion of James Engineering that the above described
reserve and revenue estimates are in the aggregate reasonable and were
prepared in accordance with generally accepted petroleum engineering and
evaluation principles. James Engineering does not own any direct or indirect
financial interest in Miller Petroleum, Inc. and their oil and gas properties
and interest. James Engineering's fee is not contingent upon their work or
report. The total fee for preparing the reserve analysis was $14,905.99.
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.
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 James Engineering, Inc. for its
engineering study, the Company has not expended any material amount in
research and development activities during the last fiscal year. Research
done in conjunction with its exploration activities consists primarily of
conducting geological research. This work falls under the job description of
the Company's geologist and will not cost anything more than his standard
salary.
Cost and Effects of Compliance with Environmental Laws
See the caption "Effect of Existing or Probable Governmental
Regulations on Business" of this Report.
Number of Total Employees and Number of Full-Time Employees
The Company presently has 21 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 20 to 24 full-time employees, including
officers, and no part-time employees.
Risk Factors
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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 4,772,191 shares of the common stock of the Company or
approximately 72% of its outstanding voting securities. All of his shares
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 72% 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 Ronnie Griffith, its
President and Director, Deloy Miller its CEO 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.
- ---------------------------------
During the past year, the Company acquired an office and yard on 14
acres from Sharon Miller, the wife of Deloy Miller for $500,000. Said real
property was appraised for $550,000 by an independent appraiser. Currently,
an additional 1,600 square feet of office space is being added. See the
caption "Certain Relationships and Related Party Transactions," Item 13 of
this Report.
The Company also acquired over 40,000 acres of leaseholds in Bell,
Clay, Harlan, Knox and Leslie Counties in Kentucky and Campbell County,
Tennessee. Included are 23 wells producing a net 500 Mcfd and 12 BOPD, along
with over 17 miles of pipeline.
The Company owns a 100% working interest in one oil and gas lease
that totals 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's 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.
The Company owns a 25% working interest in nine producing natural gas
wells situated on 2,500 acres of leaseholds in Campbell County, Tennessee
(collectively the "Delta" leases").
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.
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
April 30, 1998 $3.25 $3.00
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, 1998, was approximately 237; 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
- -----------------
Miller is currently moving a rig onto a newly acquired Cox Lease in
Jellico. Several wells drilled to date on trend with the Jellico Mountain
member of the Big Lime in Campbell County, Tennessee have tested in excess of
1 to 2 MMCFD open flow with one well initially producing in excess of 600 MCFD
in the line. Four existing Cox and Southerland wells are scheduled to be
brought on line in August with completion of a six mile six-inch and three-
inch pipeline. Another four wells are slated to further the development of
this trend.
A five well coalbed methane, (CBM), pilot program to assess the
enormous CBM potential Miller believes exists on the South Mississippi
Electric Power Association lease "SMEPA" was recently completed. Preliminary
results are very positive with open flows up to 102 MCFD averaging 75 MCF
noted. A 4.2 mile six-inch and four-inch pipeline is currently under
construction to tie these five CBM wells and one Big Lime well into the
existing Miller system. This pipeline is scheduled for completion in
September, 1998. A CBM field operated by Equitable Energy Co. approximately
70 miles to the northeast of this field averaged over 58 MMCF per day in 1997
from 1026 wells. This is the first commercial development of CBM in Kentucky.
Plans are being finalized to drill up to 50 CBM wells a year for the next
several years.
The Company plans a test drilling program on the northern portion of
its "Koppers Lease" in Campbell County, Tennessee, to develop gas reserves
from the Devonian Shale and Big Lime formations. (It has been estimated that
the Devonian Shale in the Appalachian Basin, discovered in the early part of
this century, has produced on the order of 2 TCF of gas.) Geology has
identified a possible extention of the Jellico Mountain member of the Big Lime
formation. Gas from this lease will be transported under I75 into the new
Jellico pipeline now under construction.
Miller continues to be leader in information technology, utilizing
the latest computer graphics software from GeoGraphix, (a subsidiary of
Halliburton Services). Miller now has a proprietary database of over 100,000
wells integrated into its GeoGraphix software and continues to add to this
database as new information becomes available.
Deloy Miller, CEO, states "With a sufficient pipeline
infrastructure, a capable management team, and a three year inventory of drill
sites in place, we are poised for strong growth in production, reserves and
profits. Our progress these last two years is testament to our future."
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, 1998, the Company received
total revenues of $1,699,003, of which $995,297 was derived from oil and gas
well servicing and drilling and $703,706 was oil and gas revenue. During this
period, the Company incurred costs and expenses totaling $1,494,904 and had
income from operations of $204,099. Net income for the fiscal year ended
April 30, 1998, was $75,744, 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, 1998 and 1997
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.
- ---------------------
Charles M. Stivers, Certified Public Accountant, of Manchester,
Kentucky, was engaged on or about March 19, 1998, by the Board of
Directors of the Company to audit the financial statements of the Company for
the fiscal years ended April 30, 1998 and 1997. These financial statements
accompany this Report. Jones, Jensen & Company, the Company's former
independent auditors, was dismissed concurrently with the engagement of
Charles M. Stivers on March 19, 1998, and was notified of the dismissal on
March 25, 1998.
There were no disagreements between the Company and Jones, Jensen &
Company, 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 19, 1998, 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 President 12/96 12/97
Oneida, TN 37841 CEO 12/97 *
Ronnie Griffith Director 12/97 *
P. O. Box 5304 and President 12/97 *
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
John N. Bonar Vice President 11/97 *
50 Rivers Run Way
Oak Ridge, TN 37830
Gary G. Bible Vice President 9/97 *
232 West Seneca Circle
Oneida, TN 37841
</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 51 years of age. Mr. Miller, Chairman
and CEO, is a seasoned gas and oil professional with 30 years of experience in
the drilling and production business in the Appalachian basin. During his
years as a drilling contractor, he acquired extensive geological knowledge of
Tennessee and Kentucky and received training in the reading of well logs. A
native Tennessean, Miller is credited with being the leader in converting the
Appalachian Basin from cable tool drilling to air drilling, using the
Ingersoll-Rand T3 Drillmaster rigs. The introduction of air drilling sparked
the 1969 drilling boom and Miller soon became a successful drilling contractor
in the southern Appalachian basin. He served two terms as president of the
Tennessee Oil & Gas Association and in 1978 the organization named Miller the
Tennessee Oil Man of the Year. He continues to serve on the board of that
organization. Mr. Miller was appointed by the Governor of Tennessee to be the
petroleum industry's representative on the Tennessee Oil & Gas Board, the
state agency that regulates gas and oil operations in the state.
Ronnie Griffith was appointed President on December 29,1997, of
Miller Petroleum. Mr. Griffith is 49 years of age. Mr. Griffith founded
Griffith Well Services in 1983 to provide well services to the booming oil and
gas industry in the southern Appalachian Basin. Griffith Well Services grew to
five service rigs, surviving and prospering during the turbulent ups and downs
of the industry. In December, 1992, Griffith Well Services was merged with
AKS Energy with Mr. Griffith taking the position of Vice President,
Exploration and Development. There, he supervised the drilling and completion
of 250 oil and gas wells and the installation and operation of seven
compressor stations and 70 miles of pipeline. In addition to supervisory
duties, he lead the negotiation of acquisitions, bank financing, gas
contracts, lease agreements, and, ultimately, the sale of the company. In
1995, he was awarded the position of President, AKS Energy Co. Mr. Griffith
attended Knoxville Business College. Mr. Griffith has been active in the
Appalachian Basin for over 17 years.
Lawrence L. LaRue. Mr. LaRue is 58 years of age. Mr. LaRue joined
the Miller organization in March of 1983 as an accountant. During his fifteen
years with the Company, he has acquired an extensive knowledge of all aspects
of oil and gas accounting and tax law. Becoming Secretary/Treasurer in 1985,
his duties include the supervision of the office, all clerical functions, and
the preparation of corporate and partnership income tax returns. Mr. LaRue
obtained his BS Degree in Business Administration with honors from Tennessee
Technological University. As a Certified Public Accountant licensed to
practice in the State of Tennessee, his current civic duties include
consultation to the Morgan County, Tennessee E-911 Board.
Herbert J. White. Mr. White, age 71, is Development Engineer for
the company has 43 years of petroleum related experience. After earning his
BS degree from North Texas University, he became an engineer with Halliburton,
handling Louisiana Gulf Coast and offshore operations and serving in
Australia. In 1975 he joined Petroleum Development Corporation, a West
Virginia-based public company, supervising engineering and operations in
Southern Appalachian basin. He also has experience in Devonian Shale
production, enhanced recovery and coal degasification. Mr. White currently
serves as President of the Tennessee Oil and Gas Association, (TOGA).
Herman Gettelfinger. Mr. Gettelfinger, age 56, is member of Miller
Petroleum, Inc., Board of Directors, Herman Gettelfinger is the president and
co-owner of Kelso Oil Company, 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.
John Bonar, was appointed Vice President of Engineering, on November
1, 1997. Mr. Bonar is 42 years of age. Mr. Bonar obtained his BS Degree in
Petroleum Engineering with honors from the University of Wyoming. Prior to
graduation, he held positions with Conoco and Marathon Oil Company in Wyoming.
After graduation, he worked as a completions and production engineer in the
Gulf of Mexico for Marathon. In 1981, Mr. Bonar co-founded an oil and gas
exploration and production company in Pennsylvania and acted as Vice President
and Director until 1986. In 1991, he joined Penn Virginia Oil and Gas, Inc.,
as a drilling, completion and production engineer. Most recently, he worked
in the capacity of consulting engineer for AKS Energy Corp. He brings to the
Company 14 years experience as a Petroleum Engineer. Of this, Mr. Bonar has
spent 12 years in the Appalachian Basin in the exploration and development of
reserves and management of operations. Mr. Bonar is a Registered Professional
Engineer in Tennessee and a member of the Society of Petroleum Engineers of
AIME.
Dr. Gary Bible was appointed Vice President of Geology on September
15, 1997. Dr. Bible is 48 years of age. Dr. Bible earned his BS Degree in
Geology from Kent State University and his MSc. and PhD. Degrees in Geology
from Iowa State University. He is a proven hydrocarbon finder who drilled his
first successful wildcat as a Trainee Geologist. Formerly with Phillips
Petroleum Corporation and ALAMCO, 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. During these last nine
years, he has drilled 135 development wells, eighty-seven percent of which
were successful. He has discovered eight new oil and gas fields in Kentucky
and Tennessee. He is also credited with managing a drilling program at Alamco
that kept its finding cost the lowest in the nation.
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 $118,692 as
compensation for service as CEO and Director of the Company.
Ronnie Griffith is to be paid an annual salary of $18,962 as
compensation for service as President and Director of the Company.
Lawrence LaRue is to be paid an annual salary of $50,616 for his
service as Secretary/Treasurer of the Company.
Herbert J. White is to be paid an annual salary of $11,400 for his
services as Vice President and Director of the Company.
Gary G. Bible is to be paid an annual salary of $42,327 for his
services as Vice President of Geology.
John Bonar is to be paid an annual salary of $33,462 for his
services as Vice President of Engineering.
The following table sets forth the aggregate cash compensation
paid by the Company for services rendered during the periods indicated to its
directors and executive officers:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
ities All
Name and Year Other Rest- Under- LTIP Other
Principal Ended Salary Bonus Annual rictedlying Pay- Comp-
Position April 30 ($) ($) Compen-Stock Optionsouts ensat'n
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deloy Miller
President, 1996 120,000 0 0 0 0 0 0
Director, 1997 120,000 0 0 0 0 0 0
CEO 1998 118,692 0 0 100,000 0 0 0
Ronnie
Griffith 1996 0 0 0 0 0 0 0
President, 1997 0 0 0 0 0 0 0
Director 1998 18,962 0 0 100,000 0 0 0
Lawrence
LaRue 1996 45,000 0 0 0 0 0 0
Secretary/ 1997 45,000 0 0 0 0 0 0
Treasurer, 1998 50,616 0 0 111,591 0 0 0
Director
Herbert J. 1996 0 0 0 0 0 0 0
White, VP, 1997 (1) 0 0 0 0 0 0
Director 1998 11,400 0 0 100,000 0 0 0
Herman 1996 0 0 0 0 0 0 0
Gettelfinger 1997 0 0 0 0 0 0 0
Director 1998 0 0 1000 100,000 0 0 0
Gary G. 1996 0 0 0 0 0 0 0
Bible, VP 1997 0 0 0 0 0 0 0
1998 42,327 0 0 40,000 0 0 0
John Bonar 1996 0 0 0 0 0 0 0
VP 1997 0 0 0 0 0 0 0
1998 33,462 0 0 39,200 0 0 0
</TABLE>
(1) Mr. White was paid $100 per day for engineering services
provided to the Company in fiscal 1997.
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, 4,772,191 72%
815 South Lake Drive and CEO
Oneida, TN 37841
Lawrence L. LaRue Secretary/ 76,525 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 264,847(2) 4%
641 Atlantic Ave.
Knoxville, TN 37917
</TABLE>
All executive officers and directors
as a group (4) 5,113,563 77%
(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 4,772,191 72%
815 South Lake Drive and CEO
Oneida, TN 37841
M. E. Ratliff Stockholder 428,267 6%
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.
During the nine months ended January 31, 1998, 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 from a shareholder
for the sum of $360,000. Payment was made with a combination of
cash and the issuance of common shares in the Company, $100,000 in cash
and 144,444 shares of common stock was issued for the balance of $260,000.
The equipment was appraised at $383,000.
The Company issued a note receivable of $860,000 at eight percent
with a seven year term to Mr. Baxter Lee III, of Knoxville, Tennessee. The
note included 688,000 warrants which can exercised during the term of the
note receivable for $1.25 per share. Furthermore, the ratio of warrants to
common stock as of the date of the note receivable will be maintained.
The Company has issued notes receivable that mature in six months to
the above mentioned Mr. Baxter Lee III and Mr. Herman Gettelfinger, a
Director of this Company, for $710,000 and $525,000 respectively. The
Company is seeking to refinance said notes on a long-term basis.
However, the Company will be able to "rollover" said notes until permanent
financing is obtained.
Certain Business Relationships
Other than the transactions disclosed in the previous section, there
have been no material transactions, series of similar transactions or
currently proposed transactions, to which the Company or any of its
subsidiaries was or is to be a party, in which the amount involved exceeds
$60,000 and in which any director or executive officer or any security holder
who is known to the Company to own of record or beneficially more than 5% of
the Company's common stock, or any member of the immediate family of any of
the foregoing persons, had a material interest.
Indebtedness of Management
Other than the transactions disclosed in the previous seciton, 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 February 24, 1997
Current Report on Form 8-K-A1, filed March 19, 1998
*These documents and related exhibits have previously been filed with the
Securities and Exchange Commission and are incorporated herein by this
reference.
<TABLE>
<CAPTION>
Exhibit
Exhibits* Number
- -------- -------
<S> <C>
(i)
Subsidiaries of the Company 21
Financial Data Schedule 27
Koppers Lease Schedule **
Delta Leases Schedule **
(ii) Where Incorporated
In This Report
------------------
None.
</TABLE>
*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: 7/30/98 By/s/Deloy Miller
------------- ---------------------------
Deloy Miller, CEO 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: July 30, 1998 By/s/Deloy Miller
-------------- ---------------------------
Deloy Miller, CEO and
Director
Date: July 30, 1998 By/s/Ronnie Griffith
-------------- ---------------------------
Ronnie Griffith, President
and Director
Date: July 30, 1998 By/s/Lawrence LaRue
-------------- ---------------------------
Lawrence LaRue, Secretary/
Treasurer 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.
<PAGE>
MILLER PETROLEUM, INC.
(Formerly Triple Chip Systems, Inc.)
CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1998 and 1997
<PAGE>
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, 1998 and the related consolidated statements of operations,
stockholders equity, and cash flows for the year ended April 30, 1998. 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 audit. The consolidated financial
statements of Miller Petroleum, Inc. At April 30, 1997, were audited by the
auditors whose report dated July 18, 1997, expressed an unqualified opinion on
those statements.
We conducted our audit 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 financial position of Miller
Petroleum, Inc. and subsidiaries (formerly Triple Chip Systems, Inc.), as of
April 30, 1998 and the results of their operations and their cash flows for
the year ended April 30, 1998 in conformity with generally accepted accounting
principles.
/S/Charles M. Stivers
Charles M. Stivers
Certified Public Accountant
July 21, 1998
<TABLE>
MILLER PETROLEUM, INC.
(Formerly Triple Chip Systems, Inc.)
Consolidated Balance Sheet
<CAPTION>
ASSETS
April 30,
1998
<S> <C>
CURRENT ASSETS
Cash $ 66,709
Accounts receivable - trade, net (Note 1) 333,251
Total Current Assets 399,960
FIXED ASSETS (Note 1)
Machinery and equipment 1,445,099
Vehicles 317,765
Buildings 257,223
Office equipment 61,067
Less: accumulated depreciation (573,047)
Total Fixed Assets 1,508,107
OIL AND GAS PROPERTIES (Notes 3 and 7) 2,205,644
PIPELINE FACILITIES (Note 3) 45,457
OTHER ASSETS
Land 511,500
Investments 16,784
Inventory (Note 1) 507,271
Organization Costs 223
Total Other Assets 1,035,778
TOTAL ASSETS $ 5,194,946
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 189,734
Accrued expenses 36,997
Notes payable - current portion (Note 4) 161,772
Total Current Liabilities 388,503
LONG-TERM LIABILITIES
Notes payable - related (Notes 4 and 5) 126,796
Notes payable (Note 4) 2,489,476
Total Long-Term Liabilities 2,616,272
Total Liabilities 3,004,775
STOCKHOLDERS EQUITY
Common Stock: 500,000,000 shares
authorized at $0.0001 par value,
6,646,067 shares issued and
outstanding 666
Additional paid-in capital 1,705,080
Retained earnings 484,425
Total Stockholders Equity 2,190,171
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY $ 5,194,946
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
MILLER
PETROLEUM, INC.
(Formerly Triple Chip Systems, Inc.)
Consolidated Statements of Operations
<CAPTION>
For the Years Ended
April 30,
1998 1997
<S> <C> <C>
REVENUES
Service and drilling revenue $ 667,929 $ 763,690
Oil and gas revenue 703,706 210,986
Retail sales 53,917 156,163
Other revenue 273,451 38,431
Total Revenue 1,699,003 1,169,270
COSTS AND EXPENSES
Cost of oil and gas sales 548,104 212,772
Selling, general and administrative 436,719 429,131
Salaries and wages 313,080 346,788
Depreciation, depletion and amortization 197,001 111,588
Total Costs and Expenses 1,494,904 1,100,279
INCOME FROM OPERATIONS 204,099 68,991
OTHER INCOME (EXPENSE)
Interest income 19,802 22,699
Interest expense (148,157) (39,697)
Total Other Income (Expense) (128,355) (16,998)
INCOME TAXES (Note 1) - -
NET INCOME $ 75,744 $ 51,993
NET INCOME PER SHARE $ 0.01 $ 0.01
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 6,395,125 5,565,873
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
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, 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
Recapitalization 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
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 - - 587,018
Common stock
issued for
equipment
at $1.80 per
share 144,444 14 259,986 - - 260,000
Common stock issued
in AKS acquisition
at $2.00 per share 45,000 5 89,995 - - 90,000
Common stock issued
to pay note payable
at $1.50 per share 29,037 3 43,587 - - 43,590
Common stock issued
as bonus @ $1.10
per share 36,364 4 39,996 - - 40,000
Net
Income for the
year ended
April 30, 1998 - - - 75,744 - 75,744
Balance,
April 30,1998 6,646,067 $ 666 $1,705,080 $484,425 $ 0 $ 2,190,171
</TABLE>
The
accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
MILLER PETROLEUM, INC.
(Formerly Triple Chip Systems, Inc.)
Consolidated Statements of Cash Flows
<CAPTION>
For the Years Ended
April 30,
1998 1997
<S> <C> <C>
CASH FLOWS FROM
OPERATING
ACTIVITIES:
Net income $ 75,744 $ 51,993
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operating Activities:
Depreciation, depletion and amortization 197,001 111,588
Allowance for bad debt 22,910 35,235
Common stock issued for services 40,000 5,357
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts receivable (206,702) (53,955)
Decrease (increase) in inventory (153,108) (126,411)
Decrease (increase) in organization costs (223) 0
Increase (decrease) in accounts payable 204,163 5,063
Increase (decrease) in accrued expenses 20,034 5,111
Net Cash Provided (Used) by Operating Activities 199,819 33,981
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Land (500,000) 0
Purchase of Equipment (1,171,108) 0
Change in investments 652 (8,305)
Capital expenditures 0 (3,553)
Purchase of oil and gas properties (2,020,917) (83,435)
Purchase of pipeline (45,457) 0
Net Cash Provided (Used) by Investing
Activities (3,736,830) (95,293)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on note receivable 304,355 (304,355)
Sale of common stock 587,018 100,650
Proceeds from borrowings 2,647,816 260,763
Net Cash Provided (Used) by Financing
Activities $ 3,539,189 $ 57,058
NET INCREASE (DECREASE) IN CASH $ 2,178 $ (4,254)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 64,531 68,785
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 66,709 $ 64,531
CASH PAID FOR:
Interest $(148,157) $ 39,697
Income Taxes $ - $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services $ 40,000 $ 5,357
Common stock issued for subsidiaries $ - $ 291,334
Common stock issued for equipment $ 260,000 $ -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
MILLER
PETROLEUM, INC.
(Formerly Triple Chip Systems, Inc.)
Notes to the Consolidated Financial Statements
April 30, 1998 and 1997
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 adjustments to the carrying value of the assets or liabilities of Miller in
the exchange. The Company is the acquiring entity for legal purposes and
Miller is the surviving entity for accounting purposes. On May 6, 1996, the
shareholders of the Company authorized a reverse stock split of 1 for 200.
All references to shares of common stock have been retroactively restated.
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 revenues from proved
reserves, adjusted for the cost of certain unproved properties, are expensed
in the year in which such an excess occurs. The Company has elected an April
30 year end.
c. 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., Energy Cell, Inc., and MPC, 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, 1998 and 1997 was
$116,541 and $67,606, 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 volume of gas
actually received or delivered. These solutions are the result of certain
attributes of the natural gas commodity and the industry itself.
Consequently, the credit given to the Company by a pipeline for volumes
received from producers may be different 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 $22,910 at April
30, 1998.
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 $507,271 at April 30, 1998.
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, 1997 balances have been reclassified to conform with
the April 30, 1998 financial statement presentation.
l. New accounting pronouncements
SFAS No. 130, Reporting Comprehensive Income is effective for years
beginning after December 15, 1997. This statement establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. This pronouncement is not expected to have a material impact on the
Company's financial statements when adopted.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information is effective for years beginning after December 15, 1997. This
statement establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. This pronouncement is not
expected to have a material impact on the Company's financial statements when
adopted.
m. Income taxes
No provision for taxes has been made, due to operating loss carryovers
of approximately $102,433 which expire by 2010. The potential tax benefits of
the loss carryforwards are offset by a valuation allowance of the same amount.
NOTE 2 - BUSINESS ACQUISITION
On December 16, 1997, the Company entered into an asset purchase
agreement acquisition in which certain producing oil and gas properties,
leases, and inventory located in the Kentucky and Tennessee were acquired from
AKS Energy Corporation. The agreement, which was effective as of December 16,
1997, whereby the Company paid a total of $2,308,207 for the acquisition. The
$2,308,207 purchase price was paid as follows: $1,910,000 paid in cash, 45,000
shares of common stock issued at $2.00 per share, and assumed $308,207 of
liabilities.
NOTE 3 - OIL AND GAS PROPERTIES - PIPELINE FACILITIES
The Company uses the successful efforts method of accounting for oil
and gas producing activities. Costs to acquire mineral interests in oil and
gas properties, to drill and equip exploratory wells that find proved
reserves, and to drill and equip development wells are capitalized. Costs to
drill exploratory wells that do not find proved reserves, geological and
geophysical costs, and costs carrying and retaining unproved properties are
expensed. The Company amortizes the oil and gas properties using the
double declining balance method for 10 years. The Company capitalized
$2,093,587 of oil and gas properties for the year ended April 30, 1998
and recorded $80,008 and $43,982 of amortization expense for the years ended
April 30, 1998 and 1997, respectively.
NOTE 4 - LONG-TERM DEBT
The Company had the following debt obligations at April 30, 1998:
April
30,
1998
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 $ 20,929
Note payable to Individual unsecured at 7.00% interest 126,796
Balance Forward $ 147,725
Note payable to First National Bank of Oneida secured by 1998
Chevy Suburban bearing interest at 9.00% and requiring
monthly principal and interest payments of $789 and one
final payment of $32,498 due April 2, 1999 38,000
Note payable to Individual secured by working interest oil wells
bearing interest at 9.00% 26,169
Note payable to First National Bank of Oneida secured by
equipment bearing interest at 9.00%, with bi-yearly payments
due in September 7,500
Note payable to Toyota Motor Corporation secured by 1998 Tacoma
bearing interest at 9.75% and requiring monthly principle and
interest payments of $417 due February 12, 2003 19,161
Note payable to Lanier Worldwide secured by a copy machine
bearing interest at 9.00% and requiring principle and interest
payments of $204 per month 2,791
Note payable to Lynn Carter Leasing secured by a plotter bearing
interest at 10.00% and requiring principle and interest payments
of $124 per month 1,853
Note payable to Imperial Business Credit secured by a parts washer
bearing interest at 10.00% and requiring principle and interest
payments of $226 per month 4,508
Note payable to Individual bearing interest at 10.50% and
requiring interest payments bi-yearly 710,000
Note payable to Individual bearing interest at 8.00% and
requiring interest payments quarterly 860,000
Note payable to Individual bearing interest at 8.00% 525,000
Note payable to Individual 4,500
Line of credit payable to First National Bank of the
CumberlandS secured by equipment and inventory bearing
interest at 10.50% due on demand 141,848
Note payable to Community Trust Bank secured by real
property bearing interest at 8.50% requiring monthly
principle and interest payments of $1,389 138,936
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 10,918
Note payable to First National Bank of the Cumberlands secured
by a copier bearing interest at 10% requiring monthly principal
and interest payments of $255 504
Notes payable to individuals secured by working interest in
oil wells bearing interest at 6.00% due May and June, 1998 1,257
Notes payable to a company secured by a working interest in
oil wells bearing no interest and due in May 1998 137,374
Total notes payable 2,778,044
Less current maturities (161,772)
Notes payable - long-term $2,616,272
Maturities of long-term debt are as follows:
Year Ending April 30, Amount
1998 $ 161,772
1999 194,969
2000 16,008
2001 14,073
2002 and thereafter 2,391,222
Total $ 2,778,044
NOTE 5 - RELATED PARTY TRANSACTIONS
At April 30, 1998, there were related party accounts payable to the
Company's secretary/treasurer. The amount payable at April 30, 1998
totaled $4,500.
The Company has a note payable from Deloy Miller (majority stockholder)
for $126,796 at April 30, 1998. The note is unsecured and bears interest
at 7% per annum.
NOTE 6 - SUBSEQUENT EVENTS
In the first quarter of fiscal year end April 30, 1999, the Company
established a $10,000,000 line of credit with Bank One of Texas. The
Company since have borrowed $1,780,000 to refinance existing debt. The
loan is payable at an interest rate of 10.50% with monthly principle
and interest payments of $20,000 starting in August 1998.
NOTE 7 - 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 $2,457,285
Non-developed 31,053
2,488,338
Accumulated depreciation and depletion (282,694)
Net Capitalized Costs $ 2,205,644
(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
For the
Year Ended
April 30,
1998
Acquisition of Properties Proved and Unproved $1,721,280
Exploration Costs -
Development Costs 372,307
Total $2,093,587
(3) Results of Operations for
Producing Activities
April 30,
1998 1997
Production revenues $1,371,635 $ 974,676
Production costs 548,104 212,772
Depreciation and depletion 80,008 43,982
Results of operations for producing activities
(excluding corporate overhead
and interest costs) $ 743,523 $ 717,922
(4) Reserve Quantity Information
The following schedule 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 (Mcf). Geological and
engineering estimates of proved oil and natural gas reserves at one point in
time are highly interpretive, inherently imprecise and subject to ongoing
revisions that may be substantial in 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) (Mcf)
Proved developed reserves:
Balance, April 30, 1997 54,475 636,000
Acquisition of proved reserves 55,153 3,177,117
Revision of previous estimates 3,532 (990,000)
Production (12,500) (284,807)
Balance, April 30, 1998 100,660 2,538,310
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 1998. 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, 1998,
nor are such reserves being considered in calculating depreciation, depletion
and amortization expense for the year based on the April 30, 1998
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, 1998 and 1997. 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, 1998 and 1997, it should be emphasized that such conditions
continually change. Accordingly, such information should not serve as a basis
in making any judgement 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,
1998 1997
Future production revenues $11,007,610 $2,224,400
Less: future production costs 3,133,333 662,795
Future cash flows before
income taxes 7,874,277 1,561,605
Future income tax (benefits) 1,377,998 273,281
Future net cash flows 6,496,279 1,288,324
Effect of discounting future
annual net cash flows at 10% 3,717,169 597,694
Standardized measure of
discounted future net cash
flows $ 2,779,110 $ 690,630
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-30-1998
<PERIOD-END> APR-30-1998
<CASH> 66,709
<SECURITIES> 0
<RECEIVABLES> 333,251
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 399,960
<PP&E> 2,081,154
<DEPRECIATION> 573,047
<TOTAL-ASSETS> 5,194,946
<CURRENT-LIABILITIES> 388,503
<BONDS> 0
0
0
<COMMON> 666
<OTHER-SE> 2,189,505
<TOTAL-LIABILITY-AND-EQUITY> 5,194,946
<SALES> 53,917
<TOTAL-REVENUES> 1,699,003
<CGS> 548,104
<TOTAL-COSTS> 1,494,904
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148,147
<INCOME-PRETAX> 75,744
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,744
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
