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, 2002
[ ] 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
--- --- --- ---
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, 2002 - $3,150,280.
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.
June 28, 2002 - $1,835,630. There are approximately 3,566,919 shares of
common voting stock of the Registrant held by non-affiliates. On June 28,
2002 the average bid and asked price was $0.49.
(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:
June 28, 2002
8,578,856
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DOCUMENTS INCORPORATED BY REFERENCE
A description of "Documents Incorporated by Reference" is contained in Item 13
of this Report.
Transitional Small Business Issuer Format Yes X No
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PART I
Item 1. Description of Business.
Business Development
--------------------
The predecessor of Miller Petroleum, Inc. (the "Company") was
founded in 1967 by Deloy Miller, as a sole proprietorship. On January 22,
1978, the Company was incorporated under the laws of the State of Tennessee.
For the Company's early business development, see Form 10KSB for the fiscal
year ended April 30, 2000, which was filed with the Securities and Exchange
Commission on August 14, 2001, and subsequently amended. These filings are
available on the Commission's web site: www.sec.gov.
During the past five years, the Company concentrated on oil and gas
development, exploration and production. The Company has oil and/or gas
production in six Tennessee counties: Campbell, Fentress, Hancock, Morgan,
Overton and Scott.
Pursuant to a Purchase and Sale Agreement that we entered into with
NAMI Resources Company, LLC, a Kentucky limited liability company, on August
31, 2000, we sold to NAMI resources our interest in certain oil and gas wells,
leases covering about 40,000 acres in Kentucky, inventory and related
equipment located in Kentucky. The sale closed on September 6, 2000. NAMI
Resources Company, LLC paid the Company $2,000,000 and assumed a production
payment to Cabot Oil and Gas, Inc. of $102,237 and received our interest in
certain oil and gas wells, oil and gas leases, inventory and related equipment
plus a production receivable from Southern Gas of $123,832. The net to the
Company was $1,978,405.
We sold these assets because they were located approximately two to
three hours from our present principal operations in East Tennessee. Our
Board of Directors believed that the cost, expense and manpower involved in
managing the assets at this distance was too high and interfered with our
principal focus in East Tennessee.
We had previously sold to NAMI Resources gas that was produced from
oil and gas wells that were among these assets. NAMI Resources had no other
material relationship with us, and the NAMI Resources agreement was negotiated
at "arms length."
We used about $1,780,000 of the purchase price to pay a note that we
owed to BankOne. The remaining amount has been allocated to working capital.
Currently, the Company has more than 45,000 acres under lease in
Tennessee and continues to seek the acquisition of additional strategic
acreage. Although it engages in a minimum of contract drilling, it has kept
drilling rigs, service rigs, trucks and bulldozers to drill, service and
maintain its own wells. Miller continues to use the latest technology,
utilizing computer graphics and analytical tools for geologic exploration,
drilling and development.
The Company continues to focus on the development, drilling and
production of natural gas in eastern Tennessee. The Company is currently
developing its "Koppers South Field" (25,000 - 30,000 acres) in southern
Campbell County, Tennessee with more than sixty development locations mapped.
All officers and directors were reappointed for the fiscal year that
began May 1, 2002 and continue to serve as of June 30, 2002.
Business
--------
The Company's operations include the operation of oil and gas
wells, acquisition and development of oil and gas leases, rebuilding and sales
of oil field equipment and the organization of joint venture drilling programs
with industry partners.
The Company has acquired and operates the following properties:
(1)Koppers Lease or "ARCO/GULF Farmout".
The largest acreage block owned by the Company is in Campbell
County, Tennessee. This acreage was acquired through a farmout agreement with
ARCO/Gulf. The Company owns a 100% working interest of 27,000 acres, more or
less. This lease provides for a landowner royalty of 12.5% and an overriding
royalty interest of 7.5% with an 80% working interest. The lease is split
into two parcels. An 8,000 acre northern parcel borders the Kentucky state
line and a 19,000 acre parcel has its southern edge under the city of
Lafollette, Tennessee. Currently, there are eight producing oil wells on the
southern tract of this lease. The eight wells have produced 129,722 barrels of
oil from the Big Lime Formation through June 30, 2002. Four additional wells
have been drilled and will be completed during the coming year. This lease is
being held by production.
During the past year, Miller acquired a 4,300 plus acre lease from
the Ketchen Land Company of Anderson, South Carolina adjacent to the southern
tract of the Koppers lease. This lease has a 12.5 percent landowners royalty
with an 87.5 percent working interest.
The Company has leased and is currently leasing smaller tracts of 50
to 1,000 acres adjacent to or near the two above described leases with terms
similar to the Ketchen Land Company lease.
Miller plans a development program on the above leases that will
have 22 oil and gas wells and 40 gas only wells plus a six mile natural gas
pipeline. Completion of this program will take approximately two years.
(2) Delta Producers, Inc. joint venture.
The Company continues its joint venture with Delta Producers, Inc.
of Greenville, Mississippi ("Delta Producers"). Currently, the parties are
jointly producing twelve gas wells in the Jellico, Tennessee area northwest of
the Pine Mountain Thrust Fault. Miller Petroleum has a 25% working interest in
the above gas wells. The twelve wells are located upon several oil and gas
leases consisting of 2,000 acres more or less (collectively the "Delta
leases") Each of these leases is subject to a 12.5% landowner's royalty.
Miller Petroleum and Delta Producers have drilled four wells , the
Lindsey Land Company #9, #10, #11 and #12, on the 4,000 acre Lindsey Land
Company lease in Campbell County near Caryville, Tennessee. We have completed
two of the four wells and have scheduled the completion of the other two in
the Fall of 2002. Miller and Delta purchased and built more than three miles
of three-inch and four-inch gathering lines to carry the gas to market. They
began selling natural gas from the #9 and #12 wells in March of 2002. Initial
production from both wells was 350 MCF per day and has held steady through
June 30, 2002. This production is from the Big Lime Formation. Shut-in
pressure for the field is approximately 780 psi. Miller has a 50% working
interest in the Lindsey Land Company lease. This lease provides for a
landowner's royalty of 12.5%.
(3) Miscellaneous oil and gas leases and wells.
The Company has several small leases in Campbell, Fentress, Morgan
and Overton Counties, Tennessee totaling approximately 2,500 acres. Each of
these leases is subject to a 12.5% to 20% landowner's royalty. There are
twelve producing oil wells and fifteen producing natural gas wells on these
miscellaneous leases.
(4) Tengasco Farmout and nearby area.
The Company continues to develop the farmout it acquired from
Tengasco, Inc. in September of 1999. The farmout locations are adjacent to or
in the much-publicized Swan Creek field in Hancock County, Tennessee.
The Company has drilled four successful Knox Dolomite wells in the
Swan Creek field proper. A fifth Knox well drilled on this farmout by Miller
has resulted in a new field discovery on a separate structure from Swan Creek.
In August of 2000, Miller Petroleum, Inc. drilled its first oil well
under the Tengasco Farmout. The Dewey Sutton #1 well currently is producing
10 barrels of oil per day from the Trenton Formation. The R.D. Helton #2,
Jeff Johnson #3 and the Pierce #1 all had good shows of oil in the Stones
River Formation and are scheduled for completion.
Tengasco completed its pipeline and began buying natural gas on March
8, 2001. Miller's first sales to Tengasco were from the Worlie Purkey #1 well
in April of 2001. In May, the Worlie Purkey #3 began selling to Tengasco.
During the latter part of June, we began selling from the Jeff Johnson #1
well.
Principal Products or Services and Markets
The Company drills, produces and markets natural gas and oil.
The demand for these products continues to increase as population and industry
conversions expand. Direct statewide purchasers of oil at the well site are
by South Kentucky Purchasing Company, a refinery located in Somerset,
Kentucky.
Natural gas has multiple markets throughout the eastern United
States through gas transmission lines. Access to these markets is presently
provided by four companies in north eastern Tennessee. Delta Natural Gas
Company purchases the Company's natural gas that is produced from the "Delta
Leases". CNR (formerly 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 and Powell-Clinch Utility
District with surplus gas being placed in storage facilities or transported to
East Tennessee Natural Gas serving Tennessee and Virginia. During the past
year, CNR began purchasing gas from the Company's wells in the Jellico Field.
Reserve Analyses
Coburn Petroleum Engineering of Tulsa, Oklahoma ("Coburn") performed
a reserve analysis on the Company's leases as of April 30, 2002. Based on the
data and parameters provided, the wells evaluated should recover approximately
983,716 barrels ("Bbls") of oil and 16,903,009 thousand cubic feet ("Mcf") of
natural gas. Of this gross production, the interests appraised will recover
593,231 Bbls of oil and 9,391,325 Mcf of natural gas. Of these amounts, a
total of 8,091,878 Mcf of natural gas reserves were proved but undeveloped.
The net reserves should yield an undiscounted future net income of $38,244,028
after royalties, operating costs, development costs and severance and ad
valorem taxes, but before Federal and State income taxes. The present value
of this future net income is $22,917,379 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 Coburn 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. Coburn does not own any direct or indirect financial interest in
Miller Petroleum, Inc. and its oil and gas properties and interest. Coburn's
fee is not contingent upon its work or report.
Distribution Methods of Products or Services.
--------------------------------------------
Crude oil is contained in tanks at the well site until the
purchaser retrieves it by truck. Natural gas is delivered to the purchaser
via gathering lines into the main gas transmission line. Gas purchasers in
the area include Tengasco, Inc.; Delta Natural Gas Company, Inc.; NAMI
Resources Company, LLC; Powell-Clinch Utility District; CNR and Citizens Gas
Utility District. Crude oil is purchased by South Kentucky Purchasing Company
of Somerset, Kentucky. Management anticipates that the Company's products
will be sold to one of these companies, however, no assurance can be given
that the Company will be able to make such sales or that if it does, it will
be able to receive a price that is sufficient to make its operations
profitable.
Status of Any Publicly Announced New Product or Service
The Company does not have any publicly announced new product or
service; nor does it anticipate any in the foreseeable future.
Competitive Business Conditions, Competitive Position in the Industry and
Methods of Competition
The Company's oil and gas exploration activities in the State of
Tennessee will be undertaken in a highly competitive and speculative business.
In seeking any other suitable oil and gas properties for acquisition, the
Company will be competing with a number of other companies located in the
State of Tennessee and elsewhere, including large oil and gas companies and
other independent operators with greater financial resources.
At the local level, the Company has several competitors in the
area of its acreage blocks in the State of Tennessee, three of which may be
deemed to be significant. These are Consol Energy, Inc., CNR, Champ Oil, John
Henry Oil and 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 could increase substantially the amount
of hydrocarbons it sells in the immediate area; however, the Company's
operations will be subject to numerous risk factors and no assurance of this
can be given. See the caption "Risk Factors" of this Report.
Management does not foresee any difficulties in procuring logging,
cementing and well treatment services in the area of its operations. The
experience of management has been that, in most instances, logging equipment
will be available with less than a one-day waiting period. Cementing services
generally have the same waiting period. Well treatment services may have a
waiting period of 7 to fourteen days. However, several factors, including
increased competition in the area, may limit the availability of logging
equipment, cementing and well treatment services; such an event may have a
significant adverse impact on the profitability of the Company's operations.
The Company has 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
seven purchasers in the areas of the Company's operations are Citizens Gas
Utility District, Powell-Clinch Utility District, Delta Natural Gas, CNR, NAMI
Resources, Tengasco and South Kentucky. The loss of one or more purchasers
with whom the Company may contract may have a substantial adverse impact on
the Company's sales and on its ability to operate profitably.
Currently, we are selling natural gas to the following purchasers:
(1) Citizens Gas Utility District is purchasing natural gas from Miller's
wells in Scott County, Tennessee. Citizens is paying the Inside FERC Tn Zone
1 (Louisiana) monthly index less transportation costs. Sales to Citizens are
less than 1% of our total natural gas sales.
(2) CNR is purchasing our gas from the Jellico Field. The sales price is the
Inside FERC Tn Zone 1 (Louisiana) monthly index less $0.25. Sales to CNR at
the present time are approximately 30% of total natural gas sales.
(3) Tengasco, Inc. purchases natural gas from wells in the Swan Creek Field.
Tengasco, Inc. is paying the New York Mercantile Exchange first of the month
posting plus $0.05 less transportation charges. Sales to Tengasco are about 10
percent of total natural gas sales.
(4) Delta Natural Gas purchases the gas produced from the joint venture with
Delta Producers, Inc near Jellico, Tennessee. The sales price is Inside
FERC's Gas Market Report first of the month index for Tennessee Gas Pipeline
Co. - La. & Offshore without adjustment for BTU level less transportation
charges. Delta Natural purchases approximately 20% of total natural gas
sales.
(5) Powell-Clinch Utility District purchases the gas from the Lindsey Land
Company lease which is another joint venture with Delta Producers. The sales
price is Inside FERC Tn Zone 1 (Louisiana) monthly index less transportation
costs. About 39% of our gas sales are to the Powell-Clinch Utility District.
The Company sells all of its crude oil to South Kentucky Purchasing
Company of Somerset, Kentucky. South Kentucky's purchase price is based on
postings for the Illinois Basin.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or
Labor Contracts, including Duration
Royalty agreements relating to oil and gas production are standard
in the industry. The amount of the Company's royalty payments varies from
lease to lease. See the caption "Business," above. The amounts of the
royalties on each of the Company's leases are listed on the attached Lease
Schedules. See the Exhibit Index, Item 13 of this Report.
Need for Governmental Approval of Principal Products or Services
None of the principal products or services offered by the Company
require governmental approval; however, permits are required for drilling oil
or gas wells. See the caption "Effect of Existing or Probable Governmental
Regulations on Business," below.
Effect of Existing or Probable Governmental Regulations on Business
Exploration and production activities relating to oil and gas
leases are subject to numerous environmental laws, rules and regulations. The
federal Clean Water Act requires the Company to construct a fresh water
containment barrier between the surface of each drilling site and the
underlying water table. This involves the insertion of a seven-inch diameter
steel casing into each well, with cement on the outside of the casing. The
cost of compliance with this environmental regulation is approximately $10,000
per well.
The State of Tennessee also requires oil and gas drillers to
obtain a permit for their activities and to post with the Tennessee Gas and
Oil Board bonds to ensure that each well is reclaimed and properly plugged
when it is abandoned. The Reclamation Bonds cost $1,500 per well. Cost for
the Plugging Bonds are $2,000 per well or $10,000 for ten wells. Currently,
the Company has several of the $10,000 plugging bonds. For most of the
reclamation bonds, the Company has deposited a $1,500 Certificate of Deposit
with the Oil and Gas Board.
The Company's operations are also subject to laws and regulations
requiring removal and cleanup of environmental damages under certain
circumstances. Laws and regulations protecting the environment have generally
become more stringent in recent years, and may in certain circumstances impose
"strict liability," rendering a corporation liable for environmental damages
without regard to negligence or fault on the part of such corporation. Such
laws and regulations may expose the Company to liability for the conduct of
operations or conditions caused by others, or for acts of the Company which
were in compliance with all applicable laws at the time such acts were
performed. The modification of existing laws or regulations or the adoption
of new laws or regulations relating to environmental matters could have a
material adverse effect on the Company's operations. In addition, the
Company's existing and proposed operations could result in liability for
fires, blowouts, oil spills, discharge of hazardous materials into surface and
subsurface aquifers and other environmental damage, any one of which could
result in personal injury, loss of life, property damage or destruction or
suspension of operations.
The Company has in place an Emergency Action and Environmental
Response Policy Program. This program details the appropriate response to any
emergency that management believes to be possible in the Company's area of
operations.
The Company believes it is presently in compliance with all
applicable federal, state and local environmental laws, rules and regulations;
however, continued compliance (or failure to comply) and future legislation
may have an adverse impact on the Company's present and contemplated business
operations.
The foregoing is only a brief summary of some of the existing
environmental laws, rules and regulations to which the Company's business
operations are subject, and there are many others, the effects of which could
have an adverse impact on the Company. Future legislation in this area will
no doubt be enacted and revisions will be made in current laws. No assurance
can be given as to what effect these present and future laws, rules and
regulations will have on the Company's current future operations.
Research and Development
With the exception of the payment to Coburn Petroleum Engineering
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 19 full-time employees and 1 part-time
employee. When it commences its full-scale drilling program as discussed
under the heading "Management's Discussion and Analysis or Plan of Operation,"
the Company plans to have up to 24 full-time employees, including officers,
and 1 part-time employee.
Risk Factors
-------------
Our present and intended business operations are highly speculative and
involve substantial risks. Only investors who can bear the risk of losing
their entire investment should consider buying our shares. You should
consider and be aware of the following risks:
General Risks Related To Our Business.
--------------------------------------
It will be harder for us to develop oil and gas reserves if we do not
raise additional money.
-----------------------
We will require about $2,000,000 in additional funding to realize our
future goals of conducting the oil and gas exploration operations on
properties under lease and acquiring additional oil and gas properties for
development. We will need to continue to raise funding through equity or debt
financing, which may be very difficult for our highly speculative enterprise.
We can not assure you that any additional funding will be available to us, or
if it is available, that the terms of the funding will be satisfactory to us.
If we fail in these efforts, our business may also fail.
Our business may fail if we do not succeed in our efforts to develop and
replace oil and gas reserves.
-----------------------------
Management believes that our future success will depend upon our ability
to find, acquire and develop additional economically recoverable oil and gas
reserves. Our proved reserves will generally decline as they are produced,
except to the extent that we conduct revitalization activities, or acquire
properties containing proved reserves, or both. To increase reserves and
production, we must continue our development drilling and re-completion
programs, identify and produce previously overlooked or bypassed zones in
shut-in wells, acquire additional properties or undertake other replacement
activities. Our current strategy is to increase our reserve base, production
and cash flow through the development of our existing oil and gas fields and
selective acquisitions of other promising properties where we can use new,
existing technology. Despite our efforts, our planned revitalization,
development and acquisition activities may not result in significant
additional reserves, and we may not be able to discover and produce reserves
at economical exploration and development costs.
Our revenues may be less than expected if our oil and gas reserve
estimates are inaccurate.
-------------------------
Oil and gas reserve estimates and the present values attributed to these
estimates are based on many engineering, geological characteristics and
operational assumptions that generally are derived from limited data. Common
assumptions include such matters as the anticipated future production from
existing and future wells, future development and production costs and the
ultimate hydrocarbon recovery percentage. As a result, oil and gas reserve
estimates and present value estimates are frequently revised to reflect
production data obtained after the date of the original estimate. If reserve
estimates are inaccurate, production rates may decline more rapidly than
anticipated, and future production revenues may be less than estimated. In
addition, significant downward revisions of reserve estimates may hinder our
ability to borrow funds in the future, or may hinder other financing
arrangements that we may consider.
In addition, any estimates of future net revenues and their present
value are based on period ending prices and on cost assumptions that only
represent our best estimate. If these estimates of quantities, prices and
costs prove inaccurate and we are unsuccessful in expanding our oil and gas
reserves base, or if oil and gas prices decline or become unstable, we may
have to write down the capitalized costs associated with our oil and gas
assets. We will also largely rely on reserve estimates when we acquire
producing properties. If we overestimate the potential oil and gas reserves
of a property to be acquired, or if our subsequent operations on the property
are not successful, the acquisition of the property could result in
substantial losses.
Our future success will depend on the price of oil and gas.
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Our revenues come from the sale of oil and gas. If oil and gas prices go
below our costs and expenses of operating our company, we will lose money.
Sustained financial losses would probably force us to cease operations.
Oil and gas operations involve many physical hazards.
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Natural hazards, such as excessive underground pressures, may cause
costly and dangerous blowouts or make further operations on a particular well
financially or physically impractical. Similarly, the testing and re-
completion of oil and gas wells involves a high degree of risk arising from
operational failures, such as blowouts, fires, pollution, collapsed casing,
loss of equipment and numerous other mechanical and technical problems. Any
of these hazards may result in substantial losses to us or liabilities to
third parties. These could include claims for bodily injuries, reservoir
damage, loss of reserves, environmental damage and other damages to people or
property. Any successful claim against us would probably require us to spend
large amounts on legal fees and any successful claim may make us liable for
substantial damages.
Our dependence on outside equipment and service providers may hurt our
profitability.
--------------
We need to obtain logging equipment and cementing and well treatment
services in the area of our operations. Several factors, including increased
competition in the area, may limit their availability. Longer waits and
higher prices for equipment and services may reduce our profitability.
You will not be able to elect our directors or officers.
--------------------------------------------------------
Deloy Miller, our President and CEO, currently owns about 51% of our
outstanding common stock. He can effectively elect all of our directors, who
in turn elect all of our executive officers, without regard to the votes of
other stockholders. If the warrant holders exercise all of the outstanding
warrants and retain voting control of the shares underlying these warrants,
Mr. Miller would own about 37% of the then-outstanding shares. Although he
would not have absolute voting control, he would still be in a position to
exert substantial influence on the election of all directors, who in turn
elect all of the officers. You will have little or no ability to influence
the direction of Miller Petroleum.
The intense competition in our industry will make it harder for us to
succeed.
--------
Our oil and gas exploration activities are centered in a highly
competitive industry. We will be competing in every facet of our intended
business with other companies that may include multinational oil and gas
companies and other large independent operators with much greater financial
resources than we have. Management does not believe that our competitive
position in the oil and gas industry will be significant.
If we lose the services of Deloy Miller or Lawrence L. LaRue, our
operations may suffer.
----------------------
We are substantially dependent upon the continued services of Deloy
Miller, our President, CEO and a director, and Lawrence L. LaRue, our
Secretary/Treasurer and a director. Messrs. Miller and LaRue have been with
us since our inception. The relationships that these persons have formed in
our industry and in the local area where our principal operations are
conducted are invaluable, and could be lost to us without their services.
Messrs. Miller and LaRue are in good health; however, their retirement,
disability or death would seriously hurt our business operations. If their
services become unavailable, we will have to retain other qualified personnel.
We may not be able to recruit and hire other qualified people on acceptable
terms. We do not have employment contracts with Mr. Miller or Mr. LaRue.
Similarly, the oil and gas exploration industry requires the use
of personnel with substantial technical expertise. If our current technical
personnel become unavailable, we will need to hire qualified personnel to take
their place. If we are not able to recruit and hire new people on mutually
acceptable terms, our operations will suffer.
Compliance with governmental regulations can be costly and can limit our
planned operations.
-------------------
We face many state and federal laws, rules and regulations covering the
safety of our operations, environmental conditions and other facets of our
business. These laws, rules and regulations can be expensive and may
seriously limit our ability to conduct our intended business operations. See
the heading "Effect of Existing or Probable Governmental Regulations on
Business" under the caption "Description of Business."
Risks Related To Our Common Stock.
----------------------------------
The sale of already outstanding shares of our common stock could hurt our
common stock market price.
--------------------------
All of our outstanding common stock is eligible for public sale under
Rule 144 of the Securities Act of 1933. On January 17, 2001, the Company
filed Form SB2 with the Securities and Exchange Commission, (subsequently
amended on June 19, 2001) to register 2,761,152 previously issued common
shares and shares underlying warrants. The selling stockholders may sale the
shares of common stock being registered for resale under our prospectus. Any
of these sales could significantly decrease the market price of our common
stock. These sales could also severely limit our ability to obtain the
necessary debt or equity funding for our current and intended business
operations.
The limited trading volume in our common stock, and general market
volatility, may depress our stock price.
----------------------------------------
The public market and trading volume for our common stock are limited and
volatile. Where the volume is limited, any unusual increase in the volume is
likely to decrease the market price of our common stock. The common stock
that we are registering and that the selling stockholders will offer and sell
under our prospectus will greatly increase the number of shares available for
public trading. This alone could significantly decrease the current market
price for our common stock.
In addition, the stock markets have had extreme price and volume
fluctuations. These broad market fluctuations, as well as general economic and
political conditions, may also reduce the market price of our common stock.
Indemnification of Directors, Officers, Employees and Agents.
Section 48-18-502 of the Tennessee Business Corporation Act allows a
corporation to indemnify any director in any civil or criminal proceeding
(other than a proceeding by or in the right of the corporation in which the
director was adjudged liable to the corporation or any other proceeding in
which he or she was adjudged liable on the basis that he or she improperly
received a personal benefit) by reason of service as a director if the person
to be indemnified conducted himself or herself in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct was unlawful. Section 48-18-507
extends certain indemnification rights to officers, employees and agents of a
corporation as well. The foregoing is only a brief summary of the right of
indemnification allowed a corporation under the Tennessee Business Corporation
Act, and is modified in its entirety by this reference. The Board of
Directors of the Company has adopted these provisions to indemnify its
directors, executive officers and agents.
Item 2. Description of Property.
---------------------------------
The Company owns an office and yard on 14 acres situated in
Huntsville, Tennessee. An additional 1,600 square feet of office space was
added during 1998.
For a description of the Company's oil and gas leases, see the section
captioned "Business".
Item 3. Legal Proceedings.
---------------------------
On or about January 20, 2000, the Company filed a complaint against
Blue Ridge Group, Inc. in the Chancery Court of Hawkins County at Rogersville,
Tennessee, Case No. 13951, asserting that Blue Ridge had breached a Footage
Drilling Contract with the Company. Miller asserted that Blue Ridge had
breached the said contract by quitting the job without drilling to the
required depth, failing to drill a straight hole, and by damaging the well
bore by failing to conduct its operations in a good and workmanlike manner in
accordance with good industry practice. The Company has asked that it be
awarded its initial payment of $37,000.00 to Blue Ridge, damages occasioned by
the improper deviation of the hole from the vertical plane; damages for the
cost of re-drilling and/or re-working the hole, damages allowed by the parties
contract, further and equitable relief to which it may be entitled, and to
assess the costs of this cause, including Miller's discretionary costs, to
Blue Ridge. On May 10, 2002, the Chancery Court of Hawkins County ruled in
favor of Miller Petroleum, Inc. and awarded damages of $97,716.21 plus
interest. Subsequently, Blue Ridge Group appealed the decision to the
Tennessee Supreme Court.
The Blue Ridge action is pending and the Company believes that its
contract with the plaintiff was breached. However, a decision for the
defendant would not have a material effect on the Company.
On or about April 12, 2002, the Company filed a complaint against
Nami Resources Company, LLC in the Circuit Court for Scott County at
Huntsville, Tennessee asserting that Nami had failed to pay for natural gas
received and $16,456.12 is justly due and owing to Miller. On or about May 14,
2002, Nami Resources Company, LLC filed a complaint against Miller Petroleum,
Inc. in the United States District Court, Eastern District of Kentucky, London
Division, Civil Action No. 02-255-DCR asserting that Miller had breached a
contract for the sale and transportation of natural gas asking for relief in
the amount of $400,000 plus court costs and attorney fees.
The Nami action is pending and the Company believes that it is
justly owed $16,456.12 and does not believe that a contract existed to be
breached. However, a decision for Nami would not have a material effect on
Miller.
Item 4. Submission of Matters to a Vote of Security Holders.
-------------------------------------------------------------
On July 24, 2002, a majority of the Company's security holders
voted to retain the present directors for another year and to retain the
present auditor, Charles M. Stivers CPA of Manchester, Kentucky.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information
------------------
The Company's common stock is traded on the OTC Bulletin Board of
the National Association of Securities Dealers, Inc. ("NASD"); however, the
market for shares of the Company's common stock is extremely limited. No
assurance can be given that the present market for the Company's common stock
will continue or will be maintained, and the sale of the Company's
unregistered" and "restricted" common stock pursuant to Rule 144 as outlined
under the caption "Recent Sales of Unregistered Securities" of this Report may
have a substantial adverse impact on any such public market. See the Risk
Factor entitled "Future Sales of Common Stock," herein.
The Company's common stock is quoted on the OTC Bulletin Board. The
high and low bid prices for these shares of common stock of the Company during
the past three years are as follows:
Bid
Quarter ending: High Low
July 31, 1998 $3.25 $2.4375
October 31, 1998 $2.50 $1.50
January 31, 1999 $2.00 $1.03125
April 30, 1999 $2.00 $1.50
July 31, 1999 $2.00 $1.375
October 31, 1999 $1.4375 $0.875
January 31, 2000 $1.125 $0.75
April 30, 2000 $2.125 $0.625
July 31, 2000 $1.01 $0.625
October 31, 2000 $1.6875 $0.625
January 31, 2001 $1.8125 $0.8125
April 30, 2001 $2.25 $1.375
July 31, 2001 $ 1.75
$0.90
October 31, 2001 $ 1.05 $0.65
January 31, 2002 $ 1.01 $0.75
April 30, 2002 $ 0.75 $0.38
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
March 31, 2002, was 286; this number does not include an indeterminate number
of stockholders whose shares are held by brokers in street name.
Dividends
---------
There are no present material restrictions that limit the ability of
the Company to pay dividends on common stock or that are likely to do so in
the future. The Company has not paid any dividends with respect to its common
stock, and does not intend to pay dividends in the foreseeable future.
Recent Sales of Unregistered Securities.
----------------------------------------
We have sold the following "restricted securities" since April 2,
1998:
Common Stock.
-------------
Aggregate
Name or Group Number of Shares Date Consideration
------------- ---------------- ---- -------------
Herman Gettelfinger 36,364 4/2/98 Bonus for services
valued at $1.10 per
share
Herman Gettelfinger 29,037 4/2/98 Payoff of $43,555
note payable
W. Baxter Lee, III 100,000 8/4/98 $218,750
James D. Lackie 50,000 8/4/98 $109,375
Profit Sharing Plan
Five accredited 60,500 10/19/98 $121,000
investors
Target Market 10,000 12/4/98 Services valued at
Development, Inc. $1.80 per share
Don R. Miller 10,000 12/14/98 Services valued at
$1.80 per share
20 employees 2,000 12/14/98 Services valued at
$1.80 per share
Six accredited 28,556 12/18/98 $ 51,400.80
investors
Five employees 14,433 1/29/99 Services valued at
$1.80 per share
M. E. Ratliff 25,000 6/11/99 $ 25,000
Charles E. Quin, Sr. 3,135 7/29/99 $ 5,000
M. E. Ratliff 150,000 9/14/99 $150,000
Charles Barker 1,000 9/14/99 Services valued at
$1.00 per share
Lawrence LaRue 10,000 2/16/00 Services valued at
$1.00 per share
Jeff Brockman 3,000 7/18/00 Services valued at
$1.00 per share
Lori Ann Nunn 2,500 7/18/00 Services valued at
$1.00 per share
Raymond D. Cohn 50,000 7/18/00 $ 45,000
13 investors 475,000 11/10/00 $475,000
Richard Belz 25,000 12/18/00 $ 25,000
Raymond D. Cohn 50,000 12/18/00 $ 50,000
Three accredited 525,000 12/18/00 $525,000
investors
17 employees 3,400 12/21/00 Services valued at
$1.00 per share
Terry Goff 23,000 3/7/01 One Energy Industries
compressor package
Joe Armstrong 10,000 5/21/01 $10,000
M. E. Ratliff 100,000 6/22/01 $100,000
Tengasco, Inc. 150,000 10/16/01 Two Compressors
(1) Issued on various dates during our fiscal year ended April 30, 1998.
(2) The Company issued warrants to purchase up to 903,084 shares of
common stock, as partial consideration for a loan in the amount of
$860,000. See the caption "Certain Relationships and Related
Transactions."
(3) Issued on various dates during our fiscal year ended April 30, 1999.
(4) Our Board of Director's consent accepting subscriptions was signed
December 12, 2000, but the Subscription Agreements were signed over a
period of three months.
We issued all of these securities to persons who were either
"accredited investors," or "sophisticated investors" who, by reason of
relationship to us, education, business acumen, experience or other factors,
were fully capable of evaluating the risks and merits of an investment in our
company; and each had prior access to all material information about us. We
believe that the offer and sale of these securities was exempt from the
registration requirements of the Securities Act of 1933, pursuant to Sections
4(2) and 4(6) thereof, and Regulation D thereof and from various similar state
exemptions.
We have taken the following factors into account in determining the
valuations of these shares: (i) the fact that the shares are "restricted";
(ii) the limited market for our common stock on the OTC Bulletin Board of the
NASD; (iii) the low book value per share ($0.3475 at April 30, 2001); and
(iv) our history of financial losses ($936,193 and $483,295 during the fiscal
years ended April 30, 1999, and 2000, respectively).
Warrants.
---------
Wm. Baxter Lee III 903,084 12/16/96 (1)
Herman Gettelfinger 50,495 12/2/98 (2)
Raymond Cohn 12,500 8/10/00 (3)
Daniel Page 1,000,000 10/11/00 (4)
Basic Investors, Inc. 100,000 12/08/00 (5)
Lawrence L. LaRue 12,500 12/15/00 (6)
Teresa Cotton 5,000 12/15/00 (6)
Gary Bible 6,000 1/09/01 (6)
(1) These warrants were granted to Mr. Lee as partial consideration for
a subordinated loan of $860,000. These warrants are exercisable at a price of
$1.25 per share, and expire on December 12, 2004. The number of shares that
can be purchased is variable due to a provision in the Warrant Agreement that
allows Mr. Lee to purchase up to 10.53 percent of the shares of common stock
outstanding.
(2) These warrants were granted to Mr. Gettelfinger as partial
consideration for a subordinated loan of $50,000. These warrants are
exercisable at a price of $1.25 per share, and expire on December 2, 2005.
The number of shares that can be purchased is variable due to a provision in
the Warrant Agreement that allows Mr. Gettelfinger to purchase up to 0.47
percent of the shares of common stock outstanding.
(3) These warrants were granted to Mr. Cohn as partial consideration for
his purchase of 50,000 "unregistered" and "restricted" shares of our common
stock, as discussed under the heading "Common Stock," above. These warrants
are exercisable at a price of $1.00 per share, and expire on July 17, 2003.
During the third year of the warrants, Miller Petroleum may call them at a
price of $0.001 per warrant at any time that its common stock has traded at
$2.00 for 30 consecutive days, with volume of not less than 5,000 shares per
day.
(4) Granted to Mr. Page for his service as an investor relations
consultant. The warrants are exercisable for a period of two years,
commencing August 3, 2000. The first 250,000 warrants are exercisable at a
price of $1.00 per share; the next 250,000 warrants are exercisable at $1.50
per share; and the two remaining 250,000 share tranches are exercisable for
$2.00 per share and $2.50 per share, respectively. The warrants may be
exercised in lots of 25,000 or more.
(5) Granted to Basic Investors for its service as a business consultant
from December 8, 2000, until February 1, 2001. The warrants are exercisable
for a period of three years, commencing December 8, 2000, at a price of $2.00
per share and may be called if Miller Petroleum's common stock trades at 150%
of the exercise price for five consecutive days.
(6) Granted as bonuses to: Mr. LaRue, the Secretary/Treasurer and a
director; Ms Cotton, an employee; and Mr. Bible, a Vice President. Each of
these warrants is exercisable at a price of $1.00 per share. Mr. LaRue's and
Ms. Cotton's warrants expire on December 15,2003, and Mr. Bible's warrants
expire January 9, 2004. During the third year of the warrants, Miller
Petroleum may call them at a price of $0.001 per warrant at any time that its
common stock has traded at $2.00 for 30 consecutive days, with volume of not
less than 5,000 shares per day.
We issued all of these securities to persons who were either
"accredited investors," or "sophisticated investors" who, by reason of
relationship to us, education, business acumen, experience or other factors,
were fully capable of evaluating the risks and merits of an investment in our
company; and each had prior access to all material information about us. We
believe that the offer and sale of these securities was exempt from the
registration requirements of the Securities Act of 1933, pursuant to Sections
4(2) and 4(6) thereof, and Regulation D of the Securities Exchange Act of 1934
and from various similar state exemptions.
Options.
---------
Roy Greenwood 50,000 01/29/97 (1)
Lawrence LaRue 100,000 01/29/97 (1)
Ronnie Lewis 40,000 01/29/97 (1)
Deloy Miller 100,000 01/29/97 (1)
Teresa Cotton 20,000 01/29/97 (1)
Herbert J. White 100,000 01/29/97 (1)
Gary Bible 40,000 09/15/97 (2)
Lawrence LaRue 20,177 07/30/97 (3)
Melvin Myers 2,000 02/06/98 (4)
Steve Letner 2,000 02/06/98 (4)
Roger Butler 30,000 09/24/01 (5)
Gary Bible 40,000 09/24/01 (5)
Teresa Cotton 10,000 09/24/01 (5)
Melvin Myers 40,000 09/24/01 (5)
Steve Letner 20,000 09/24/01 (5)
Lawrence LaRue 100,000 09/24/01 (5)
Ernest F. Payne 75,000 09/24/01 (5)
David Wright 25,000 01/21/02 (6)
Teresa Cotton 15,000 03/20/02 (7)
Ernest F. Payne 50,000 03/20/02 (7)
Lawrence LaRue 50,000 03/20/02 (7)
(1) These options were granted pursuant to an Incentive Stock Option Plan
for employees and directors with an effective date of January 29, 1997. These
options are exercisable at a price of $0.575 per share, and expire on January
29, 2002.
(2) These options were granted to Dr. Gary G. Bible pursuant to an
Employee Stock Option dated September 15, 1997. These options are exercisable
at a price of $1.75 per share, and expire on September 15, 2005.
(3) These options were granted to Lawrence L. LaRue pursuant to an
Employee Stock Option dated July 30, 1997. These options are exercisable at a
price of $1.50 per share, and expire on July 30, 2005.
(4) These options were granted to three employees pursuant to an Employee
Stock Option dated February 6, 1998. These options are exercisable at a price
of $1.00 per share, and expire on February 6, 2006.
(5) These options were granted to seven employees pursuant to an Employee
Stock Option dated September 24, 2001. These options are exercisable at a
price of $0.805 per share, and expire on September 24, 2009.
(6) These options were granted to David Wright pursuant to an Employee
Stock Option dated 01/21/02. These Options are exercisable at a price of
$0.8625, and expire on January 21, 2010.
(7) These options were granted to three employees pursuant to an Employee
Stock Option dated March 20, 2002. These options are exercisable at a price
of $0.46, and expire on March 20, 2010.
Item 6. Management's Discussion and Analysis or Plan of Operation.
-------------------------------------------------------------------
Miller Petroleum has more than 45,000 acres held by production in
Tennessee. This acreage is made up primarily of development drilling
locations. It produces both gas and oil, mainly from the Mississippian age Big
Lime Formation. The existing properties contain a minimum three-year
inventory of conventional drilling locations.
During the past year, the Company drilled six successful oil wells on
its Koppers South Tract in Campbell County, Tennessee. Two of the wells have
been completed and are producing oil. Four of the wells are scheduled for
completion later this year. As of June 30, Miller has eight producing oil
wells which have total production of 129,722 barrels of oil.
Miller's current development drilling program is to drill 22 oil and gas
wells and 40 gas only wells on its Koppers South Tract and build a six mile
gathering system to a local pipeline. Plans call for completion of the program
in approximately two years. Miller along with an industry partner will invest
more than nine million dollars in the project which has a predicted internal
rate of return of above thirty percent.
All 45,000 Tennessee acres are presently being evaluated for their CBM
potential. A well drilled in June of 2001 by the company encountered numerous
coal seams below 750 feet depth on a 4,000-acre lease that the company has
recently acquired. These coal seams reach a maximum thickness of six feet and
are presently being evaluated for their CBM potential. In addition, this well
has made a conventional Big Lime gas discovery, and three additional locations
have been drilled. Two of the wells have been completed and began selling gas
in March of 2002. In the fall of 2002, the remaining two wells are scheduled
for completion.
Miller Petroleum's exploration effort is being concentrated in the
East Tennessee portion of the Eastern Overthrust Belt. Management has
selected two large structures and is actively leasing acreage on both of them.
Knox Dolomite wells in the overthrust have reserves in excess of two Bcf gas
per well.
Results of Operations
---------------------
In fiscal 2002, Miller Petroleum increased its capitalized costs of oil
and gas properties from $1,050,687 to $2,152,460. Its development costs for
oil and gas properties increased from $595,351 to $1,161,442.
Proved reserves of oil increased from 379,337 barrels to 593,231 and
proved reserves of natural gas decreased from 11,765,303 Mcf to 9,391,325 Mcf.
Proved developed producing reserves of oil increased to 85,987 barrels from
71,334 barrels and proved developed producing reserves of natural gas
increased to 967,403 Mcf from 231,372 Mcf.
During fiscal 2001, future cash flows discounted 10% after income taxes
from proved reserves decreased from $28,493,674 to $15,812,991. This was due
to the decline in oil and gas prices during the year and changes in future
development costs primarily.
Our oil and gas revenue was $457,430 for fiscal 2002, down from $628,344
for fiscal 2000. Volatile changes in the price of natural gas brought about
this decline.
During fiscal 2002, service and drilling revenue was $2,422,709, up from
$2,274,364 essentially the same as fiscal 2001.
Retail sales increased from $91,848 in fiscal 2001, to $270,141 in fiscal
2001. During the year, Miller initiated a plan that would increase retail
sales.
During fiscal 2002, other revenue decreased to zero, down from $160,274
in fiscal 2001. During fiscal 2001, Miller Petroleum sold the last of its
excess operating equipment.
Gross revenue for fiscal 2002 was $3,150,280, compared to $3,154,830 in
fiscal 2001. Miller made up the decrease in oil and gas prices with other
revenue with increases in retail sales and service and drilling revenue.
Cost of sales increased from $1,107,662 in fiscal 2001 to $1,488,936 for
fiscal 2002. Primarily, the reason for the increase was increased maintenance
costs and price increases from our subcontractors.
Selling, general and administrative expenses were $873,974, up from
$570,006 in fiscal 2001. These increases were due to writeoffs of accounts
receivable.
Salaries and wages increased from $661,861 to $784,448 for fiscal 2002.
This increase was due primarily to employee raises and the significant amount
of time needed to maintain our equipment. .
Depreciation, depletion and amortization decreased from $327,182 to
$273,653. Depletion of oil and gas properties was the major component of this
decrease.
Loss from operations for fiscal 2002 was $270,731, down from income of
$488,119 in fiscal 2001 because of the above stated reasons.
Interest expense decreased from $235,900 in fiscal 2001 to $167,359 in
the current year. The primary reason for the decrease was the payoff of our
loan from Bank One and a decline generally in interest rates.
Net loss was $507,757, down from a net income of $254,402 in fiscal 2001.
The direct reason for the decrease was increased cost of third party
contractors and greater costs to maintain our equipment.
During fiscal 2001, Miller Petroleum produced 71,201 million British
Thermal Units of natural gas, with an average price of $3.79 per million
BTU's. Production increased to 79,983 million BTU's in fiscal 2002, but the
average price per million BTU's was $2.55. The following tables reflect our
production figures for the fiscal years ended
April 30, 2000, 2001 and 2002:
AVERAGE NET AVERAGE
FISCAL YEAR NETMBTU/GAS SALES PRICE BARRELS/OIL PRICE OIL
----------- ----------- ----------- ----------- ----------
2000 226,372 $2.39/MMBTU 9,203 $20.27
2001 71,201 $3.79/MMBTU 12,342 $25.96
2002 79,983 $2.55/MMBTU 11,667 $20.08
Average production cost per barrel of oil for 2000 was $4.75, $4.60 for
2001, and $4.80 for 2002. The average production cost per MCF was $0.60 for
2000, $0.65 for 2001 and $0.67 for 2002
2000 2001 2002
---- ---- ----
Net Productive Wells 29.66 34.10 39.40
Developed Acreage 1,476 1,876 1,989
Undeveloped Acreage 82,600 44,124 46,524
Net Productive Exploratory Wells 0.8125 0 0
Net Dry Exploratory Wells 0.5 0.4375 0.48
Net Productive developmental Wells 0.5 4.4375 5.28625
Net Dry Developmental Wells 0 0 0
During fiscal 2002, we drilled 13 wells, with net productive development
wells of 5.28625 and net dry exploratory wells of 0.48. Seven of the
wells were on our Koppers South, four of the wells were on the Lindsey Land
Co. tract; and two wells were in the Swan Creek Field.
Liquidity.
----------
During the fiscal years ended April 30, 2001, and 2002, our principal
sources of liquidity were revenue from the production of oil and gas and the
sale of approximately 50% of the working interests in the wells we drill.
Private placements of our common stock have been our principal external
sources of liquidity.
We also borrow funds to finance equipment purchases. On September 7,
2001, we executed two promissory notes, each for $250,000. The notes are in
favor of Sherri Ann Parker Lee and William Parker Lee, respectively. The
notes are due August 31, 2003, and bear interest at the rate of 10% during the
first year and 7% during the second year. Interest only is paid quarterly,
beginning November 31, 2001 with the entire principal becoming due August 31,
2003. Any amounts not paid when due will bear interest after maturity at the
lesser of 20% per annum or the maximum rate allowable under applicable law.
The notes are secured by five gas wells in the Swan Creek field.
We estimate that we will be able to adequately fund our development and
production plans, with the exception of the acquisition of additional
properties, for the next 12 months. Sources of funds for us will be revenue
from operations, in particular sales of working interests in wells that we
drill; receipts from the private placement of our securities; and loans.
Cash and cash equivalents at April 30, 2001, increased by $184,994 from
April 30, 2000, due primarily to the sale of 1,146,600 shares of common stock,
increases in the price for crude oil and natural gas and the increase
in our drilling activity.
We believe that our current cash flow will be sufficient to support our
cash requirements of about $3,000,000 for development and production over the
next 12 months.
Item 7. Financial Statements.
------------------------------
MILLER PETROLEUM, INC.
CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2002 and 2001
CONTENTS
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-8
Notes to the Consolidated Financial Statements F-10-23
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Miller Petroleum, Inc.
Huntsville, Tennessee
We have audited the accompanying consolidated balance sheets of Miller
Petroleum, Inc. and subsidiaries as of April 30, 2002 and 2001 the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Miller
Petroleum, Inc. and subsidiaries as of April 30, 2002 and 2001, and the
results of their operations and their cash flows for the years then
ended. In conformity with generally accepted accounting principles.
Charles M. Stivers
Certified Public Accountant
Manchester, Kentucky
July 24, 2002
MILLER PETROLEUM, INC.
Consolidated Balance Sheet
ASSETS
April 30 April 30
2002 2001
CURRENT ASSETS
Cash $ 76,394 $ 224,550
Investments 78,328 0
Accounts receivable 311,253 1,143,300
Inventory (Note 1) 567,287 439,113
Prepaid expenses 30,312 74,011
Total Current Assets 1,063,574 1,880,974
FIXED ASSETS (Note 1)
Machinery and equipment 1,361,117 1,249,511
Vehicles 453,138 438,851
Buildings 313,335 313,335
Office equipment 80,560 87,172
Less:
accumulated depreciation (840,768) (881,690)
Total Fixed Assets 1,367,382 1,207,179
OIL AND GAS PROPERTIES
(Notes 2 and 8) 2,152,460 1,050,687
(On the basis of successful
effort's accounting)
PIPELINE FACILITIES (Note 2) 280,390 336,635
OTHER ASSETS
Land 511,500 511,500
Investments 500 500
Organization Costs 0 119
Total Other Assets 512,000 512,119
TOTAL ASSETS $ 5,375,806 $ 4,987,594
The accompanying notes are an integral part of these consolidated
financial statements.
MILLER PETROLEUM, INC.
Consolidated Balance Sheet
LIABILITIES AND STOCKHOLDERS' EQUITY
April 30 April 30
2002 2001
CURRENT LIABILITIES
Accounts payable - trade $ 386,631 $ 134,275
Accrued expenses 76,853 91,910
Notes payable -
current portion (Note 4) 501,633 577,270
Total Current Liabilities 965,117 803,455
LONG-TERM LIABILITIES
Notes payable -
related (Notes 4 and 5) 1,326 89,968
Notes payable (Note 4) 1,712,779 1,207,530
Total Long-Term Liabilities 1,714,105 1,297,498
Total Liabilities 2,679,222 2,100,953
STOCKHOLDER'S EQUITY
Common Stock: 500,000,000
shares authorized at
$0.0001 par value,
8,578,856 and 8,218,656
shares issued and outstanding 858 822
Additional paid-in capital 3,884,144 3,566,480
Retained earnings (1,188,418) (680,661)
Total Stockholder's Equity 2,696,584 2,886,641
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 5,375,806 $ 4,987,594
The accompanying notes are an integral part of these consolidated
financial statements.
MILLER PETROLEUM, INC.
Consolidated Statements of Operations
For the Years Ended
April 30,
2002 2001
REVENUES
Oil and gas revenue $ 457,430 $ 628,344
Service and
drilling revenue 2,422,709 2,274,364
Retail sales 270,141 91,848
Other revenue 0 160,274
Total Revenue 3,150,280 3,154,830
COSTS AND EXPENSES
Cost of oil and gas sales 1,488,936 1,107,662
Selling, general
and administrative 873,974 570,006
Salaries and wages 784,448 661,861
Depreciation, depletion
and amortization 273,653 327,182
Total Costs and Expenses 3,421,011 2,666,711
INCOME (LOSS)
FROM OPERATIONS (270,731) 488,119
OTHER INCOME (EXPENSE)
Interest income 2,005 2,183
Interest expense (167,359) (235,900)
Unrealized stock loss (71,672) 0
Total Other Income
(Expense) (237,026) (233,717)
INCOME TAXES (Note 1) - -
NET INCOME (Loss) $ (507,757) $ 254,402
NET INCOME (Loss) PER
SHARE $ (0.06) $ 0.03
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 8,448,856 7,566,248
The accompanying notes are an integral part of these consolidated
financial statements.
MILLER PETROLEUM, INC.
Consolidated Statement of Stockholders' Equity
Additional
Common Shares Paid-in
Shares Amount Capital
Balance
April 30, 2000 7,110,691 $ 711 $ 2,462,138
Common stock
issued for cash at
at $1.00 per share 1,077,600 108 1,077,492
Common stock
issued for cash
at $.90 per share 50,000 5 44,995
Common stock
issued for services
at $1.00 per share 5,500 1 5,499
Common stock
issued for equipment
at $1.00 per share 23,000 2 22,998
Common stock
repurchased for
$2.00 per share (45,000) (5) (89,995)
Common stock
repurchased for
$1.60 per share (3,135) - (5,000)
Warrants (1,123,500)
issued for services 48,353
Net income for the
year ended
April 30, 2001 - - -
Balance,
April 30,2001 8,218,656 $ 822 $ 3,566,480
MILLER PETROLEUM, INC.
Consolidated Statement of Stockholder's Equity
(Continued)
Note
Receivable
Retained From
Earnings Stockholder Total
Balance,
April 30, 2000 $ (935,063) - $ 1,527,786
Common Stock
issued for cash at
$1.00 per share - - 1,077,600
Common stock
issued for cash at
$.90 per share - - 45,000
Common stock
issued for services
at $1.00 per share - - 5,500
Common stock
issued for equipment
at $1.00 per share - - 23,000
Common stock
repurchased for
$2.00 per share - - (90,000)
Common stock
repurchased for
$1.60 per share - - (5,000)
Warrants (1,123,500)
issued for services - - 48,353
Net income for the
year ended
April 30, 2001 254,402 - 254,402
Balance,
April 30, 2001 $ (680,661) $ - $ 2,886,641
MILLER PETROLEUM, INC.
Consolidated Statement of Stockholder's Equity
(Continued)
Additional
Common Shares Paid-in
Shares Amount Capital
Balance
April 30, 2001 8,218,656 $ 822 $ 3,566,480
Common stock
issued for cash at
at $1.00 per share 110,000 11 109,989
Stock options
exercised at
$.575 per share 100,000 10 57,490
Common stock
issued for equipment
at $1.00 per share 150,000 15 149,985
Common stock
issued for services
at $1.00 per share 200 - 200
Net loss for
the year ended
April 30, 2002 - - -
Balance,
April 30,2002 8,578,856 $ 858 $ 3,884,144
MILLER PETROLEUM, INC.
Consolidated Statement of Stockholder's Equity
(Continued)
Note
Receivable
Retained From
Earnings Stockholder Total
Balance,
April 30, 2001 $ (680,661) - $ 2,886,641
Common stock
issued for cash at
at $1.00 per share - 110,000
Stock options
exercised at
$.575 per share - 57,500
Common stock
issued for equipment
at $1.00 per share - 150,000
Common stock
issued for services
at $1.00 per share - 200
Net loss for
the year ended
April 30, 2002 (507,757) (507,757)
Balance,
April 30, 2002 $ (1,188,418) $ 2,696,584
The accompanying notes are an integral part of these consolidated
financial statements.
MILLER PETROLEUM, INC.
Consolidated Statements of Cash Flows
For the Years Ended
April 30,
2002 2001
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (Loss) $(507,757) $ 254,402
Adjustments to Reconcile
Net Income to Net Cash
Provided (Used) by
Operating Activities:
Depreciation, depletion
and amortization 273,653 327,182
Common stock and warrants
Issued for services 200 53,853
Common stock issued for services 150,000 0
Gain on sale of
Equipment and Oil
and Gas Properties 0 (123,904)
Changes in Operating Assets
and Liabilities:
Decrease (increase)
in accounts receivable 832,047 (361,989)
Decrease (increase) in investments (78,328) 0
Decrease (increase) in inventory (128,174) 45,436
Decrease (increase) in
organization costs 119 59
Decrease (increase) in
Prepaid expenses 43,699 (46,023)
Increase (decrease) in
accounts payable 252,356 (268,055)
Increase (decrease) in
accrued expenses (15,057) 41,115
Net Cash Provided (Used)
by Operating Activities 822,758 (77,924)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Equipment (317,943) (230,137)
Sale of oil and gas properties 0 1,874,423
Purchase of oil and gas properties (1,161,442) (595,351)
Sale of Equipment 0 103,982
Purchase of pipeline 0 0
Net Cash Provided (Used)
by Investing Activities (1,479,385) 1,152,917
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Notes Payables (264,325) (2,110,665)
Sale of common stock 167,500 1,151,100
Repurchase of common stock 0 (95,000)
Proceeds from borrowings 605,296 164,566
Net Cash Provided (Used) by
Financing Activities $ 508,471 $ (889,999)
The accompanying notes are an integral part of these consolidated
financial statements
MILLER PETROLEUM, INC.
Consolidated Statements of Cash Flows
For the Years Ended
April 30,
2002 2001
NET INCREASE (DECREASE) IN CASH $ (148,156) $ 184,994
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 224,550 39,556
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 76,394 $ 224,500
CASH PAID FOR:
Interest $ (167,359) $(235,900)
Income Taxes $ - $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services $ 200 $ 5,500
Common stock issued for inventory $ 150,000 $ 0
The accompanying notes are an integral part of these consolidated
financial statements.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2002 and 2001
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.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2002 and 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
b. Accounting Method
The Company's financial statements are prepared using the accrual method
of accounting. The successful efforts method of accounting is used for oil
and gas property acquisitions, exploration and production activities as
defined by the Securities and Exchange Commission, whereby all costs incurred
in connection with the properties, productive, are capitalized. Capitalized
costs related to proved properties and estimated future costs to be incurred
in the development of proved reserves are amortized using
theunit-of-production method. Capitalized costs are annually subjected to a
test of recoverability by comparison to the present value of future net
revenues from proved reserves. Any capitalized costs in excess of the present
value of future net revenues from proved reserves, adjusted for the cost of
certain unproved properties, are expensed in the year in which such an excess
occurs. The Company has elected an April 30 year end.
c. Impairment of Long-Lived Assets and Long-Lived Assets to be disposed
of.
Management believes that none of its long-lived assets are impaired, and
the accompanying financial statements reflect no charges or allowances for
impairment.
d. 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.
e. Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
f. Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
andits wholly-owned subsidiaries, Miller Petroleum, Inc., Miller Services,
Inc.,Energy Cell, Inc., and MPC, Inc. All significant intercompany
transactions have been eliminated.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2001 and 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
g. Fixed Assets
Fixed assets are stated at cost. Depreciation and amortization are
computed using the straight-line method for financial reporting purposes and
accelerated methods for income tax purposes.
The estimated useful lives are as follows:
Lives
Class (Years)
- ---------------------------------------------------------------
Building 40
Machinery and equipment 5-10
Vehicles 5-7
Office equipment 5
Depreciation expense for the years ended April 30, 2002 and 2001 was
$213,865 and $227,725 respectively.
h. Revenue Recognition
Revenues are recognized when the gas products are delivered to
customers. In the movement of natural gas, it is common for differences to
arise between volumes of gas contracted or nominated, and volume of gas
actually received or delivered. These solutions are the result of certain
attributes of the natural gas commodity and the industry itself. Consequently,
the credit given to the Company by a pipeline for volumes received from
producers may be different 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.
i. Investment securities
Investment securities available for sale are reported at fair value, with
unrealized gains and losses, when material, are reported as again or a loss on
the statement of operations for the year.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2002 and 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
j. Inventory
Inventory consists of crude oil and used equipment. Used equipment is
purchased by the Company for resale. When used equipment purchases are
made by the Company the cost is applied only to the marketable portion of the
equipment. The inventory balance was $567,287 at April 30, 2002.
k. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liability at the date of the financial
statements and the amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
l. Reclassification
Certain April 30, 2001 balances have been reclassified to conform with
the April 30, 2002 financial statement presentation.
m. New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities, "effective
January 1, 2001. SFAS No. 133 (as amended by SFAS 137 AND SFAS 138) requires
a company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivatives is a fair value hedge, changes in the fair value of the
hedged assets, liabilities or firm commitments are recognized through
earnings. If the derivative is a cash flow hedge the effective portion of
changes in the fair value of the derivative are recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value is immediately
recognized in earnings. The adoption of SFAS No. 133, as amended, did not
have a material impact on the Company's consolidated financial statements.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 addresses the
initial recognition and measurement of goodwill and other intangible assets
acquired in a business combination and SFAS No. 142 addresses the initial
recognition and measurement of intangible assets acquired outside of a
business combination whether acquired individually or with a group of other
assets. These standards require all future business combinations to be
accounted for using the purchase method of accounting. Goodwill will no
longer be amortized but instead will be subject to impairment tests at least
annually. The Company would have been required to adopt SFAS No. 141 on July
1, 2001, and to adopt SFAS 142 on a prospective basis as of January 1, 2002.
The Company has not effected a business combination and carries no goodwill on
its balance sheet; accordingly, the adoption of these standards is not
expected to have an effect on the Company's financial position or results of
operations.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2002 and 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
m. New Accounting Pronouncements (Cont.)
In June 2001, the Financial Accounting Standards Board approved the issuance
of SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS 143
establishes accounting standards for the recognition and measurement of legal
obligations associated with the retirement of tangible long-lived assets and
requires recognition of a liability for an asset retirement obligation in the
period in which it is incurred. The provisions of this statement are
effective for financial statements issued for financial statements issued for
fiscal years beginning after June 15, 2002. The adoption of this statement is
not expected to have a material impact on the Company's financial position or
results of operations.
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
addresses accounting and reporting for the impairment or disposal of long-
lived assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
SFAS No. 144 establishes a single accounting model for long-lived assets to be
disposed of by sale and expands on the guidance provided by SFAS No. 121 with
respect to cash flow estimations. SFAS No. 144 becomes effective for the
Company's fiscal year beginning January 1. 2002. There will be no current
impact of adoption on its financial position or results of operations.
n. Major Customers
Miller Petroleum Inc. depends upon local purchasers of hydrocarbon in the
areas where their properties are located. They have two major customers.
The loss of one or more purchasers may substantially reduce their sales and
ability to operate profitably. These major customers are:
Tengasco, Inc. - Tengasco accounted for $763,304 of Miller's total revenue
which was 24.2297% of Miller's total revenue. Additionally, Tengasco
purchased a 50% working interest in most of Miller's wells. Tengasco is
anticipated to account for a greater percentage of Miller's total revenues
this year.
South Kentucky Purchasing Co. - South Kentucky accounted for $271,280 of
Miller's total revenue which was 8.6113% of Miller's total revenue. South
Kentucky purchases all of Miller's crude oil.
o. Income taxes
No provision for taxes has been made, due to current operating losses
carryforwards.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2002 and 2001
NOTE 2 - OIL AND GAS PROPERTIES - PIPELINE FACILITIES
The Company uses the successful efforts method of accounting for oil and gas
producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find proved reserves,
and to drill and equip development wells are capitalized. Costs to drill
exploratory wells that do not find proved reserves, geological and geophysical
costs, and costs carrying and retaining unproved properties are expensed. The
Company amortizes the oil and gas properties using the unit-of-production
method based on total proved reserves. The Company capitalized $1,161,442 of
oil and gas properties for the year ended April 30, 2002 and recorded $59,788
and $99,457 of amortization expense for the years ended April 30, 2002 and
2001, respectively.
NOTE 3 - COMMON STOCK REPURCHASES
Common stock repurchases were made pursuant to an Agreement that the Company
would buy the shares back if the average market price for Miller Petroleum,
Inc.'s common shares did not average $2.00 or more for the month of December,
1999. The average market price was less than $2.00 for the stated period.
NOTE 4 - LONG-TERM DEBT
The Company had the following debt obligations at April 30, 2002:
April 30,
2002
---------
Note payable to Home Federal Bank secured by
Equipment bearing interest at 9.75% due in
Monthly payments with final payment due
In August 2005. 40,165
Note payable to Individual unsecured at 7.00%
with payments due yearly with the principle due
May of 2002. 1,326
Note payable to First National Bank of Oneida
secured by equipment bearing interest at 9.50%
due on June 30, 2002. 202,028
Note payable to First National Bank of Oneida
secured by stock at 9.50% due on June 30, 2002. 225,000
Note payable to Individual bearing interest at
8.00% and requiring interest payments quarterly
with principle due in January 2004. 860,000
Note payable to Individual bearing interest at
8.00% with principle due in December 2005. 180,000
Balance Forward $ 1,508,519
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2002 and 2001
NOTE 4 - LONG-TERM DEBT
The Company had the following debt obligations at April 30, 2002
(Continued):
April 30,
2002
---------
Balance Forward $ 1,508,519
Note payable to Individual secured by five Swan
Creek Gas Wells bearing interest at 10.00% and
7.00% for the first and second year respectively,
and requiring interest payments quarterly with
principal due in September, 2003. 250,000
Note payable to Individual secured by five Swan
Creek Gas Wells bearing interest at 10.00% and
7.00% for the first and second year respectively,
and requiring interest payments quarterly with
principal due in September, 2003. 250,000
Note payable to General Motors Acceptance
Corporation secured by a pickup bearing 0.00%
interest due in monthly payments of $721 with
final payment due in October 2004. 22,345
Note payable to General Motors Acceptance
Corporation secured by a Suburban bearing 0.00%
interest due in monthly payments of $894 with
final payment due in October 2004. 27,720
Line of credit payable to First National Bank
of the Cumberlands secured by equipment and
inventory bearing interest at 10.50% due
on demand on October 10, 2002. 40,267
Note payable to Community Trust Bank secured
by real property bearing interest at 8.50%
requiring monthly principle and interest
payments of $1,389 due in April 2007. 116,887
Total notes payable 2,215,738
Less current maturities (501,633)
Notes payable - long-term $ 1,714,105
Maturities of long-term debt are as follows:
Year Ending April 30, Amount
--------------------- --------
2003 $ 501,633
2004 1,396,739
2005 27,338
2006 196,033
2007 and thereafter 93,995
Total $ 2,215,738
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2002 and 2001
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company has a note payable to Sharon Miller (Deloy Millers wife a majority
stockholder) for $1,326 at April 30, 2002. The note is payable with a
principal payment of $1,326 due in May 2003.
The note is for the purchase of property located in Huntsville,
Tennessee and currently houses the principle executive offices, shop and
equipment yard. The appraisal of the property was $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 to Mrs. Miller for $377,624.
The Company issued a note receivable of $860,000 on March 16,
1998 at 8% with an eight year term to Baxter Lee III, of
Knoxville, Tennessee. This note receivable was issued to raise
working capital.
During September 2001, the Company acquired debt financing of
$250,000 from a member of the board of directors in order to
continue there drilling program.
NOTE 6 - WARRANTS
The Company issued 903,084 warrants to Baxter Lee III. The warrants were
issued along with the note receivable dated December 16, 1997 and can be
exercised for $1.25 per share, and expire on December 12, 2004. The number of
shares that can be purchased is based on a provision in the Warrant Agreement
that allows him to purchase up to 10.53% of common stock outstanding.
On December 2, 1998, the company issued 50,495 warrants to Herman Gettelfinger
a director. The warrants are exercisable for 50,495 shares of common stock at
$1.25 per share, and expire on December 2, 2005.
On August 10, 2000, the company issued 12,500 warrants to Raymond R. Cohn, a
stockholder. The warrants are exercisable for 12,500 shares of common stock
at $1.00 per share, and expire on
July 17, 2003.
The warrants are callable during the third year at prices of $0.001 per
warrant, traded at $2.00 for 30 consecutive days at no less than 5,000 shares
per day.
On August 3, 2000 the company issued 1,000,000 warrants to Daniel Page for
services as a consultant. The warrants are exercisable for a period of two
years, commencing August 3, 2000. The first 250,000 warrants are exercisable
at a price of $1.00 per share; the next 250,000 warrants are exercisable at
$1.50 per share; and the two remaining 250,000 shares are exercisable for
$2.00 and $2.50 per share, respectively. These warrants were issued for
services valued at $43,750. They will be refelected on the financial
statements as an amortization expense over a two year period.
On December 8, 2000, the company issued 100,000 warrants to Basic Investors,
Inc. for services as a business consultant. The warrants are exercisable for
a period of three years, commencing December 8, 2000, at a price of $2.00 per
share and may be called if Miller Petroleum's common stock trades at 150% of
the exercisable price for five consecutive days. These warrants were issued
for services valued at $3,500. They will be reflected on the financial
statements as an amortization expense over a three year period.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2002 and 2001
NOTE 6 - WARRANTS (CONT.)
On December 15, 2000, Miller Petroleum issued 12,500 and 5,000 warrants to
Lawrence L. Larue, CFO and Secretary/Treasurer and Teresa Cotton employee
respectively. These warrants are exercisable at a price of $1.00 per share
and expire on December 15, 2003. During the third year of the warrants Miller
Petroleum may call them at a price of $0.001 per warrant at any time that its
common stock has traded at $2.00 for 30 consecutive days. These warrants were
issued with a value of $788 and were shown as an expense on the current year
financial statement.
On January 9, 2001, Miller Petroleum issued 6,000 warrants to Gary Bible a
vice-president. These warrants are exercisable at $1.00 per share and expire
on January 9, 2004. These warrants were issued with a value of $315 and were
shown as an expense on the current year financial statements.
All warrants must be adjusted in the event of any forward or reverse split of
outstanding common stock. The warrants have no voting rights or liquidation
preferences, and unless exercised in accordance with the particular warrant.
NOTE 7 - SIGNIFICANT EVENTS
The company entered into a Sale Agreement with Nami Resources Company,
LLC, a Kentucky limited liability company on August 31, 2000. The company
sold to Nami Resources their interests in certain oil and gas wells, leases
covering about 40,000 acres in Kentucky, inventory and related equipment
located in Kentucky. The sale closed on September 6, 2000. Nami Resources
Company, LLC. Paid the company $2,000,000 and assumed a production payment to
Cobat Oil and Gas, Inc. of $102,237 and received Miller Petroleum, Inc.
interest in certain oil and gas wells, oil and gas leases, inventory and
related equipment plus a production receivable form Southern Gas of $123,832.
The net sales price to the Company was $1,978,405.
NOTE 8 - S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (Unaudited)
(1) Capitalized Costs Relating to
Oil and Gas Producing Activities
April 30,
2002 2001
Proved oil and gas properties
and related lease equipment
Developed $ 2,792,308 $ 2,988,426
Non-developed 31,053 31,053
$ 2,823,361 $ 1,661,920
Accumulated depreciation and depletion (670,901) (611,233)
Net Capitalized Costs $ 2,152,460 $ 1,050,687
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2002 and 2001
(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
Note 8 - S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (Unaudited)
April 30,
2002 2001
Acquisition of Properties Proved and Unproved $ 0 $ 0
Exploration Costs - -
Development Costs 1,161,442 595,351
Total $ 1,161,442 $ 595,351
(3) Results of Operations for
Producing Activities
April 30,
2002 2001
Production revenues $2,880,139 $2,902,708
Production costs 1,922,354 1,107,662
Depreciation and depletion 59,788 99,457
Results of operations forproducing activities
(excluding corporate overhead and interest costs) $ 897,997 $1,695,589
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2002 and 2001
(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 (bbls) Gas (Mcf)
---------- ---------
Proved reserves
Balance, April 30, 2000 294,188 8,197,450
Discoveries and extensions 52,100 773,000
Revisions of previous estimates 45,391 2,866,054
Productions (12,342) (71,201)
Balance, April 30, 2001 379,337 11,765,303
Discoveries and extensions 194,000 625,000
Revisions of previous estimates 31,561 (2,918,995)
Production (11,561) (79,983)
Balance, April 30, 2001 593,231 9,391,325
Proved developed producing
reserves at April 30, 2002 85,987 967,403
Proved developed producing
reserves at April 30, 2001 71,334 231,372
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2002 and 2001
NOTE 8 - S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (Unaudited)
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 Coburn Petroleum
Engineering of Tulsa, Oklahoma, 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 the summer of 2002. 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, 2002,
nor are such reserves being considered in calculating depreciation, depletion
and amortization expense for the year based on the April 30, 2002 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, 2002 and 2001. Estimated
future cash flows were based on a reserves evaluation from Coburn Petroleum
Engineering. Because the standardized measure of future net cash flows was
prepared using the prevailing economic conditions existing at April 30, 2002
and 2001, 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.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2002 and 2001
NOTE 8 - S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (Unaudited)
Standardized measures of discounted future net cash flows:
April 30,
2002 2001
Future cash flows $ 43,379,397 $ 69,250,521
Future production costs
and taxes (2,125,369) (3,532,323)
Future development costs (3,010,000) (1,361,500)
Future income tax expense (11,855,649) (20,048,278)
Future cash flows before
income taxes 26,388,379 44,308,420
Discount at 10% for timing
of cash flows (10,575,388) (15,814,746)
Discounted future net cash flows
from proved reserves $ 15,812,991 $ 28,493,674
Of the Company's total proved reserves as of April 30, 2002 and 2001,
approximately 10% and 48%, respectively, were classified as proved
developed producing, 4% and 11%, respectively, were classified as proved
developed non-producing and 86% and 40%, respectively, were classified as
proved undeveloped. All of the Company's reserves are located in the
continental United States.
The following table sets forth the changes in the standardized
measure of discounted future net cash flows from proved reserves for April
30, 2002 and 2001.
April 30,
2002 2001
Balance, beginning of year $28,493,674 $ 7,176,895
Sales, Net of production costs
and taxes (5,800) (6,240)
Discoveries and extensions 1,740 1,820
Changes in prices and production
costs (25,871,124) 42,157,947
Revisions of quantity estimates 5,004,372 (3,496,730)
Development costs incurred 1,648,500 595,351
Net changes in income taxes 8,192,629 (17,461,269)
Changes in future development
costs (1,648,500) (471,500)
Changes in production rates
and other (2,500) (2,600)
Balances, end of year $15,812,991 $28,493,674
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2002 and 2001
Estimated future net cash flows represent and estimate of future net
revenues from the production of proved reserves using current sales
prices, along with estimates of the operating costs, production taxes and
future development and abandonment costs (less salvage value) necessary to
produce such reserves. The average prices used at April 30, 2002 and 2001
were $23.25 and $24.00 per barrel of oil and $3.29 and $5.10 per mcf gas,
respectively. No deduction has been made for depreciation, depletion or any
indirect costs such as general corporate overhead or interest expense.
Operating costs and production taxes are estimated based on current
costs with respect to producing gas properties. Future development
costs are based on the best estimate of such costs assuming current economic
and operating conditions.
Income tax expense is computed based on applying the appropriate
statutory tax rate to the excess of future cash inflows less future
production and development costs over the current tax basis of the properties
involved, less applicable carry forwards, for both regular and alternative
minimum tax.
The future net revenue information assumes no escalation of costs or
prices, except for gas sales made under terms of contracts which
include fixed and determinable escalation. Future costs and prices could
significantly vary from current amounts and, accordingly, revisions in the
future could be significant.
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. He continues as the auditor for the Company and audited the financial
statements that accompany this Report.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
Identification of Directors and Executive Officers
--------------------------------------------------
The following table sets forth the names of all current
directors and executive officers of the Company. These persons will serve
until the next annual meeting of stockholders (to be held at such time as the
Board of Directors shall determine) or until their successors are elected or
appointed and qualified, or their prior resignation or termination.
Date of Date of
Positions Election or
Termination
Name Held Designation or
Designation
Deloy Miller Director, 12/96 *
815 Southlake Drive President 12/99 *
Oneida, TN 37841 CEO 12/97 *
Lawrence L. LaRue Secretary/ 12/96 12/01
432 Brewstertown Road Treasurer 12/96 12/01
Sunbright, TN 37872 Director 4/97 *
CFO 4/01 *
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 09/00
50 Rivers Run Way
Oak Ridge, TN 37830
Gary G. Bible Vice President 9/97 *
232 West Seneca Circle
Oneida, TN 37841
Ernest F. Payne Vice President 5/01 *
446 Southlake Drive
Oneida, TN 37841
Teresa Cotton Secretary and 12/01 *
1228 Cherry Fork Treasurer
Helenwood, TN 37755
Wm. Parker Lee Director 12/01 *
3024 Duncan Road
Lenoir City, TN 37772
* These persons presently serve in the capacities indicated opposite
their respective names.
Term of Office
--------------
The term of office of the current directors shall continue
until the annual meeting of stockholders, which is to be held at such time as
the Board of Directors shall determine. The annual meeting of the Board of
Directors immediately follows the annual meeting of stockholders, at which
officers for the coming year are elected.
Business Experience
-------------------
Deloy Miller Mr. Miller is 55 years of age. Mr. Miller,
Chairman and CEO, is a seasoned gas and oil professional with more than 30
years of experience in the drilling and production business in the Appalachian
basin. During his years as a drilling contractor, he acquired extensive
geological knowledge of Tennessee and Kentucky and received training in the
reading of well logs. A native Tennessean, Miller is credited with being the
leader in converting the Appalachian Basin from cable tool drilling to air
drilling, using the Ingersoll-Rand T3 Drillmaster rigs. The introduction of
air drilling sparked the 1969 drilling boom and Miller soon became a
successful drilling contractor in the southern Appalachian basin. He served
two terms as president of the Tennessee Oil & Gas Association and in 1978 the
organization named Miller the Tennessee Oil Man of the Year. He continues to
serve on the board of that organization. Mr. Miller was appointed by the
Governor of Tennessee to be the petroleum industry's representative on the
Tennessee Oil & Gas Board, the state agency that regulates gas and oil
operations in the state.
Lawrence L. LaRue. Mr. LaRue is 62 years of age. Mr. LaRue
joined the Miller organization in March of 1983 as an accountant. During
his 18 years with the Company, he has acquired an extensive knowledge of
all aspects of oil and gas accounting and tax law. He was appointed
Secretary/Treasurer in 1985 and CFO in April of 2001. 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 76, is Development
Engineer for the company has 44 years of petroleum related experience. After
earning his BS degree from North Texas University, he became an engineer with
Halliburton, handling Louisiana Gulf Coast and offshore operations and serving
in Australia. In 1975 he joined Petroleum Development Corporation, a
West Virginia-based public company, supervising engineering and operations
in Southern Appalachian basin. He also has experience in Devonian Shale
production, enhanced recovery and coal degasification. Miller
Petroleum and its predecessor corporation have employed Mr. White as a
Petroleum Engineer since July of 1985. In April, 1997, he became a director
and Vice President of Development Engineering for Miller Petroleum.
Herman Gettelfinger. Mr. Gettelfinger, age 69, is member
of our Board of Directors, Herman Gettelfinger is a co-owner of Kelso Oil
Company, Knoxville Tennessee and has been the President of Kelso since 1960.
Kelso is one of eastern Tennessee's largest distributors of motor oils, fuels
and lubricants to the industrial and commercial market. Mr. Gettelfinger has
been active in the gas and oil drilling and exploration business for more than
35 years and has been associated with Miller Petroleum for more than 25 years.
Dr. Gary Bible was appointed Vice President of Geology on
September 15, 1997. Dr. Bible is 52 years of age. Dr. Bible came from
Alamco, where he had served since May of 1991 as Manager of Geology and Senior
Geologist. Dr. Bible earned his BS Degree in Geology from Kent State
University and his MSc. and PhD. Degrees in Geology from Iowa State
University. He is a proven hydrocarbon finder who drilled his first
successful wildcat as a Trainee Geologist. Dr. Bible brings to the Company 20
years experience as a Petroleum Geologist. In addition, Dr. Bible has spent
more than 10 years in the Appalachian Basin in the exploration and development
of reserves in the Big Lime, Devonian Shale and in deeper horizons. He is
credited with managing a drilling program at Alamco that kept its finding cost
the lowest in the nation.
Ernest F. Payne. Mr. Payne, age 55, was appointed Vice
President of Field Operations on May 21, 2001. Mr. Payne rejoined the Miller
Team after serving as Project Manager and Superintendent for Youngquist
Brothers of Fort Myers, Florida from early 1994 through May of 2001. Mr.
Payne has 20 years experience in oil and gas well design and stimulations as
well as supervising the operation of drilling and workover rigs. He earned a
B.S. in engineering at Tennessee Technological University. He originally
joined Miller in the early 70's and was the general manager for 17 years. He
directed the operation of 18 drilling and workover rigs. In the mid 1980's he
formed his own company and managed large drilling jobs in Florida and Puerto
Rico until joining Youngquist.
Teresa Cotton, Ms. Cotton, age 39, joined the Miller Team
in August, 1996. She was appointed Secretary/Treasurer on December 1, 2001.
Prior to joining the Miller Team, she was employed by Halliburton Services.
Teresa has more than twenty years experience in the oil and gas industry. Mrs.
Cotton, a Tennessee native, is currently enrolled at Roane State Community
College in Huntsville where she is pursuing a degree in Accounting.
Wm. Parker Lee, Mr. Lee, age 28, is a member of the Board
of Directors. For the past three years, Parker has managed Lee Investments,
which has holding in various corporations. He graduated from Montana State
University in May of 1997. During 1998, prior to attending law school, Parker
worked with the family business in Knoxville, Tennessee. In May of 2001, W.
Parker Lee earned a J. D. degree from Willamette University. Mr. Lee is a
native of Knoxville, Tennessee
Committees
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 $155,769 as
compensation for service as CEO and Director of the Company.
Lawrence LaRue is to be paid an annual salary of $71,923 for
his service as Secretary/Treasurer and director of the Company.
Herbert J. White is to be paid an annual salary of $6,600
for his services as Vice President and Director of the Company. Mr. White is
considered part-time and is paid $150 per day for his services.
Gary G. Bible is to be paid an annual salary of $77,281 for
his services as Vice President of Geology.
The following table sets forth the aggregate cash
compensation paid by the Company for services rendered during the periods
indicated to its directors and executive officers:
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
ities All
Name and Year Other Rest- Under- LTIP Other
Principal Ended Salary Bonus Annual rictedlying Pay- Comp-
Position April 30 ($) ($) Compen-Stock Optionsouts ensat'n
-----------------------------------------------------------------
Deloy Miller
President,
Director, 1999 122,307 0 0 100 0 0 0
CEO 2000 119,999 0 0 0 0 0 0
2001 120,499 0 0 200 0 0 0
2002 155,769 0 0 0 0 0 0
Lawrence
LaRue CFO/ 1999 61,154 0 0 5,100 0 0 0
Secretary/ 2000 60,000 0 0 10,000 0 0 0
Treasurer, 2001 60,500 0 0 200 0 0 12,500 (*)
Director 2002 71,923 0 0 0 0 0 0
Herbert J. 1999 9,700 0 0 100 0 0 0
White, VP, 2000 3,500 0 0 0 0 0 0
Director 2001 6,100 0 0 200 0 0 0
2002 6,600 0 0 0 0 0 0
Herman 1999 0 0 500 0 0 0 0
Gettelfinger 2000 0 0 0 0 0 0 0
Director 2001 0 0 500 0 0 0 0
2002 0 0 0 0 0 0 0
Gary G. 1999 72,366 0 0 100 0 0 0
Bible, VP 2000 71,000 0 0 0 0 0 0
2001 71,000 0 0 200 0 0 6,000 (*)
2002 77,281 0 0 0 0 0 0
John Bonar 1999 73,894 0 0 100 0 0 0
VP 2000 72,500 0 0 0 0 0 0
2001 33,462 0 0 0 0 0 0
Ernest F. 2002 50,000 0 0 0 0 0 0
Payne, VP
Teresa 2002 36,900 0 0 0 0 0 0
Cotton
Secretary/
Treasurer
(*) Warrants were granted as a bonus.
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
John Bonar was terminated in September of 2000.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
------------------------------------------------------------------------
Security Ownership of Certain Beneficial Owners
-----------------------------------------------
The following tables set forth the share holdings of the
Company's directors and executive officers and those persons who own more than
5% of the Company's common stock as of the date hereof, with these
computations being
based upon 8,328,656 shares of common stock being outstanding.
Directors and Executive Officers
Number of Shares Percent
Name and Address(1) Title Beneficially Owned of Class
Deloy Miller Director, 4,419,343 (1) 51%
815 South Lake Drive and CEO
Oneida, TN 37841
Lawrence L. LaRue CFO, Director 98,677 (2) 1%
432 Brewstertown Road
Sunbright, TN 37872
Herbert J. White Vice President/Director 300 (3) -0-
P.O. Box 1868
Fairfield Glade, TN
38557
Herman Gettelfinger Director 306,537 4%
641 Atlantic Ave.
Knoxville, TN 37917
Gary Bible Vice President 6,516 (4) -0-
323 Seneca Circle
Oneida, TN 37841
Teresa Cotton Secretary/Treasurer 1,300 (5) -0-
All executive officers and directors
as a group 4,761,737 56%
(1) Does not include options for 100,000 shares.
(2) Does not include options for 270,177 shares and warrants for 12,500
shares.
(3) Does not include options for 100,000 shares.
(4) Does not include options for 80,000 shares and warrants for 6,000 shares.
(5) Does not include options for 45,000 shares and warrants for 5,000 shares
Each of these persons presently serves in the capacities indicated.
Five Percent Stockholders
Number of Shares Percent
Name and Address Title Beneficially Owned of Class
Deloy Miller Director 4,419,343 (1) 51%
815 South Lake Drive and CEO
Oneida, TN 37841
(1) Does not include options for 100,000 shares.
(2) Does not include warrants for 1,000,000 shares.
Changes in Control
------------------
Except as indicated below, to the knowledge of the Company's
management, there are no present arrangements or pledges of the
Company's securities which may result in a change in control of the Company.
See the foregoing tables regarding "Directors and Executive Officers" and
"Five Percent Stockholders."
Item 12. Certain Relationships and Related Transactions.
--------------------------------------------------------
Transactions with Management and Others
---------------------------------------
The Company has a note payable to Sharon Miller (Deloy Miller's
wife a majority stockholder), for $1,326 at April 30, 2002. The note is
payable with interest in June 2002.
The note is for the purchase of property located in Huntsville,
Tennessee and currently houses the principal executive offices, shop and
equipment yard. The appraisal of the property was $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 to Mrs. Miller for $377,624.
The Company issued a note receivable of $860,000 on December 16,
1997 at 8% with a seven year term to Baxter Lee, III, of Knoxville, Tennessee.
This note receivable was issued to raise working capital.
During September 2001, the Company acquired financing of
$250,000 from Wm. Parker Lee, a member of the Board of Directors, in order to
continue its drilling program.
Certain Business Relationships
------------------------------
Other than the transactions disclosed in the previous section, there
have been no material transactions, series of similar transactions or
currently proposed transactions, to which the Company or any of its
subsidiaries was or is to be a party, in which the amount involved
exceeds $60,000 and in which any director or executive officer or any security
holder who is known to the Company to own of record or beneficially more than
5% of the Company's common stock, or any member of the immediate family of
any of the foregoing persons, had a material interest.
Indebtedness of Management
--------------------------
Other than the transactions disclosed in the previous section, there
have been no material transactions, series of similar transactions or
currently proposed transactions, to which the Company or any of its
subsidiaries was or is to be a party, in which the amount involved
exceeds $60,000 and in which any director or executive officer or any
security holder who is known to the Company to own of record or beneficially
more than 5% of the Company's common stock, or any member of the immediate
family of any of the foregoing persons, had a material interest.
Parents of the Issuer
---------------------
Except to the extent that Deloy Miller may be deemed to be a
parent of the Company by virtue of his ownership of a majority of its
issued and outstanding shares, the Company has no parents.
Transactions with Promoters
---------------------------
Other than the Note, there have been no material transactions,
series of similar transactions, currently proposed transactions, or
series of similar transactions, to which the Company or any of its
subsidiaries was or is to be a party, in which the amount involved exceeds
$60,000 and in which any promoter or founder or any member of the immediate
family of any of the foregoing persons, had a material interest.
Item 13. Exhibits and Reports on Form 8-K.
Reports on Form 8-K*
-------------------
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.
Exhibit
Exhibits* Number
-------- -------
(i)
Subsidiaries of the Company **
Koppers Lease Schedule **
Delta Leases Schedule **
(ii) Where
Incorporated
In This
Report
------------------
None.
*A summary of any Exhibit is modified in its entirety by reference to
the actual Exhibit.
**These documents and related exhibits have previously been filed with
the Securities and Exchange Commission and are incorporated herein by this
reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MILLER PETROLEUM, INC.
Date: July 29, 2002 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 29, 2002 By/s/ Deloy Miller
-------------- ---------------------------
Deloy Miller, CEO and
Director
Date: July 29, 2002 By/s/Lawrence LaRue
-------------- ---------------------------
Lawrence LaRue, CFO, Secretary/
Treasurer and Director
Date: July 29, 2002 By/s/Herman Gettelfinger
---------------- ---------------------------
Herman Gettelfinger, Director