As
filed
with the Securities and Exchange Commission on April 24, 2006
Registration
No. 333-____
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
——————————
FORM
SB-2
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
MILLER
PETROLEUM, INC.
(Name
of
Small Business Issuer in its Charter)
Tennessee
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1311
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62-1028629
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(State
or other jurisdiction
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(Primary
Standard
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(I.R.S.
Employer
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of
incorporation or
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Industrial
Classification
|
Identification
No.)
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organization)
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Code
Number)
|
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3651
Baker Highway
Huntsville,
Tennessee 37756
Telephone:
(423) 663-9457
(Address
and telephone number of principal executive offices)
——————————
Deloy
Miller
Chief
Executive Officer
Miller
Petroleum, Inc.
3651
Baker Highway
Huntsville,
Tennessee 37756
Telephone:
(423) 663-9457
(Name,
address and telephone number of agent for service)
——————————
Copies
to:
Jack
Becker, Esq.
Snow
Becker Krauss, P.C.
605
Third
Avenue
New
York,
New York 10158-0125
Telephone:
(212) 687-0400
Telecopier:
(212) 949-7052
——————————
Approximate
Date of Proposed Sale to the Public:
As
soon
as practicable after the effective date of this registration
statement.
If
any of
the securities registered on this form are to be offered on a delayed or
continuing basis pursuant to Rule 415 under the Securities Act of 1933, as
amended (the "Securities Act") check the following box. x
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of Securities to be Registered
|
|
Amount
to be Registered (1)
|
|
Proposed
Maximum Aggregate Offering Price Per Security (2)
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Proposed
Maximum Aggregate Offering Price (2)
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Amount
of Registration Fee
|
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Common
Stock, $.0001 par value per share
|
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4,900,000
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$
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0.99
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$
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4,851,700
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$
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519.06
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Common
Stock, $.0001 par value per share
|
|
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1,200,000
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$
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0.99
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$
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1,188,000
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$
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127.12
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TOTAL
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6,100,000 |
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$
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6,039,000
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$
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646.18
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(1) |
In
addition, pursuant to Rule 416(a) under the Securities Act of 1933,
this
registration statement includes an indeterminate number of additional
shares as may be issuable as a result of stock splits, stock dividends
or
similar transactions which occur during this continuous
offering.
|
(2) |
Estimated
solely for the purpose of calculating the registration fee pursuant
to
Rule 457(c) under the Securities Act of 1933 (the “Act”) under the
Securities Act based on the average of the high and low sales prices
per
share of Common Stock as reported on the Over-the-Counter Bulletin
Board
on April 10, 2006.
|
——————————
The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall become effective in accordance with Section 8(a) of the Securities Act
of
1933 or until the registration statement shall become effective on such date
as
the Commission, acting pursuant to Section 8(a), may determine.
The
information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This preliminary prospectus
is
not an offer to sell nor does it seek an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED APRIL 24, 2006
PROSPECTUS
MILLER
PETROLEUM, INC.
6,100,000
SHARES OF COMMON STOCK
——————————
The
shares of common stock, par value $0.0001 per share (the “Common Stock”), of
Miller Petroleum, Inc. are being offered by this prospectus. The 6,100,000
shares of Common Stock covered by this prospectus will be sold from time to
time
by the selling shareholders named in this prospectus at prices determined by
the
prevailing market price for the shares or in negotiated transactions. We will
not receive any of the proceeds from the sale of the shares, although we will
receive proceeds with respect to the exercise of the warrants.
Our
Common Stock is quoted on the Over-the-Counter Bulletin Board (the "OTCBB")
under the symbol "MILL." On April 7, 2006, the last sale price of our Common
Stock as reported on the OTCBB was $0.99 per share.
Investment
in our Common Stock involves a number of risks.
See "RISK FACTORS" beginning on page 6 of this prospectus to read about certain
factors you should consider before buying shares of our Common
Stock.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
information in this prospectus is not complete and may be changed. The selling
shareholders may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is declared effective. This
prospectus is not an offer to sell these securities and it is not soliciting
an
offer to buy these securities in any state where the offer or sale is not
permitted.
——————————
The
date
of this prospectus is April __, 2006.
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11
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11
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20
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25
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26
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27
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35
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We
have
not authorized any person to give you any supplemental information or to make
any representations for us. You should not rely upon any information about
our
company that is not contained in this prospectus. Information contained in
this
prospectus or in our public reports may become stale. You should not assume
that
the information contained in this prospectus or any prospectus supplement is
accurate as for any date other than their respective dates, regardless of the
time of delivery of this prospectus or any sale of the shares. Our business,
financial condition, results of operation and prospects may have changed since
those dates. The selling shareholders are offering to sell, and seeking offers
to buy, shares of our Common Stock only in jurisdictions where offers and sales
are permitted.
——————————
The
following summary highlights selected information contained in this prospectus.
This summary does not contain all the information you should consider before
investing in the securities. Before making an investment decision, you should
read the entire prospectus carefully, including the “RISK FACTORS” section, the
financial statements and the notes to the financial statements. As used
throughout this prospectus, the terms “we,” “us,” and “our,” refer to Miller
Petroleum, Inc.
MILLER
PETROLEUM, INC.
——————————
Our
Company
We
are an
independent oil and gas company actively engaged in the exploration,
development, production and acquisition of crude oil and natural gas
independently and through joint venture drilling programs with other companies
in the industry. Our principal areas of interest are Tennessee and Texas. In
December 2005, we entered into a joint venture agreement with Wind City Oil
& Gas, LLC (“Wind City”) to form Wind Mill Oil & Gas, LLC (the “Wind
Mill Joint Venture”). Currently, in conjunction with the Wind Mill Joint
Venture, we have an aggregate of approximately 50,000 acres under lease. About
90% of such leases are held by production.
Business
Strategy: Growth through the Drillbit
Our
goal
is to maximize shareholder value through the execution of a business strategy
designed to capitalize on our strengths and the continued expansion of our
operations through the growth of our oil and gas reserves. We believe this
can
best be achieved by:
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·
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Focusing
on the development, drilling and production of natural gas and crude
oil
in east Tennessee’s Appalachian Basin--Appalachian gas sells at a premium
price to Henry Hub, due to its proximity to major consuming regions.
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·
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Manage
risk exposure by market testing prospects and optimizing our working
interest--Drilling and development capital will be raised through
partnership drilling programs where Miller keeps up to a 50% working
interest, therefore limiting our financial and operating risks by
varying
our level of participation. We also seek to operate our projects
in order
to control costs associated with drilling and the timing of the drilling.
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·
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Exploration
Activities--During 2006 we plan to focus our exploration activities
on
projects that are near currently owned productive fields, we believe
that
we can successfully add growth through exploratory activities given
the
much improved technology, and our experienced technical staff. We
have
allocated approximately one million dollars to our 2006 development
budget
for exploration activities.
|
Our
executive offices are located at 3651 Baker Highway, Huntsville, Tennessee
37756. Our telephone number is (423) 663-9457. Our website is www.millerpetroleum.com.
The
Offering
Common
Stock offered by selling shareholders
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6,100,000
shares
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Common
Stock outstanding after the offering
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15,496,856
shares
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Use
of proceeds
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We
will not receive any of the proceeds from the sale of the shares,
although, we may receive proceeds with respect to the exercise of
the
warrants.
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Risk
Factors
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You
should read the “Risk Factors” section beginning on page 6, as well as
other cautionary statements throughout this prospectus, before investing
in shares of our Common Stock.
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Over-the-Counter
Bulletin Board Symbol
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“MILL”
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The
above
information regarding Common Stock outstanding after the offering is based
on
14,296,856 shares of Common Stock outstanding as of April 6, 2006 and assumes
exercise of all warrants held by our selling shareholders.
The
following summary of financial data as of and for the fiscal years ended April
30, 2005 and 2004 and the interim periods ended January 31, 2006 and 2005.
This
information is only a summary and does not provide all of the information
contained in our financial statements and related notes. You should read the
“Management’s Discussion and Analysis or Plan of Operation” beginning on page 20
and our financial statements and related notes included elsewhere in this
prospectus.
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For
the Nine Month
Period
Ended
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For
the Year
Ended
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January
31,
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April
30,
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Statement
of Operations
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2006
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2005
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2005
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2004
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(Unaudited)
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(Audited)
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Revenue
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$
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2,108,735
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$
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758,925
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$
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1,030,036
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$
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1,966,795
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Operating
Expense
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Cost
of Revenue
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1,283,103
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115,525
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260,017
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993,974
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Selling,
General and Administrative
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1,744,774
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491,354
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604,040
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567,112
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Depreciation,
Depletion and Amortization
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255,657
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152,659
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366,279
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233,439
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Total
Operating Expense
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3,283,534
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759,538
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1,230,336
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1,794,525
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Other
Income (Expense)
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Gain
on Sale of Equipment
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—
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98,638
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157,562
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42,897
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Interest
Expense (Net)
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(1,319,084
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)
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(164,712
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)
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(218,686
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)
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(226,518
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)
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Loss
before Provision for Income Taxes
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(2,493,883
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)
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(66,687
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)
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(261,424
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)
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(11,351
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)
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Provision
for Income Taxes
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Total
Comprehensive Loss
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$
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(2,493,883
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)
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$
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(66,687
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)
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$
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(261,424
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)
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$
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(11,351
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)
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Balance
Sheet Data:
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As
of Jan. 31, 2006
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As
of April 30, 2005
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(Unaudited)
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(Audited)
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Cash
and Cash Equivalents
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$
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268,780
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$
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2,365
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Total
Assets
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5,885,590
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5,257,625
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Total
Liabilities and Stockholders’ Equity
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5,885,590
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5,257,625
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Any
investment in our Common Stock involves a high degree of risk. You should
carefully consider the risks and uncertainties described below and the other
information included in this prospectus before purchasing our Common Stock.
Although the risks described below are the risks that we believe are material,
they are not the only risks relating to our business and our Common Stock.
Additional risks and uncertainties, including those that are not yet identified
or that we currently believe are immaterial, may also adversely affect our
business, financial condition or results of operations. If any of the events
described below occur, our business and financial results could be materially
and adversely affected. The market price of our Common Stock could decline
due
to any of these risks, perhaps significantly, and you could lose all or part
of
your investment.
General
Risks Related To Our Business
The
termination of the Wind Mill Joint Venture could have a material adverse effect
on our financial condition.
On
December 23, 2005 we entered into a joint venture agreement with Wind City
Oil
& Gas, LLC to form Wind Mill Oil & Gas, LLC to explore, drill and
develop certain oil and gas properties. As part of the agreement, Wind City
Oil
& Gas, LLC purchased 2,900,000 common shares for $4,350,000 on December 23,
2005. The stock purchase agreement contains a put whereby Wind City Oil &
Gas, LLC can put the stock back to us until September 30, 2006, thereby
requiring us to repurchase the 2,900,000 shares. If this were to occur, we
would
have a significant cashflow shortfall, which would require additional financing
arrangements. There is no assurance that such financing could be obtained on
favorable terms, or at all. In such event, our financial condition could be
adversely affected.
Our
business may fail if we do not succeed in our efforts to develop and replace
oil
and gas reserves.
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 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. If we fail in these
efforts, our business may also fail.
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 and geological characteristics as well as 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 estates 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
current petroleum engineering report has substantially revised downward previous
estimates of our petroleum reserves.
Our
current petroleum engineer, Netherland Sewell & Associates, Inc. (“NSAI”),
in its report dated June 28, 2005, estimated that our current petroleum “proven”
reserves, calculated on the basis of a discounted cash flow analysis, are valued
at approximately $3.5 million. This estimate is a significant reduction from
the
estimate at April 30, 2004 of approximately $23 million of proven reserves
previously provided to us by our former petroleum engineering firm.
We
are implementing a growth strategy which, if successful, will place significant
demands on us and subject us to numerous risks.
Growing
businesses often have difficulty managing their growth. If our growth strategy
is successful, significant demands will be placed on our management, accounting,
financial, information and other systems and on our business. We will have
to
expand our management and continue recruiting and employing experienced
executives and key employees capable of providing the necessary support. In
addition, to manage our anticipated growth we will need to continue to improve
our financial, accounting, information and other systems in order to effectively
manage our growth, and in doing so could incur substantial additional expenses
that could harm our financial results. We cannot assure you that our management
will be able to manage our growth effectively or successfully, or that our
financial, accounting, information or other systems will be able to successfully
accommodate our external and internal growth. Our failure to meet these
challenges could materially impair our business.
We
may not be able to compete successfully in acquiring prospective reserves,
developing reserves, marketing oil and natural gas, attracting and retaining
quality personnel and raising additional capital.
Our
ability to acquire additional prospects and to find and develop reserves in
the
future will depend on our ability to evaluate and select suitable properties
and
to consummate transactions in a highly competitive environment. In addition,
there is substantial competition for capital available for investment in the
oil
and natural gas industry. Our inability to compete successfully in these areas
could have a material adverse effect on our business, financial condition or
results of operations.
A
substantial or extended decline in oil and natural gas prices could reduce
our
future revenue and earnings.
The
price we receive for future oil and natural gas production will heavily
influence our revenue, profitability, access to capital and rate of growth.
Oil
and natural gas are commodities and their prices are subject to wide
fluctuations in response to relatively minor changes in supply and demand.
Historically, the markets for oil and natural gas have been volatile and
currently oil and natural gas prices are significantly above historic levels.
These markets will likely continue to be volatile in the future and current
record prices for oil and natural gas may decline in the future. The prices
we
may receive for any future production, and the levels of this production, depend
on numerous factors beyond our control. These factors include the following:
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•
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changes
in global supply and demand for oil and natural gas;
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•
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actions
by the Organization of Petroleum Exporting Countries, or OPEC;
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•
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political
conditions, including embargoes, which affect other oil-producing
activities;
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•
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levels
of global oil and natural gas exploration and production activity;
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•
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levels
of global oil and natural gas inventories;
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•
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weather
conditions affecting energy consumption;
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•
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technological
advances affecting energy consumption; and
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•
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prices
and availability of alternative fuels.
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Lower
oil and natural gas prices may not only decrease our future revenues but also
may reduce the amount of oil and natural gas that we can produce economically.
A
substantial or extended decline in oil or natural gas prices may reduce our
earnings, cash flow and working capital.
Drilling
for and producing oil and natural gas are high risk activities with many
uncertainties that could substantially increase our costs and reduce our
profitability.
Oil
and natural gas exploration is subject to numerous risks beyond our control,
including the risk that drilling will not result in any commercially viable
oil
or natural gas reserves. Failure to successfully discover oil or natural gas
resources in properties in which we have oil and gas leases may materially
adversely affect our operations and financial condition.
The
total cost of drilling, completing and operating wells will be uncertain before
drilling commences. Overruns in budgeted expenditures are common risks that
can
make a particular project uneconomical. Further, many factors may curtail,
delay
or cancel drilling, including the following:
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•
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delays
imposed by or resulting from compliance with regulatory requirements;
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•
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pressure
or irregularities in geological formations;
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•
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shortages
of or delays in obtaining equipment and qualified personnel;
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•
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equipment
failures or accidents;
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•
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adverse
weather conditions;
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•
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reductions
in oil and natural gas prices;
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•
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land
title problems; and
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•
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limitations
in the market for oil and natural
gas.
|
Oil
and gas operations involve many physical hazards.
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 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.
The
oil and gas industry is highly competitive and there is no assurance that we
will be successful in acquiring any further leases.
The
oil
and gas industry is intensely competitive. We compete with numerous individuals
and companies, including major oil and gas companies, which have substantially
greater technical, financial and operational resources and staffs. Accordingly,
there is a high degree of competition for desirable oil and gas leases, suitable
properties for drilling operations and necessary drilling equipment, as well
as
access to funds. We cannot predict if the necessary funds can be raised. There
are also other competitors that have operations in our potential areas of
interest and the presence of these competitors could adversely affect our
ability to acquire additional leases.
If
we lose the services of Deloy Miller, our operations may
suffer.
We
are
substantially dependent upon the continued services of Deloy Miller, our CEO
and
a director. Mr. Miller has been with us since our inception. The relationships
that he has formed in our industry and in the local area where our principal
operations are conducted are invaluable, and could be lost to us without his
services. Mr. Miller is in good health; however, his retirement, disability
or
death would seriously hurt our business operations. If his services become
unavailable, we will have to retain other qualified personnel. We may not be
able to recruit and hire another qualified person on acceptable terms. We do
not
have an employment contract with Mr. Miller. 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.
Oil
and gas operations are subject to comprehensive regulation which may cause
substantial delays or require capital outlays in excess of those anticipated,
causing an adverse effect on our Company.
Oil
and gas operations are subject to federal, state, and local laws relating to
the
protection of the environment, including laws regulating removal of natural
resources from the ground and the discharge of materials into the environment.
Oil and gas operations are also subject to federal, state, and local laws and
regulations which seek to maintain health and safety standards by regulating
the
design and use of drilling methods and equipment. Various permits from
government bodies are required for drilling operations to be conducted; no
assurance can be given that such permits will be received. Environmental
standards imposed by federal, provincial, or local authorities may be changed
and any such changes may have material adverse effects on our activities.
Moreover, compliance with such laws may cause substantial delays or require
capital outlays in excess of those anticipated, thus causing an adverse effect
on us. Additionally, we may be subject to liability for pollution or other
environmental damages. To date we have not been required to spend any material
amount on compliance with environmental regulations. However, we may be required
to do so in future and this may affect our ability to expand or maintain our
operations.
Risks
Related To This Offering and Our Common Stock
The
limited trading volume in our Common Stock may depress our stock
price.
Our
Common Stock is currently traded on a limited basis on the Over-the-Counter
Bulletin Board (“OTCBB”). The quotation of our Common Stock on the OTCBB does
not assure that a meaningful, consistent and liquid trading market currently
exists. We cannot predict whether a more active market for our Common Stock
will
develop in the future. In the absence of an active trading market, investors
may
have difficulty buying and selling our Common Stock. Market visibility for
our
Common Stock may be limited. A lack of visibility of our Common Stock may have
a
depressive effect on the market price for our Common Stock.
The
issuance of shares upon exercise of outstanding warrants may cause immediate
and
substantial dilution of our existing shareholders .
The
issuance of shares upon exercise of warrants may result in substantial dilution
to the interests of other shareholders since the selling shareholders may sell
the full amount issuable on exercise. In addition, such shares would increase
the number of shares in the “public float” and could depress the market price
for our Common Stock.
If
we fail to remain current on our reporting requirements, we could be removed
from the OTC Bulletin Board which would limit the ability of broker-dealers
to
sell our securities and the ability of shareholders to sell their securities
in
the secondary market.
Companies
trading on the OTCBB, such as us, must be reporting issuers under Section 12
of
the Securities Exchange Act of 1934, as amended, and must be current in their
reports under Section 13, in order to maintain price quotation privileges on
the
OTCBB. If we fail to remain current on our reporting requirements, we could
be
removed from the OTCBB. As a result, the market liquidity for our securities
could be severely adversely affected by limiting the ability of broker-dealers
to sell our securities and the ability of shareholders to sell their securities
in the secondary market.
We
have never declared or paid cash dividends on our Common Stock. We currently
intend to retain future earnings to finance the operation, development and
expansion of our business.
We
do not anticipate paying cash dividends on our Common Stock in the foreseeable
future. Payment of future cash dividends, if any, will be at the discretion
of
our board of directors and will depend on our financial condition, results
of
operations, contractual restrictions, capital requirements, business prospects
and other factors that our board of directors considers relevant. Accordingly,
investors will only see a return on their investment if the value of our
securities appreciates.
New
legislation, including the Sarbanes-Oxley Act of 2002, may make it difficult
for
us to retain or attract officers and directors.
We
may be unable to attract and retain qualified officers, directors and members
of
board committees required to provide for our effective management as a result
of
the recent and currently proposed changes in the rules and regulations which
govern publicly-held companies. The enactment of the Sarbanes-Oxley Act of
2002
has resulted in a series of rules and regulations by the Securities and Exchange
Commission that increase responsibilities and liabilities of directors and
executive officers. The perceived increased personal risk associated with these
recent changes may deter qualified individuals from accepting these roles.
Our
Common Stock is Subject to the "Penny Stock" Rules of the SEC and the Trading
Market in Our Securities is Limited, Which Makes Transactions in Our Stock
Cumbersome and May Reduce the Value of an Investment in Our Stock.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes
the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions.
For
any transaction involving a penny stock, unless exempt, the rules require:
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that
a broker or dealer approve a person's account for transactions in
penny
stocks; and
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that
broker or dealer receive from the investor a written agreement to
the
transaction, setting forth the identity and quantity of the penny
stock to
be purchased.
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In
order to approve a person's account for transactions in penny stocks, the broker
or dealer must:
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obtain
financial information and investment experience objectives of the
person;
and
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make
a reasonable determination that the transactions in penny stocks
are
suitable for that person and the person has sufficient knowledge
and
experience in financial matters to be capable of evaluating the risks
of
transactions in penny stocks.
|
The
broker or dealer must also deliver, prior to any transaction in a penny stock,
a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
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sets
forth the basis on which the broker or dealer made the suitability
determination; and
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that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
|
Generally,
brokers may be less willing to execute transactions in securities subject to
the
"penny stock" rules. This may make it more difficult for investors to dispose
of
our Common Stock and cause a decline in the market value of our stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both
the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account
and
information on the limited market in penny stocks.
The
information in this registration statement contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
This
Act provides a "safe harbor" for forward-looking statements to encourage
companies to provide prospective information about themselves so long as they
identify these statements as forward looking and provide meaningful cautionary
statements identifying important factors that could cause actual results to
differ from the projected results. All statements other than statements of
historical fact made in this registration statement are forward looking. In
particular, the statements herein regarding industry prospects and future
results of operations or financial position are forward-looking statements.
Forward-looking statements reflect management's current expectations and are
inherently uncertain. Our actual results may differ significantly from
management's expectations.
We
will
not receive any of the proceeds from the sale of the shares of our Common Stock
because such shares are being offered by the selling shareholders and we are
not
offering any shares for sale under this prospectus. We may receive proceeds
from
the exercise of the warrants held by the selling shareholders. We will apply
such proceeds, if any, toward working capital. As of the date of this
prospectus, none of these warrants have been exercised.
Corporate
History
We
were
founded in 1967 by Deloy Miller, our Chief Executive Officer, as a sole
proprietorship. On January 22, 1978, we were incorporated under the laws of
the
State of Tennessee as “Miller Contract Drilling, Inc.” We changed our name to
Miller Petroleum, Inc. on January 13, 1997.
Current
Business
We
are
actively engaged in the exploration, development, production and acquisition
of
crude oil and natural gas primarily in eastern Tennessee. In December 2005,
we
entered into a joint venture agreement with Wind City Oil & Gas, LLC (“Wind
City”) to form Wind Mill Oil & Gas, LLC (the “Wind Mill Joint Venture”). We
own 49.9% of the Wind Mill Joint Venture and Wind City owns 50.1%. We
contributed approximately 43,000 acres, which we held under lease in Tennessee,
to the Wind Mill Joint Venture for oil and gas exploration, development and
exploitation of undeveloped wells. The joint venture will only encompass new
drilling projects. We retained our working interest in the developed and
producing wells located on such leases. In connection with the development
of
wells by the Wind Mill Joint Venture, we will also receive revenue for providing
labor and equipment.
Oil
and Gas Leases
We
are an
exploration and production company who utilize
seismic data, and other advanced technologies for geophysical exploration and
development of oil and gas wells. In addition to our engineering and geological
capabilities, we have work over rigs, dozers, roustabout crews and equipment
to
set pumping units, tanks and lay flow lines, winch trucks and trailers for
traveling support, backhoes, ditchers, fusion machines and welders for pipeline
and compression installation, as well as other equipment necessary to take
a
drilling program from the development stage to completion. The company also
sells rigs, oilfield trailers, compressors and other miscellaneous oil and
gas
production equipment. In addition to this equipment, our Wind Mill Joint Venture
has purchased a new Atlas Copco RD20 drilling rig, used RD 20 drilling rig
and
placed an order for two new SS185 Speed Star rigs to be delivered in December
2006.
Through
the Wind Mill Joint Venture, we are presently developing leases referred to
as
the Koppers North Field and Cardin to form 10,500 contiguous acres, the Koppers
South Field with 20,700 contiguous acres and the Lindsay Field with 3400
contiguous acres. The Koppers, Cardin and Lindsay Fields are in Campbell County,
Tennessee. Additionally, we are developing prospects in Roane County, Tennessee
to include 3500 acres and 4800 acres in Anderson County, Tennessee. All of
these
prospects are located in the Appalachian Basin. In addition to our prospects
in
the Appalachian Basin, we are currently drilling a 10,800 foot well in Brazoria
County, Texas. This well is located in the South Rowan Field and will penetrate
to 15 Frio Sands exploiting attic reserves. There are no market restrictions
in
any of the mentioned areas.
Our
current drilling program calls for the development of 150 wells comprising
Devonian Shale gas wells in the Koppers North/Cardin Tract and "Big Lime"
oil
and gas wells in the Koppers South and Lindsay Fields. Our drilling program
will
aslo include the development of oil and gas wells in the
Trenton/Stonesriver/Knox formations to a depth of 6200 feet in the Roane
and
Anderson Counties.
In
Roane
County, the Eula Butler Et Al #1 well and the Edwards-Fowler Unit #1 well
have
been completed. The
2850 foot zone of the Edwards has been completed in the Trenton where a 24
hour
open flow test indicates natural gas flowing through a 3/8” choke at 210 psi or
about 750 mcfgd. The Stonesriver section in the Butler has not been that
encouraging. We are currently considering treating the same prolific Trenton
zone as in the Edwards.
On
April
11, 2005, we signed an agreement with Norwest Energy, NL of Perth, Australia
(“Norwest”) and Golden Triangle Energy of Houston, Texas (“GTE”) to develop the
Koppers North and Carden Tract. Five wells were drilled and this agreement
has terminated. GTE and Norwest retain a 75% working interest and Miller
Petroleum has a 25% working interest in the five wells. Other than 40 acres
around each of the wells, the remaining acreage has reverted to us.
Lease
and Royalty Terms
Koppers
Lease or "ARCO/GULF Farmout"
Located
in Campbell County, Tennessee, this is the largest acreage block we have under
lease. This acreage was acquired through a farmout agreement with Atlantic
Richfield (“ARCO”), which has since merged into British Petroleum. We own a 100%
working interest in approximately 27,000 acres. This lease provides for a
landowner royalty of 12.5% and an overriding royalty interest of 7.5% with
an
80% net royalty interest. The lease is split into two parcels. A 6,300 acre
northern parcel borders the Kentucky state line and a 20,700 acre parcel borders
the city of LaFollette, Tennessee. Currently, there are ten producing oil wells
on the southern tract of this lease, consisting of Koppers 9b, 10b, 18b, 20b,
22b, 23b, 26b, 27b, 28b, 32b,. The ten wells have produced 163,983 barrels
of
oil from the “Big Lime” formation through April 30, 2005. The Koppers North and
the Cardin tracts are producing gas from five wells in the “Devonian Shale”. An
extensive gathering system is in place to transport gas to the Delta Natural
Gas
sales line. This lease remains in effect for as long as there is production.
The
Company has leased and is currently leasing smaller tracts of 50 to 1,000 acres
adjacent to or near the Koppers South Fields acreage. We will engage in future
development on this acreage through the Wind Mill Joint Venture.
Carden
Tract
This
lease includes 4,200 acres in which we have a 100% working interest and an
81.25% net royalty interest. This tract joins the Koppers North parcel of 6,300
acres to form a 10,500 acre contiguous block in the north. The Koppers North
and
the Cardin tracts are producing gas from five wells in the “Devonian Shale”. The
lease has a three-year term with a five well drilling commitment. Three of
these
wells have been drilled. We will engage in future development on this acreage
through the Wind Mill Joint Venture.
Delta
Producers, Inc. Joint Venture
We
are
continuing our joint venture with Delta Producers, Inc. of Greenville,
Mississippi ("Delta Producers"). Currently, we are jointly producing ten gas
wells in the Jellico, Tennessee area northwest of the Pine Mountain Thrust
Fault. We have an average 25% working interest in these wells as well as
interest in several oil and gas leases consisting of approximately 2,000 acres
(collectively the "Delta Leases"). All of the Delta Leases are subject to a
12.5% landowner's royalty. These leases remain in effect for as long as there
is
production.
We
have
drilled seven wells with Delta Producers in the Lindsay Field #9, #10, #11,
#12,
#13, #14, #15, #16 and #17 well. The #11 well may not be completed. The #17
well
is currently being completed and the #16 will be completed considering the
results of #17. The remaining wells are all producing with gas being sold to
the
Powell-Clinch Utility District (“PCUD”), which serves the Harriman, Lake City
and Lafollette, Tennessee areas. The production of gas in the Lindsay Field
is
from the Big Lime Formation. We have a 50% working interest in the Lindsay
Field
lease. The lease also provides for a landowner’s royalty of 12.5%. With Delta
Producers, we purchased and built more than four miles of three-inch and
four-inch gathering lines to carry the gas to the market. This lease remains
in
effect for as long as there is production.
Well
#
|
|
Date
Began
Sales
of
Natural
Gas
|
|
Amount
of Natural
Gas
Sold as of
April
30, 2005 (Mcf)
|
|
Amount
of Natural
Gas
Sold as of
January
31, 2006 (Mcf)
|
|
9
|
|
|
3/02
|
|
|
85,165
|
|
|
99,572
|
|
10
|
|
|
1/03
|
|
|
29,057
|
|
|
31,932
|
|
11
|
|
|
*
|
|
|
*
|
|
|
*
|
|
12
|
|
|
3/02
|
|
|
194,432
|
|
|
212,515
|
|
13
|
|
|
8/03
|
|
|
38,090
|
|
|
46,803
|
|
14
|
|
|
8/03
|
|
|
24,721
|
|
|
30,894
|
|
15
|
|
|
11/03
|
|
|
20,707
|
|
|
27,121
|
|
16
|
|
|
*
|
|
|
*
|
|
|
*
|
|
17
|
|
|
*
|
|
|
*
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
This
well is awaiting completion.
|
Harriman
Prospect Joint Venture
The
Harriman Prospect Joint Venture includes several small leases in Roane County,
Tennessee with a total acreage of approximately 3,500 acres. The net royalty
interest is 87.5% with the landowners receiving a 12.5% royalty. We have a
50%
working interest in these leases. There are several smaller leases that expire
at different times. When drilled , as in the Butler and Edwards wells, they
will
be held by production.” We will engage in future development on this prospect
through our Wind Mill Joint Venture.
Additional
Oil and Gas Leases and Wells
We
have
several small leases in Campbell, Fentress, Morgan, Overton and Hancock counties
of Tennessee totaling approximately 3,000 acres. Each of these leases are
subject to a 12.5% to 20% landowner's royalty. There are fourteen producing
oil
wells and eleven producing natural gas wells on these leases that have produced
164,693 barrels of oil and 431,996 Mcf of natural gas.
Oil
and Gas Reserve Analyses
Our
estimated net proved oil and gas reserves and the present value of estimated
cash flows from those reserves are summarized below. The reserves were estimated
by Netherland Sewell and Associates, Inc., independent petroleum engineers,
in
accordance with regulations of the Securities and Exchange Commission, using
market or contract prices at the end of each of the years presented in the
consolidated financial statements. These prices were held constant over the
estimated life of the reserves.
Ownership
interests in estimated quantities of proved oil and gas reserves and changes
in
net proved reserves, all of which are located in the continental United States,
are summarized below for each of the years presented in the consolidated
financial statements.
|
|
|
|
|
|
|
|
Oil
(Bbls)
|
|
Gas
(Mcf)
|
|
Proved
reserves
|
|
|
|
|
|
Balance,
April 30, 2003
|
|
|
208,821
|
|
|
5,365,057
|
|
Discoveries
and extensions
|
|
|
68,903
|
|
|
718,160
|
|
Revisions
of previous estimates
|
|
|
79,169
|
|
|
2,642,073
|
|
Production
|
|
|
(5,957
|
)
|
|
(28,771
|
)
|
|
|
|
|
|
|
|
|
Balance
April 30, 2004
|
|
|
350,936
|
|
|
8,696,519
|
|
Discoveries
and extensions
|
|
|
35,400
|
|
|
220,000
|
|
Revisions
of previous estimates
|
|
|
(284,979
|
)
|
|
(7,592,419
|
)
|
Production
|
|
|
(7,532
|
)
|
|
(74,534
|
)
|
Balance
April 30, 2005
|
|
|
93,825
|
|
|
1,249,566
|
|
|
|
|
|
|
|
|
|
Proved
developed producing reserves at April 30, 2005
|
|
|
60,734
|
|
|
697,916
|
|
|
|
|
|
|
|
|
|
Proved
developed producing reserves at April 30, 2004
|
|
|
62,106
|
|
|
1,035,850
|
|
Our
standardized measure of discounted future net cash flows from our estimated
proved oil and gas reserves is provided for the financial statement user as
a
common base for comparing oil and gas reserves of enterprises in the industry
and may not represent the fair market value of our oil and gas reserves or
the
present value of future cash flows of equivalent reserves due to various
uncertainties inherent in making these estimates. Those factors include changes
in oil and gas prices from year-end prices used in the estimates, unanticipated
changes in future production and development costs and other uncertainties
in
estimating quantities and present values of oil and gas reserves.
The
following table presents the standardized measure of discounted future net
cash
flows from our ownership interests in proved oil and gas reserves as of the
end
of each of the years presented in the consolidated financial statements. The
standardized measure of future net cash flows as of April 30, 2005 and 2004
are
calculated using weighted average process in effect as of those dates. Those
prices were $6.75 and $6.25 respectively, per Mcf of natural gas, and $44.50
and
$32.75 respectively, per barrel of oil. The resulting estimated future cash
inflows are reduced by estimated future costs to develop and produce the
estimated proved reserves based on year-end cost levels. Future income taxes
are
based on year-end statutory rates, adjusted for any operating loss carryforwards
and tax credits. The future net cash flows are reduced to present value by
applying a 10% discount rate.
Standardized
measures of discounted future net cash flows at April 30, 2005 and 2004 are
as
follows:
|
|
2005
|
|
2004
|
|
Future
cash flows
|
|
$
|
12,747,600
|
|
$
|
65,105,641
|
|
Future
production costs and taxes
|
|
|
(1,939,000
|
)
|
|
(2,769,464
|
)
|
Future
development costs
|
|
|
(745,000
|
)
|
|
(4,740,000
|
)
|
Future
income tax expense
|
|
|
(3,119,716
|
)
|
|
(17,854,815
|
)
|
Future
cash flows
|
|
|
6,943,884
|
|
|
39,741,362
|
|
Discount
at 10% for timing of cash flows
|
|
|
(3,463,248
|
)
|
|
(16,591,415
|
)
|
Discounted
future net cash flows from proved reserves
|
|
$
|
3,480,636
|
|
$
|
23,149,947
|
|
Changes
in Standardized Measure of Discounted Future Net Cash Flows
The
following table summarized the changes in the standardized measure of discounted
future net cash flows from estimated production of our proved oil and gas
reserves after income taxes for each of the years presented in the consolidated
financial statements.
The
following table sets forth the changes in the standardized measure of discounted
future net cash flows from proved reserves for April 30, 2005 and
2004.
|
|
April
30,
|
|
|
|
2005
|
|
2004
|
|
Balance,
beginning of year
|
|
$
|
23,149,947
|
|
$
|
13,165,412
|
|
Sales,
net of production costs and taxes
|
|
|
(784,409
|
)
|
|
(773,033
|
)
|
Changes
in prices and production costs
|
|
|
7,490,059
|
|
|
9,737,935
|
|
Revisions
of quantity estimates
|
|
|
(39,206,898
|
)
|
|
5,505,439
|
|
Development
costs incurred
|
|
|
3,995,000
|
|
|
|
|
Net
changes in income taxes
|
|
|
8,836,937
|
|
|
(4,485,806
|
)
|
Balances,
end of year
|
|
$
|
3,480,636
|
|
$
|
23,149,947
|
|
The
reserves presented in this Report were evaluated in accordance with Rule 4-10
of
Regulation S-X promulgated by the Securities and Exchange Commission
(“SEC”).
Principal
Products or Services and Markets
The
principal markets for our crude oil and natural gas are refining companies,
utility companies and private industry end users. Direct purchases of our crude
oil are made statewide at our well sites by South Kentucky Purchasing Company,
a
refinery located in Somerset, Kentucky (“South Kentucky
Purchasing”).
Our
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. Cumberland Valley Resources (“CV
Resources”) purchases our natural gas that is produced from the "Delta Leases."
Nami Resources Company (“Nami Resources”) purchases our gas from the Jellico
West field and Tengasco services the Swan Creek production. Local markets in
Tennessee are served by Citizens Gas Utility District (‘Citizens Gas”) and the
Powell Clinch Utility District. Surplus gas is placed in storage facilities
or
transported to East Tennessee Natural Gas which serves Tennessee and Virginia.
We
anticipate that our products will be sold to the aforementioned companies;
however, no assurance can be given that we will be able to make such sales
or
that if we do, we will be able to receive a price that is sufficient to make
our
operations profitable.
Distribution
Methods of Products or Services.
Crude
oil
is stored in tanks at the well site until the purchaser retrieves it by tank
truck. Natural gas is delivered to the purchaser via gathering lines into the
main gas transmission line.
Competition
Our
oil
and gas exploration activities in Tennessee are undertaken in a highly
competitive and speculative business environment. In seeking any other suitable
oil and gas properties for acquisition, we compete with a number of other
companies located in Tennessee and elsewhere, including large oil and gas
companies and other independent operators, many with greater financial resources
than us.
At
the
local level, we have several competitors in the areas of the acreage which
we
have under lease in the State of Tennessee, five of which may be deemed to
be
significant. These are Consol Energy, Inc., Can Argo Energy Corporation (“CNR”),
Champ Oil, John Henry Oil and Tengasco. These companies are in competition
with
us for oil and gas leases in known producing areas in which we currently
operate, as well as other potential areas of interest.
Although,
our management generally does not foresee difficulties in procuring logging,
cementing and well treatment services in the area of our operations, several
factors, including increased competition in the area, may limit the availability
of logging equipment, cementing and well treatment services in the future.
If
such an event occurs, it may have a significant adverse impact on the
profitability of our operations.
The
prices of our 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.
Dependence
on One or a Few Major Customers
We
are
dependent on local purchasers of hydrocarbons to purchase our products in the
areas where our properties are located. The loss of one or more of our primary
purchasers may have a substantial adverse impact on our sales and on our ability
to operate profitably.
Currently,
we are selling natural gas to the following purchasers:
|
·
|
Citizens
Gas purchases natural gas from our wells in Scott County, Tennessee.
Citizens is paying the Inside FERC Tn Zone 1 (Louisiana) monthly
index
less transportation costs. Sales to Citizens is less than 1% of our
total
natural gas sales.
|
|
·
|
Nami
Resources purchases our gas from the Jellico Field. The sales price
varies
each month but will not be less than $6.00 per Mcf. Sales to Nami
Resources at the present time are approximately 25% of our total
natural
gas sales.
|
|
·
|
Tengasco
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
% of
total natural gas sales.
|
|
·
|
CV
Resources purchases the gas produced from the joint venture with
Delta
Producers, Inc. in the Jellico East Field, Tennessee. The sales price
is
Appalachian Index minus Columbia transportation and fuel. Cumberland
Valley Resources purchases approximately 20% of total natural gas
sales.
|
|
·
|
PCUD
purchases the gas from the Lindsay 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 44%
of our
gas sales are to the PCUD.
|
|
·
|
South
Kentucky Purchasing purchases all of our crude oil. South Kentucky
Purchasing’s purchase price is based on postings for the Illinois Basin
less $2.50.
|
Patents,
Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor
Contracts
Royalty
agreements relating to oil and gas production are standard in the industry.
The
amounts of the royalty payments which we receive varies from lease to lease.
(See Description of Business—“Current Business” in this Annual
Report.)
Governmental
Approval and Regulation
The
production and sale of oil and gas are subject to regulation by federal, state
and local authorities. None of the principal products that we offer require
governmental approval, although permits are required for the drilling of oil
and
gas wells.
Our
sales
of natural gas are affected by intrastate and interstate gas transportation
regulation. Beginning in 1985, the Federal Energy Regulatory Commission
(“FERC”), which sets the rates and charges transportation and sale of natural
gas, adopted regulatory changes that have significantly altered the
transportation and marketing of natural gas. The stated purpose of FERC’s
changes are to promote competition among the various sectors of the natural
gas
industry. In 1995, FERC implemented regulations generally grandfathering all
previously approved interstate transportation rates and establishing an indexing
system for those rates by which adjustments are made annually based on the
rate
of inflation, subject to certain conditions and limitations. These regulations
may tend to increase the cost of transporting oil and natural gas by pipeline.
Every five years, FERC will examine the relationship between the change in
the
applicable index and the actual cost changes experienced by the industry. We
are
not able to predict with certainty what effect, if any, these regulations will
have on us.
Tennessee
law requires that we obtain state permits for the drilling of oil and gas wells
and to post a bond with the Tennessee Gas and Oil Board (the “Oil and Gas
Board”) to ensure that each well is reclaimed and properly plugged when it is
abandoned. The reclamation bonds cost $1,500 per well. The cost for the plugging
bonds are $2,000 per well or $10,000 for ten wells. Currently, we have several
of the $10,000 plugging bonds. For most of the reclamation bonds, we have
deposited a $1,500 Certificate of Deposit with the Oil and Gas Board.
The
state
and regulatory burden on the oil and natural gas industry generally increases
our cost of doing business and affects our profitability. While we believe
we
are presently in compliance with all applicable federal, state and local laws,
rules and regulations, continued compliance (or failure to comply) and future
legislation may have an adverse impact on our present and contemplated business
operations. Because such federal and state regulation are amended or
reinterpreted frequently, we are unable to predict with certainty the future
cost or impact of complying with these laws.
Research
and Development
We
did
not incur any research and development expenditures during the fiscal year
ended
April 30, 2005.
Environmental
Compliance
We
are
subject to various federal, state and local laws and regulations governing
the
protection of the environment, such as the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (“CERCLA”), and the Federal
Water Pollution Control Act of 1972, as amended (the “Clean Water Act”), which
affect our operations and costs. In particular, our exploration, development
and
production operations, our activities in connection with storage and
transportation of oil and other hydrocarbons and our use of facilities for
treating, processing or otherwise handling hydrocarbons and related wastes
may
be subject to regulation under these and similar state legislation. These laws
and regulations:
|
·
|
restrict
the types, quantities and concentration of various substances that
can be
released into the environment in connection with drilling and production
activities;
|
|
·
|
limit
or prohibit drilling activities on certain lands lying within wilderness,
wetlands and other protected areas;
and
|
|
·
|
impose
substantial liabilities for pollution resulting from our
operations.
|
Failure
to comply with these laws and regulations may result in the assessment of
administrative, civil and criminal fines and penalties or the imposition of
injunctive relief. Changes in environmental laws and regulations occur
regularly, and any changes that result in more stringent and costly waste
handling, storage, transport, disposal or cleanup requirements could materially
adversely affect our operations and financial position, as well as those in
the
oil and natural gas industry in general. While we believe that we are in
substantial compliance with current applicable environmental laws and
regulations and that continued compliance with existing requirements would
not
have a material adverse impact on us, there is no assurance that this trend
will
continue in the future.
As
with
the industry generally, compliance with existing regulations increases our
overall cost of business. The areas affected include:
|
·
|
unit
production expenses primarily related to the control and limitation
of air
emissions and the disposal of produced
water;
|
|
·
|
capital
costs to drill exploration and development wells primarily related
to the
management and disposal of drilling fluids and other oil and natural
gas
exploration wastes; and
|
|
·
|
capital
costs to construct, maintain and upgrade equipment and
facilities.
|
CERCLA,
also known as “Superfund,” imposes liability for response costs and damages to
natural resources, without regard to fault or the legality of the original
act,
on some classes of persons that contributed to the release of a “hazardous
substance” into the environment. These persons include the “owner” or “operator”
of a disposal site and entities that disposed or arranged for the disposal
of
the hazardous substances found at the site. CERCLA also authorizes the
Environmental Protection Agency (“EPA”) and, in some instances, third parties to
act in response to threats to the public health or the environment and to seek
to recover from the responsible classes of persons the costs they incur. It
is
not uncommon for neighboring landowners and other third parties to file claims
for personal injury and property damage allegedly caused by the hazardous
substances released into the environment. In the course of our ordinary
operations, we may generate waste that may fall within CERCLA’s definition of a
“hazardous substance.” We may be jointly and severally liable under CERCLA or
comparable state statutes for all or part of the costs required to clean up
sites at which these wastes have been disposed.
We
currently lease properties that for many years have been used for the
exploration and production of oil and natural gas. Although we and our
predecessors have used operating and disposal practices that were standard
in
the industry at the time, hydrocarbons or other wastes may have been disposed
or
released on, under or from the properties owned or leased by us or on, under
or
from other locations where these wastes have been taken for disposal. In
addition, many of these properties have been operated by third parties whose
actions with respect to the treatment and disposal or release of hydrocarbons
or
other wastes were not under our control. These properties and wastes disposed
on
these properties may be subject to CERCLA and analogous state laws. Under these
laws, we could be required:
|
·
|
to
remove or remediate previously disposed wastes, including wastes
disposed
or released by prior owners or
operators;
|
|
·
|
to
clean up contaminated property, including contaminated groundwater;
or to
perform remedial operations to prevent future
contamination.
|
|
·
|
to
clean up contaminated property, including contaminated groundwater;
or to
perform remedial operations to prevent future
contamination.
|
At
this
time, we do not believe that we are associated with any Superfund site and
we
have not been notified of any claim, liability or damages under
CERCLA.
The
Resource Conservation and Recovery Act (“RCRA”) is the principal federal statute
governing the treatment, storage and disposal of hazardous wastes. RCRA imposes
stringent operating requirements and liability for failure to meet such
requirements on a person who is either a “generator” or “transporter” of
hazardous waste or an “owner” or “operator” of a hazardous waste treatment,
storage or disposal facility. At present, RCRA includes a statutory exemption
that allows most oil and natural gas exploration and production waste to be
classified as nonhazardous waste. A similar exemption is contained in many
of
the state counterparts to RCRA. As a result, we are not required to comply
with
a substantial portion of RCRA’s requirements because our operations generate
minimal quantities of hazardous wastes. At various times in the past, proposals
have been made to amend RCRA to rescind the exemption that excludes oil and
natural gas exploration and production wastes from regulation as hazardous
waste. Repeal or modification of the exemption by administrative, legislative
or
judicial process, or modification of similar exemptions in applicable state
statutes, would increase the volume of hazardous waste we are required to manage
and dispose of and would cause us to incur increased operating expenses.
The
Clean
Water Act imposes restrictions and controls on the discharge of produced waters
and other wastes into navigable waters. Permits must be obtained to discharge
pollutants into state and federal waters and to conduct construction activities
in waters and wetlands. The Clean Water Act requires us 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. Certain state regulations and the general permits issued under the Federal
National Pollutant Discharge Elimination System program prohibit the discharge
of produced waters and sand, drilling fluids, drill cuttings and certain other
substances related to the oil and natural gas industry into certain coastal
and
offshore waters. Further, the EPA has adopted regulations requiring certain
oil
and natural gas exploration and production facilities to obtain permits for
storm water discharges. Costs may be associated with the treatment of wastewater
or developing and implementing storm water pollution prevention plans.
The
Clean
Water Act and comparable state statutes provide for civil, criminal and
administrative penalties for unauthorized discharges for oil and other
pollutants and impose liability on parties responsible for those discharges
for
the costs of cleaning up any environmental damage caused by the release and
for
natural resource damages resulting from the release. We believe that our
operations comply in all material respects with the requirements of the Clean
Water Act and state statutes enacted to control water
pollution.
Our
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 us to liability for the conduct of operations or conditions caused
by
others, or for acts which may have been 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 our operations.
In
addition, our 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. We have an Emergency Action and Environmental Response
Policy Program in place. This program details the appropriate response to any
emergency that management believes to be possible in our area of operations.
We
believe we are presently in compliance with all applicable federal and state
environmental laws, rules and regulations; however, continued compliance (or
failure to comply) and future legislation may have an adverse impact on our
present and contemplated business operations.
The
foregoing is only a brief summary of some of the existing environmental laws,
rules and regulations to which our business operations are subject, and there
are many others, the effects of which could have an adverse impact on our
business. 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 our current future
operations.
Insurance
Our
operations are subject to all the risks inherent in the exploration for, and
development and production of oil
and
gas including blowouts, fires and other casualties. We maintain insurance
coverage customary for operations of a similar
nature, but losses could arise from uninsured risks or in amounts in excess
of
existing insurance coverage.
Employees
We
currently have 11full-time employees.
The
following discussion is intended to facilitate an understanding of our business
and results of operations. It should be read in conjunction with our
consolidated financial statements and the accompanying notes to the consolidated
financial statements included elsewhere in this prospectus.
Introduction
The
following discussion is intended to facilitate an understanding of our business
and results of operations and includes forward-looking statements that reflect
our plans, estimates and beliefs. It should be read in conjunction with our
unaudited consolidated financial statements and the accompanying notes to the
consolidated financial statements included herein. Our actual results could
differ materially from those discussed in these forward-looking
statements.
Overview
We
are
actively engaged in the exploration, development, production and acquisition
of
crude oil and natural gas primarily in eastern Tennessee. In December 2005,
we
entered into a joint venture agreement with Wind City Oil & Gas, LLC (“Wind
City”) to form Wind Mill Oil & Gas, LLC (the “Wind Mill Joint Venture”). We
own 49.9% of the Wind Mill Joint Venture and Wind City owns 50.1%. We
contributed approximately 43,000 acres, which we held under lease in Tennessee,
to the Wind Mill Joint Venture for oil and gas exploration, development and
exploitation of undeveloped wells. The joint venture will only encompass new
drilling projects. We retained our working interest in the developed and
producing wells located on such leases. In connection with the development
of
wells by the Wind Mill Joint Venture, we will also receive revenue for providing
labor and equipment. Currently, in conjunction with those acres held by the
Wind
Mill Joint Venture, we have approximately 50,000 acres under lease. About 90%
of
such leases are held by production.
Most
of
our current oil and gas production is from the Big Lime Formation. However,
there are more than 160 development drilling locations that target the Devonian
(Chattanooga Shale) as well as the Big Lime Formation. We completed the drilling
and fracing of the first five wells on Koppers North and Carden Prospect in
Campbell County, Tennessee, which consist of, the Koppers 6A and 7A and the
Carden 1A, 2A and 3A. The wells have been drilled to approximately 3,000 feet
in
depth to fully penetrate a thickened Devonian Shale, with up to 828 feet of
potential hydrocarbon entry. Average open flows are 130 Mcf of natural gas
per
day for each such well. Gathering lines have been installed to begin gas
sales.
In
June
2001, we made a conventional Big Lime gas discovery, on the Lindsay Land Company
lease that we jointly own with Delta Producers, Inc. Currently there are six
producing wells on the property. Two wells were drilled in June 2005, the
Lindsay #16 and #17. These wells fully penetrated the Big Lime and Devonian
Shale to depths of approximately 4,700 feet. The Lindsay #17 has been foam
fraced in the Devonian Shale and will be fraced in the Big Lime when testing
is
completed in the shale. There are at a minimum twenty-three additional drill
sites on this 3,400 acre lease which is situated near Caryville, Tennessee.
The
balance of this lease was assigned to the Wind Mill Joint Venture.
On
January 5, 2006, we drilled the Edwards/Fowler #1 gas well to 4,632 feet. This
well is the first well to be drilled under the Wind Mill Joint Venture pursuant
to which Wind Mill Oil & Gas, LLC will have a 25% net interest in the wells,
of which we will own 49.9%. The well is being completed and management
anticipates that it will be put on production in the near future.
We
are
continuing our leasing efforts in the Eastern Tennessee portion of the Eastern
Overthrust Belt, which runs from Eastern Canada through Appalachia into Alabama.
Acreage is being leased there in selected areas, which will be a part of the
Wind Mill Joint Venture.
Results
of Operations
Year
Ended April 30, 2005 compared to Year Ended April 30, 2004
In
fiscal
2005, we increased our capitalized costs of oil and gas properties
from $2,638,005 to $2,941,832. Our development costs for oil and gas
properties decreased from $565,779 to $549,687. Estimates of proved
reserves of oil decreased from 350,937 barrels to 93,825 and estimates of proved
reserves of natural gas decreased from 8,696,519 Mcf to 1,249,566 Mcf. Proved
developed producing reserves of oil decreased to 60,734 barrels from 62,106
barrels and proved developed producing reserves of natural gas decreased to
697,916 Mcf from 1,035,850 Mcf. These decreases were primarily due to a change
in the evaluations by our new engineering firm NSAI, which reclassified
previous estimates of proved reserves as possible and probable. (See
Description of Business—“Oil and Gas Reserve Analyses.” in this Annual Report.)
During fiscal 2005, future cash flows discounted 10% after income taxes from
proved reserves decreased from $23,149,947 to $3,480,639. Our oil and gas
revenue was $784,409 for fiscal 2005, up from $773,033 for fiscal 2004. Volatile
changes in the price of natural gas and oil partially offset by normal declines
in our production curves brought about this increase. During fiscal 2005,
service and drilling revenue was $209,680, down from $1,186,823, in part due
to the disposal of a drilling rig. Cost of revenue from service and
drilling decreased by $682,943 from Fiscal 2004 to Fiscal 2005. The drilling
rig
was old and in need of major repairs. To acquire new drill pipe, hammers and
a
compressor would cost $320,000, and likely the motor would need to be replaced
to continue using the rig. The cost of repairs, combined with high worker’s
compensation insurance rates, would have resulted in a negative cash flow to
the
Company. At the time the rig was sold it was not being utilized, and management
believed that it was in the best interests of the Company sell the rig and
use
the funds to enhance the Company’s oil and gas leases. Retail sales increased
from $6,939 in fiscal 2004, to $35,947 in fiscal 2005 primarily due to the
market volatility, and are included in service and drilling revenue for
financial statement purposes.
During
fiscal 2005, Miller Petroleum produced 75 MMBTUs of natural gas, with an average
price of $6.28 per MMBTU. Production decreased from about 88 MMBTUs in fiscal
2004, and the average price per MMBTU was $5.63. The following tables reflect
our production figures for the fiscal years ended April 30, 2005, and 2004
Fiscal
Year
|
|
Average
Net Production Gas /MBTU
|
|
Sales
Price
/MMBTU
|
|
2004
|
|
|
88,000
|
|
$
|
5.63
|
|
2005
|
|
|
75,000
|
|
$
|
6.28
|
|
Fiscal
Year
|
|
Average
Net
Barrels
of Oil
|
|
Sales
Price
|
|
2004
|
|
|
10,100
|
|
$
|
27.30
|
|
2005
|
|
|
7,500
|
|
$
|
40.48
|
|
|
|
2003
|
|
2004
|
|
2005
|
|
Net
Productive Wells
|
|
|
22.60
|
|
|
20.20
|
|
|
20.20
|
|
Developed
Acreage
|
|
|
1,480
|
|
|
1,480
|
|
|
1,480
|
|
Undeveloped
Acreage
|
|
|
41,120
|
|
|
41,120
|
|
|
41,120
|
|
Net
Productive Exploratory Wells
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Net
Dry Exploratory Wells
|
|
|
0.24
|
|
|
0.30
|
|
|
0.30
|
|
Net
Productive Developmental Wells
|
|
|
1.408
|
|
|
1.20
|
|
|
1.20
|
|
Net
Dry Developmental Wells
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Nine
Months Ended January 31, 2006 compared to Nine Months Ended January 31,
2005
|
|
For
the Nine Months Ended
|
|
Increase
/
|
|
|
|
January
31
|
|
(Decrease)
|
|
|
|
2006
|
|
2005
|
|
2005
to 2006
|
|
REVENUES
|
|
|
|
|
|
|
|
Oil
and gas revenue
|
|
$
|
627,931
|
|
$
|
601,240
|
|
$
|
26,691
|
|
Service
and drilling revenue
|
|
|
1,480,804
|
|
|
157,685
|
|
|
1,323,119
|
|
Total
Revenue
|
|
|
2,108,735
|
|
|
758,925
|
|
|
1,349,810
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
Cost
of oil and gas revenue
|
|
|
62,793
|
|
|
60,010
|
|
|
2,783
|
|
Cost
of service and drilling revenue
|
|
|
1,220,310
|
|
|
55,515
|
|
|
1,164,795
|
|
Selling,
general and administrative
|
|
|
1,515,630
|
|
|
310,696
|
|
|
1,204,934
|
|
Salaries
and wages
|
|
|
229,144
|
|
|
180,658
|
|
|
48,486
|
|
Depreciation,
Depletion and amortization
|
|
|
255,657
|
|
|
152,659
|
|
|
102,998
|
|
Total
Costs and Expenses
|
|
|
3,283,534
|
|
|
759,538
|
|
|
2,523,996
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM OPERATIONS
|
|
|
(1,174,799
|
)
|
|
(613
|
)
|
|
(1,174,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
667
|
|
|
674
|
|
|
(7
|
)
|
Gain
on sale of equipment
|
|
|
|
|
|
98,638
|
|
|
(98,638
|
)
|
Interest
expense
|
|
|
(1,319,751
|
)
|
|
(165,386
|
)
|
|
(1,154,365
|
)
|
Total
Other Income (Expense)
|
|
|
(1,319,084
|
)
|
|
(66,074
|
)
|
|
(1,253,010
|
)
|
NET
INCOME (LOSS)
|
|
$
|
(2,493,883
|
)
|
$
|
(66,687
|
)
|
$
|
(2,427,196
|
)
|
Revenue
Oil
and
gas revenue was $627,931 for the nine months ended January 31, 2006 as compared
to $601,240 for the nine months ended January 31, 2005, an increase of $26,691.
This resulted from more wells producing more oil and gas.
Service
and drilling revenue was $1,480,804 for the nine months ended January 31, 2006
as compared to $157,685 for the nine months ended January 31, 2005, an increase
of $1,323,119. This resulted from an increase in drilling activity with several
participants.
Cost
and Expense
The
cost
of oil and gas revenue was $62,793 for the nine months ended January 31, 2006
as
compared to $60,010 for the nine months ended January 31, 2005, an increase
of
$2,783. This increase resulted from the cost associated with increased
production.
The
cost
of service and drilling revenue was $1,220,310 for the nine months ended January
31, 2006 as compared to $55,515 for the nine months ended January 31, 2005,
an
increase of $1,164,795. This increase is due to the increase in drilling
activities and revenue.
Selling,
general and administrative expense was $1,515,630 for the nine months ended
January 31, 2006 as compared to $310,696 for the nine months ended January
31,
2005, an increase of $1,204,934. This increase results from an increase in
stock
compensation of approximately $700,000, increased legal and professional fees
of
approximately $360,000 and a general increase of selling, general and
administrative expense.
Salaries
and wages expense was $229,144 for the nine months ended January 31, 2006 as
compared to $180,658 for the nine months ended January 31, 2005, an increase
of
$48,486. This increase resulted from the addition of new employees and less
cost
being capitalized in lease acquisitions.
Depreciation,
depletion and amortization was $255,657 for the nine months ended January 31,
2006 as compared to $152,659 for the nine months ended January 31, 2005, an
increase of $102,998. This resulted from more wells and equipment being placed
into service.
Gain
on
the sale of equipment was zero for the nine months ended January 31, 2006 as
compared to $98,638 for the nine months ended January 31, 2005, a decrease
of
$98,638. The gain for the nine months ended January 31, 2005 resulted from
the
sale of a drilling rig. There were no sales of equipment during the nine months
ended January 31, 2006.
Interest
expense was $1,319,751 for the nine months ended January 31, 2006 as compared
to
$165,386 for the nine months ended January 31, 2005, an increase of $1,154,365.
This resulted from increased interest cost, loan cost, warrants and penalty
warrants associated with loans.
Three
Months Ended January 31, 2006 compared to Three Months Ended January 31,
2005
|
|
For
the Three Months Ended
|
|
Increase
/
|
|
|
|
January
31
|
|
(Decrease)
|
|
|
|
2006
|
|
2005
|
|
2005
to 2006
|
|
REVENUES
|
|
|
|
|
|
|
|
Oil
and gas revenue
|
|
$
|
285,973
|
|
$
|
238,790
|
|
$
|
47,183
|
|
Service
and drilling revenue
|
|
|
138,632
|
|
|
30,014
|
|
|
108,618
|
|
Total
Revenue
|
|
|
424,605
|
|
|
268,804
|
|
|
155,801
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
Cost
of oil and gas revenue
|
|
|
23,751
|
|
|
19,567
|
|
|
4,184
|
|
Cost
of service and drilling revenue
|
|
|
153,114
|
|
|
19,323
|
|
|
133,791
|
|
Selling,
general and administrative
|
|
|
969,907
|
|
|
74,706
|
|
|
895,201
|
|
Salaries
and wages
|
|
|
70,152
|
|
|
82,884
|
|
|
(12,732
|
)
|
Depreciation,
Depletion and amortization
|
|
|
93,890
|
|
|
63,330
|
|
|
30,560
|
|
Total
Costs and Expenses
|
|
|
1,310,814
|
|
|
259,810
|
|
|
1,051,004
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM OPERATIONS
|
|
|
(886,209
|
)
|
|
8,994
|
|
|
(895,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
470
|
|
|
429
|
|
|
41
|
|
Gain
on sale of equipment
|
|
|
|
|
|
56,149
|
|
|
(56,149
|
)
|
Interest
expense
|
|
|
(690,995
|
)
|
|
(52,363
|
)
|
|
(638,632
|
)
|
Total
Other Income (Expense)
|
|
|
(690,525
|
)
|
|
4,215
|
|
|
(694,740
|
)
|
NET
INCOME (LOSS)
|
|
$
|
(1,576,734
|
)
|
$
|
13,209
|
|
$
|
(1,589,943
|
)
|
Revenue
Oil
and
gas revenue was $285,973 for the three months ended January 31, 2006 as compared
to $238,790 for the three months ended January 31, 2005, an increase of $47,183.
This increase resulted from more wells producing more oil and gas.
Service
and drilling revenue was $138,632 for the three months ended January 31, 2006
as
compared to $30,014 for the three months ended January 31, 2005, an increase
of
$108,618. This increase resulted from an increase in drilling activity with
several participants.
Cost
and Expense
The
cost
of oil and gas revenue was $23,751 for the three months ended January 31, 2006
as compared to $19,567 for the three months ended January 31, 2005, an increase
of $4,184. This increase resulted from the cost associated with increased
production.
The
cost
of service and drilling revenue was $153,114 for the three months ended January
31, 2006 as compared to $19,323 for the three months ended January 31, 2005,
an
increase of $133,791. This increase is due to the increase in drilling
activities and revenue.
Selling,
general and administrative expense was $969,907 for the three months ended
January 31, 2006 as compared to $74,706 for the three months ended January
31,
2005, an increase of $895,201. This increase results from an increase in stock
compensation of approximately $640,000, increased legal and professional fees
of
approximately $200,000 and a general increase of selling, general and
administrative expense.
Salaries
and wages expense was $70,152 for the three months ended January 31, 2006 as
compared to $82,884 for the three months ended January 31, 2005, a decrease
of
$12,732. This decrease resulted from reimbursement of a part of our salaries
from the Wind Mill Oil & Gas, LLC joint venture.
Depreciation,
depletion and amortization expense was $93,890 for the three months ended
January 31, 2006 as compared to $63,330 for the three months ended January
31,
2005, an increase of $30,560. This resulted from more wells and equipment being
placed into service.
Gain
on
the sale of equipment was zero for the three months ended January 31, 2006
as
compared to $56,149 for the three months ended January 31, 2005, a decrease
of
$56,149. The gain for the three months ended January 31, 2005 resulted from
the
sale of a drilling rig. There were no sales of equipment during the three months
ended January 31, 2006.
Interest
expense was $690,995 for the three months ended January 31, 2006 as compared
to
$52,363 for the three months ended January 31, 2005, an increase of $638,632.
This resulted from increased interest cost, loan cost, warrants and penalty
warrants associated with loans.
Off
Balance Sheet Arrangements
None.
Our
executive offices presently comprise approximately 6,300 square feet on 14
acres
of land in Huntsville, Tennessee that the company owns. Please
see “Current Business” for a description of our oil and gas leases and for
additional disclosure regarding our oil and gas operations in accordance with
pursuant to Industry Guides 2 of the Securities and Exchange Act (the “Act”).
See also “Description of Business—Oil an Gas Leases.”
Market
Information
Our
Common Stock is quoted on the National Association of Securities Dealers
Over-the-Counter Bulletin Board (“OTCBB”) under the symbol “MILL.” The following
quotations, obtained from National Quotation Bureau,
reflect
the high and low bids for our shares for the periods indicated and are based
on
inter-dealer prices, without retail mark-up, mark-down or commission and may
not
represent actual transactions.
|
|
High
|
|
Low
|
|
Quarter
Ended:
|
|
Bid
Prices ($)
|
|
|
|
|
|
|
|
July
31, 2005
|
|
|
1.45
|
|
|
1.20
|
|
October
31, 2005
|
|
|
1.24
|
|
|
1.10
|
|
January
31, 2006
|
|
|
1.30
|
|
|
1.30
|
|
|
|
|
|
|
|
|
|
July
31, 2004
|
|
|
1.01
|
|
|
1.01
|
|
October
31, 2004
|
|
|
0.45
|
|
|
0.38
|
|
January
31, 2005
|
|
|
0.38
|
|
|
0.38
|
|
April
30, 2005
|
|
|
0.90
|
|
|
0.90
|
|
|
|
|
|
|
|
|
|
July
31, 2003
|
|
|
0.55
|
|
|
0.55
|
|
October
31, 2003
|
|
|
0.68
|
|
|
0.45
|
|
January
31, 2004
|
|
|
0.45
|
|
|
0.35
|
|
April
30, 2004
|
|
|
0.91
|
|
|
0.59
|
|
|
|
|
|
|
|
|
|
Holders
There
were approximately 386 shareholders of record of our Common Stock as of April
6,
2006.
Dividends
We
have
not paid or declared any cash dividends to date and do not anticipate paying
any
in the foreseeable future. There are no present restrictions that limit our
ability to pay dividends or that are likely to do so in the future. We intend
to
retain earnings, if any, to support the growth of our business.
Shares
Issuable Under Equity Compensation Plans
The
table
below provides information, as of April 30, 2005, concerning securities
authorized for issuance under equity compensation plans.
Plan
category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
|
Weighted
average exercise price of outstanding options, warrants and
rights
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity
compensation plans approved by shareholders
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by shareholders
|
|
|
540,000(1
|
)
|
|
1.30
|
|
|
|
|
Total
|
|
|
540,000
|
|
|
1.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes
50,000 warrants granted to Herman Gettelfinger which expired in July
2005.
|
The
following table shows the names, ages and positions held by our executive
officers, directors and significant employees.
Name
|
|
Age
|
|
Position
|
Deloy
Miller
|
|
58
|
|
Director
and Chief Executive Officer
|
Ernest
Payne
|
|
58
|
|
President
|
Lyle
H. Cooper
|
|
63
|
|
Chief
Financial Officer
|
Herbert
J. White
|
|
79
|
|
Vice
President and Director
|
Herman
E. Gettelfinger
|
|
72
|
|
Director
|
Charles
M. Stivers
|
|
43
|
|
Director
|
Gary
Bible
|
|
55
|
|
Vice
President of Geology
|
Teresa
Cotton
|
|
43
|
|
Secretary
and Treasurer
|
Business
Experience.
Deloy
Miller
has been
Chairman of the Board of Directors since December 1996, and Chief Executive
Officer since December 1997. Mr. Miller 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.
Ernest
Payne
was
appointed President on August 2003. 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.
Lyle
H. Cooper was
appointed Chief Financial Officer on January 20, 2006. Mr. Cooper owns a private
CPA firm where since 1991 he has specialized in providing accounting, auditing,
tax and SEC related services. During 2002 and 2003 he served as the Secretary
of
Aurora Lighting, Inc., a leading manufacturer of electronic ballasts. In 2003
and 2004, Mr. Cooper participated as principal in an oil drilling venture in
Clinton County, Kentucky.
Charles
M. Stivers
has been
a Director since 2004. He also served as our Chief Financial Officer from 2004
until January 2006. Mr. Stivers has over 18 years accounting experience and
over
12 years of experience within the energy industry. He owns and operates Charles
M. Stivers, C.P.A., which specializes in the oil and gas industry and has
clients located in eight different states. His responsibilities include all
forms of SEC audit work, SEC quarterly financial statement filings, oil and
gas
consulting work, and income tax work. Mr. Stivers served as Treasurer and CFO
for Clay Resource Company and Senior Tax and Audit Specialist for Gallaher
and
Company. He received a Bachelor of Science degree in accounting from Eastern
Kentucky University.
Herbert
J. White
has been
a Vice President and Director since April 1997. Mr. White has more than 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
has been
a Director since 1997. Mr. 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 in September 1997. 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.
Teresa
Cotton
was
appointed Secretary/Treasurer in December 2001. Prior to joining the Miller
Team, Mrs. Cotton was employed by Halliburton Services. She has more than twenty
years experience in the oil and gas industry. Mrs. Cotton, a Tennessee native,
earned an A.S. in Business Administration at Roane State Community College
in
Huntsville, Tennessee 37756.
Audit
Committee Financial Expert
We
have
an audit committee consisting of Herman Gettelfinger and Charles Stivers. Our
board of directors has determined that Mr. Stivers is an “audit committee
financial expert” based on his qualification as a certified public accountant
and his prior experience.
The
following table sets forth certain information concerning the number of shares
of our Common Stock owned beneficially as of April 6, 2006 by: (i) each person
(including any group) known to us to own more than five percent (5%) of our
Common Stock, (ii) each of our directors and each of our named executive
officers and (iii) officers and directors as a group. We based our calculations
on 14,296,856 shares outstanding on April 6, 2006.
The
number and percentage of shares beneficially owned is determined in accordance
with Rule 13d-3 of the Securities Exchange Act of 1934, and is not necessarily
indicative of beneficial ownership for any other purpose. Shares of Common
Stock
that a person has a right to acquire within 60 days are deemed outstanding
for
purposes of computing the percentage ownership of that person, but are not
deemed outstanding for purposes of computing the percentage ownership of any
other person, except with respect to the percentage ownership of all directors
and executive officers as a group.
Except
as
otherwise indicated, each director and named executive officer (1) has sole
investment and voting power with respect to the securities indicated or
(2) shares investment and/or voting power with that individual’s
spouse.
The
address of each director and named executive officer listed in the table below
is c/o Miller Petroleum, Inc., 3651 Baker Highway, Huntsville, Tennessee
37756.
Name
of Beneficial Owner
|
|
Amount
and Nature of Beneficial Ownership
|
|
Percent
of Class
|
|
Directors
and Officers
|
|
|
|
|
|
Deloy
Miller
|
|
|
4,090,343
|
|
|
28.61
|
%
|
Ernest
Payne
|
|
|
605,000(1
|
)
|
|
4.21
|
%
|
Herman
E. Gettelfinger
|
|
|
342,901(2
|
)
|
|
2.39
|
%
|
Herbert
J. White
|
|
|
300
|
|
|
*
|
|
Charles
Stivers
|
|
|
20,000
|
|
|
*
|
|
All
directors and executive officers (5 persons)
|
|
|
5,058,544(3
|
)
|
|
35.07
|
%
|
|
|
|
|
|
|
|
|
Beneficial
Owner of More Than 5%
|
|
|
|
|
|
|
|
Wind
City Oil & Gas, LLC
|
|
|
2,900,000
|
|
|
20.28
|
%
|
|
|
|
|
|
|
|
|
* |
Represents
less than 1% of our outstanding Common
Stock.
|
(1) |
Includes
75,000 shares issuable upon the exercise of presently exercisable
stock
options.
|
(2) |
Includes
50,000 shares issuable upon the exercise of presently exercisable
stock
options and 100,000 shares held by Mr. Gettelfinger’s spouse.
|
(3) |
Includes
125,000 shares issuable upon the exercise of presently exercisable
stock
options.
|
SUMMARY
COMPENSATION TABLE
The
following table sets forth information for the periods indicated concerning
compensation paid to our Chief Executive Officer and each of our other executive
officer who received the highest compensation for services rendered to us with
respect to 2005.
|
ANNUAL
COMPENSATION
|
LONG
TERM COMPENSATION
|
Name
|
Title
|
Year
|
Salary
|
Bonus
|
Other
Annual
Compen-
sation
|
AWARDS
|
PAYOUTS
|
All
Other
Compen-
sation
|
Restricted
Stock
Awarded
|
Options/
SARs*
(#)
|
LTIP
payouts
($)
|
Deloy
Miller
|
Chief
Executive Officer
|
2005
2004
2003
|
$180,000
$183,000
$180,000
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
Long-Term
Incentive Plan
We
do not
have any long-term incentive plans, pension plans, or similar compensatory
plans
for our directors and executive officers.
Compensation
of Directors
Directors
receive attendance fees of $500 for each meeting of the Board attended.
Employment
Contracts, Termination of Employment and Change in Control Arrangements
On
February 21, 2006 we entered into an Employment Agreement with our President,
Ernest Payne. Pursuant to the terms of the agreement, Mr. Payne will receive
an
annual base salary of $200,000 for the three year term of the Employment
Agreement. In addition, Mr. Payne is entitled to receive certain discretionary
bonuses as may be determined by the Board of Directors. In connection with
Mr.
Payne’s Employment Agreement, we issued to Mr. Payne 500,000 shares of Common
Stock. We may offer long term contracts to other executive officers, directors
or key employees in the future.
Our
company has no plans or arrangements in respect of remuneration received or
that
may be received by named executive officers of our company in fiscal year 2006
to compensate such officers in the event of termination of employment (as a
result of resignation, retirement, change of control) or a change of
responsibilities following a change of control.
The
Company entered into a two-year consulting agreement with Scott Boruff for
the
provision of certain advisory and business development services. As
consideration for these services, the Company issued to Mr. Boruff 400,000
shares or our Common Stock.
On
September 8, 2005, we agreed to issue 400,000 shares of Common Stock to Scott
Boruff (son-in-law of Deloy Miller, our Chief Executive Officer), in
consideration of consulting services.
The
Company had a note payable to Sharon Miller (wife of Deloy Miller, our chief
executive officer) for $56,693 at July 31, 2005 for the balance remaining on
the
original purchase of the property which houses our executive offices. This
note
was settled May 11, 2005.
The
Company issued a note payable for $254,000 at 8% with principle due in December
2005 to Herman E. Gettelfinger. This note was settled May 10, 2005.
Other
than the transactions disclosed above, there have been no material transactions,
similar transactions or currently proposed transactions, to which we, or any
of
our subsidiaries was or is to be a party, in which the amount involved exceeds
$60,000 and in which any director, executive officer or any security holder
who
is known to u s 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.
This
prospectus relates to the offering and sale, from time to time, of up to
6,100,000 shares of our Common Stock held by the selling shareholders named
in
the table below, which amount includes 1,200,000 common shares issuable upon
the
exercise of warrants held by selling shareholders. The selling shareholders
may
exercise their warrants at any time in their sole discretion up until the
expiration date of such warrants. All of the selling shareholders named below
acquired their shares of our Common Stock and warrants directly from us in
private transactions.
The
following table sets forth certain information known to us regarding the selling
security holders’ beneficial ownership of our Common Stock as of the date of
this prospectus. Because the selling security holders may sell none, all, or
a
portion of the shares they hold pursuant to this prospectus, no precise estimate
can be given as to the amount or percentage of shares that will be held by
the
selling security holders after completion of any offering by the selling
shareholders . The selling shareholders have sole voting and investment power
with respect to all shares beneficially owned by them.
The
selling shareholders may sell all or some of the shares of Common Stock they
are
offering, and may sell shares of our Common Stock otherwise than pursuant to
this prospectus. The table below assumes that each selling shareholders
exercises all of its warrants and sells all of the shares issued upon exercise
thereof, and that each selling shareholder sells all of the shares offered
by it
in offerings pursuant to this prospectus, and does acquire any additional
shares. We are unable to determine the exact number of shares that will actually
be sold or when or if these sales will occur.
|
|
Shares
Beneficially
Owned
Prior
to Offering
|
|
Shares
Offered
|
|
Shares
Beneficially
Owned
After
Offering
|
|
Name
of
Beneficial Owner
|
|
Number
|
|
Percent
|
|
Number
|
|
Number
|
|
Percent
|
|
Wind
City Oil & Gas,
LLC
|
|
|
2,900,000
|
|
|
20.28
|
%
|
|
2,900,000
|
|
|
-0-
|
|
|
-0-
|
|
Prospect
Energy Corporation
|
|
|
781,805(1
|
)
|
|
5.18
|
%
|
|
781,805
|
|
|
-0-
|
|
|
-0-
|
|
Petro
Capital III, L.P.
|
|
|
248,195(2
|
)
|
|
1.71
|
%
|
|
248,195
|
|
|
-0-
|
|
|
-0-
|
|
Petro
Capital Advisors, LLC
|
|
|
170,000(3
|
)
|
|
1.18
|
%
|
|
170,000
|
|
|
-0-
|
|
|
-0-
|
|
Scott
Boruff(4)
|
|
|
400,000
|
|
|
2.80
|
%
|
|
400,000
|
|
|
-0-
|
|
|
-0-
|
|
Growth
Management LLC
|
|
|
600,000
|
|
|
4.20
|
%
|
|
600,000
|
|
|
-0-
|
|
|
-0-
|
|
Ernest
Payne(5)
|
|
|
605,000(6
|
)
|
|
4.21
|
%
|
|
500,000
|
|
|
105,000(6
|
)
|
|
*
|
|
GunnAllen
Financial,
Inc.
|
|
|
400,000
|
|
|
2.80
|
%
|
|
400,000
|
|
|
-0-
|
|
|
-0-
|
|
North
Star Capital Markets,
Inc.
|
|
|
50,000
|
|
|
*
|
|
|
50,000
|
|
|
-0-
|
|
|
-0-
|
|
Charles
Stivers
|
|
|
20,000
|
|
|
*
|
|
|
20,000
|
|
|
-0-
|
|
|
-0-
|
|
Everett
G. Titus III
|
|
|
15,000
|
|
|
*
|
|
|
15,000
|
|
|
-0-
|
|
|
-0-
|
|
William
P. Farland
|
|
|
15,000
|
|
|
*
|
|
|
15,000
|
|
|
-0-
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents
781,805 shares of common stock underlying
warrants.
|
(2) |
Represents
248,195 shares of common stock underlying
warrants.
|
(3) |
Represents
170,000 shares of common stock underlying warrants.
|
(4) |
Scott
Boruff is the son-in-law of Deloy Miller, our Chief Executive Officer.
|
(5) |
Ernest
Payne is our President.
|
(6) |
Includes
75,000 shares issuable upon the exercise of presently exercisable
stock
options.
|
The
selling shareholders and any of their donees, pledges, assignees and other
successors-in-interest, may, from time to time, sell any or all of their shares
of Common Stock being offered under this prospectus on any stock exchange,
market or trading facility on which the shares are traded or in private
transactions. The selling shareholders may use any one or more of the following
methods when selling shares:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits the purchaser;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately-negotiated
transactions;
|
|
·
|
short
sales that are not violations of the laws and regulations of any
state or
the United States;
|
|
·
|
broker-dealers
may agree with the selling shareholders to sell a specified number
of such
shares at a stipulated price per share;
|
|
·
|
through
the writing of options on the shares;
|
|
·
|
a
combination of any such methods of sale; and
|
|
·
|
any
other method permitted pursuant to applicable law.
|
The
selling shareholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling shareholders may arrange for other broker-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling shareholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling shareholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved.
Brokers
or dealers effecting transactions in the shares should confirm the registration
of these securities under the securities laws of the states in which
transactions occur or the existence of an exemption from
registration.
The
selling shareholders may from time to time pledge or grant a security interest
in some or all of the shares of Common Stock owned by them and, if they default
in the performance of their secured obligations, the pledge or secured parties
may offer and sell the shares of Common Stock from time to time under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
shareholders to include the pledgee, transferee or other successors in interest
as selling shareholders under this prospectus.
The
selling shareholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of
the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. The selling shareholders have informed
us
that they do not have any agreement or understanding, directly or indirectly,
with any person to distribute the Common Stock.
We
are
required to pay certain fees and expenses incurred by us incident to the
registration of the shares. We have agreed to indemnify the selling shareholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
General
We
are
authorized to issue up to 500,000,000 shares of our Common Stock, of which,
as
of April 6, 2006 14,296,856 shares were issued and outstanding.
Common
Stock
Each
share of our Common Stock is entitled to one vote at all meetings of
shareholders. Each share of our Common Stock is entitled to share ratably in
distributions to shareholders and to receive ratably such dividends as we may
declare. The shares of our Common Stock are not entitled to preemptive rights
and are not subject to redemption or assessment. Upon our liquidation,
dissolution or winding up, holders of our Common Stock will be entitled to
receive, on a pro rata basis, those assets which are legally available to
shareholders .
Private
Placement Warrants
We
issued
warrants to purchase Common Stock as part of the May 9, 2005 private placement
transaction with Prospect Energy, Petro Capital and Capital Advisors. In
connection with such transaction, (i) Prospect Energy received warrants to
purchase 630,000 shares of our Common Stock; (ii) Petro Capital received
warrants to purchase 200,000 shares of our Common Stock and Capital Advisors
received warrants to purchase 170,000 shares of our Common Stock. Such warrants
are presently exercisable at an exercise price of $0.50 per share and have
a
term of five years. None of the warrants have been exercised as of the date
of
this prospectus.
In
connection with the above private placement transaction and for failure to
file
the required registration statement and to have that registration statement
become effective by a certain date, we subsequently issued five additional
warrants (the “Penalty Warrants”) to each of Prospect Energy and Petro Capital
to purchase aggregate amounts of 151,805 and 48,195 shares of our Common Stock,
respectively. The Penalty Warrants are presently exercisable at an exercise
price of $1.15 per share and have a term of five years. None of the Penalty
Warrants have been exercised as of the date of this prospectus.
Transfer
Agent
The
Transfer Agent for our Common Stock is Interwest Transfer Company, 1981 East
Murray Holladay Road, Suite 100, Salt Lake City Utah, 84117.
Our
financial statements as of April 30, 2005 and April 30, 2004 are included in
this prospectus and have been audited by Rodefer Moss & Co., PLLC, an
independent registered public accounting firm, as set forth in their report
appearing elsewhere in this prospectus.
Rodefer
Moss has not been hired on a contingent basis, will not receive a direct or
indirect interest in us and has not been our promoter, underwriter, voting
trustee, director, officer, or employee.
We
file
annual, quarterly and current reports and other information with the Securities
and Exchange Commission. You may read and copy any document we file at the
SEC’s
public reference room at Room 1024, 450 Fifth Street, NW, Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for information on the public
reference room.
In
addition, we are electronic filers and our reports and information filed with
the SEC are available on the SEC’s website located at www.sec.gov.
Our
website is located at www.millerpetroleum.com.
Under
the “Archive” section of the website, you may access our most recent press
releases.
The
Tennessee Business Corporation Act (the “TBCA”) provides that a corporation may
indemnify any of its directors and officers against liability incurred in
connection with a proceeding if:
|
·
|
the
director or officer acted in good
faith;
|
|
·
|
in
the case of conduct in his or her official capacity with the corporation,
the director or officer reasonably believed such conduct was in the
corporation’s best interest;
|
|
·
|
in
all other cases, the director or officer reasonably believed that
his or
her conduct was not opposed to the best interest of the corporation;
and
|
|
·
|
in
connection with any criminal proceeding, the director or officer
had no
reasonable cause to believe that his conduct was unlawful.
|
In
actions brought by or in the right of the corporation, however, the TBCA
provides that no indemnification may be made if the director or officer was
adjudged to be liable to the corporation. In cases where the director or officer
is wholly successful, on the merits or otherwise, in the defense of any
proceeding instituted because of his or her status as an officer or director
of
a corporation, the TBCA
mandates that the corporation indemnify the director or officer against
reasonable expenses incurred in the proceeding. The TBCA
also
provides that in connection with any proceeding charging improper personal
benefit to an officer or director, no indemnification may be made if the officer
or director is adjudged liable on the basis that personal benefit was improperly
received. Notwithstanding the foregoing, the TBCA
provides that a court of competent jurisdiction, upon application, may order
that an officer or director be indemnified for reasonable expenses if, in
consideration of all relevant circumstances, the court determines that the
individual is fairly and reasonably entitled to indemnification, notwithstanding
the fact that:
|
·
|
the
officer or director was adjudged liable to the corporation in a proceeding
by or in the right of the
corporation;
|
|
·
|
the
officer or director was adjudged liable on the basis that personal
benefit
was improperly received by him or her;
or
|
|
·
|
the
officer or director breached his or her duty of care to the corporation.
|
Our
Board
of Directors has adopted these provisions to indemnify our directors, executive
officers and agents.
Insofar
as indemnification for liabilities under the Securities Act of 1933 may be
permitted to our directors, officers, and controlling persons, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
of
1933 and therefore unenforceable.
Index
to Consolidated Financial Statements
|
Page
|
|
|
|
36
|
|
38
|
|
39
|
|
40
|
|
41
|
|
|
|
44
|
|
45
|
|
47
|
|
48
|
|
49
|
|
50
|
MILLER
PETROLEUM, INC.
|
|
|
|
|
|
|
|
January
31
|
|
April
30
|
|
|
|
2006
|
|
2005
|
|
|
|
Unaudited
|
|
|
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
268,780
|
|
$
|
2,362
|
|
Accounts
receivable
|
|
|
214,667
|
|
|
182,951
|
|
Participant
receivables
|
|
|
268,371
|
|
|
|
|
Current
portion of note receivable
|
|
|
42,250
|
|
|
47,000
|
|
Inventory
|
|
|
67,389
|
|
|
67,389
|
|
Deferred
offering costs
|
|
|
|
|
|
88,842
|
|
Total
Current Assets
|
|
|
861,457
|
|
|
388,544
|
|
|
|
|
|
|
|
|
|
FIXED
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
and equipment
|
|
|
837,379
|
|
|
941,601
|
|
Vehicles
|
|
|
309,606
|
|
|
333,583
|
|
Buildings
|
|
|
313,335
|
|
|
313,335
|
|
Office
Equipment
|
|
|
22,045
|
|
|
72,549
|
|
|
|
|
1,482,365
|
|
|
1,661,068
|
|
Less:
accumulated depreciation
|
|
|
(755,966
|
)
|
|
(939,579
|
)
|
Total
Fixed assets
|
|
|
726,399
|
|
|
721,489
|
|
|
|
|
|
|
|
|
|
OIL
AND GAS PROPERTIES
|
|
|
2,756,568
|
|
|
2,941,832
|
|
(On
the basis of successful efforts accounting)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PIPELINE
FACILITIES
|
|
|
197,035
|
|
|
206,298
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
Investment
in joint venture at cost
|
|
|
336,669
|
|
|
|
|
Land
|
|
|
496,500
|
|
|
496,500
|
|
Investments
|
|
|
500
|
|
|
500
|
|
Equipment
held for sale
|
|
|
427,462
|
|
|
431,462
|
|
Cash
- restricted
|
|
|
83,000
|
|
|
71,000
|
|
Total
Other Assets
|
|
|
1,344,131
|
|
|
999,462
|
|
TOTAL
ASSETS
|
|
$
|
5,885,590
|
|
$
|
5,257,625
|
|
See
notes
to consolidated financial statements.
MILLER
PETROLEUM, INC.
|
|
|
|
|
|
|
|
January
31
|
|
April
30
|
|
|
|
2006
|
|
2005
|
|
|
|
Unaudited
|
|
|
|
LIABILITIES
AND SHAREHOLDERS ' EQUITY
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable - trade
|
|
$
|
162,951
|
|
$
|
330,620
|
|
Accrued
expenses
|
|
|
43,519
|
|
|
224,306
|
|
Current
portion of notes payable
|
|
|
13,717
|
|
|
|
|
Total
Current Liabilities
|
|
|
220,187
|
|
|
554,926
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable-Related parties
|
|
|
|
|
|
1,673,693
|
|
Other
|
|
|
330,207
|
|
|
655,646
|
|
Total
Long-Term Liabilities
|
|
|
330,207
|
|
|
2,329,339
|
|
Total
Liabilities
|
|
|
550,394
|
|
|
2,884,265
|
|
|
|
|
|
|
|
|
|
TEMPORARY
EQUITY
|
|
|
|
|
|
|
|
Common
Stock subject to put
|
|
|
4,350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS
' EQUITY
|
|
|
|
|
|
|
|
Common
Stock: 500,000,000 shares authorized at $0.0001 par value, 14,276,856
and
9,383,856 shares issued and outstanding
|
|
|
1,427
|
|
|
939
|
|
Additional
paid-in capital
|
|
|
10,775,560
|
|
|
4,495,498
|
|
Unearned
compensation
|
|
|
(824,831
|
)
|
|
|
|
Common
Stock subject to put
|
|
|
(4,350,000
|
)
|
|
|
|
Retained
Earnings
|
|
|
(4,616,960
|
)
|
|
(2,123,077
|
)
|
Total
Shareholders ' Equity
|
|
|
985,196
|
|
|
2,373,360
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS ' EQUITY
|
|
$
|
5,885,590
|
|
$
|
5,257,625
|
|
See
notes
to consolidated financial statements.
MILLER
PETROLEUM, INC.
(UNAUDITED)
|
|
|
|
|
|
|
|
For
the Three Months Ended
|
|
For
the Nine Months Ended
|
|
|
|
January
31
|
|
January
31
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
As
Restated
|
|
|
|
As
Restated
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
Oil
and gas revenue
|
|
$
|
285,973
|
|
$
|
238,790
|
|
$
|
627,931
|
|
$
|
601,240
|
|
Service
and drilling revenue
|
|
|
138,632
|
|
|
30,014
|
|
|
1,480,804
|
|
|
157,685
|
|
Total
Revenue
|
|
|
424,605
|
|
|
268,804
|
|
|
2,108,735
|
|
|
758,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of oil and gas revenue
|
|
|
23,751
|
|
|
19,567
|
|
|
62,793
|
|
|
60,010
|
|
Cost
of service and drilling revenue
|
|
|
153,114
|
|
|
19,323
|
|
|
1,220,310
|
|
|
55,515
|
|
Selling,
general and administrative
|
|
|
969,907
|
|
|
74,706
|
|
|
1,515,630
|
|
|
310,696
|
|
Salaries
and wages
|
|
|
70,152
|
|
|
82,884
|
|
|
229,144
|
|
|
180,658
|
|
Depreciation,
depletion and amortization
|
|
|
93,890
|
|
|
63,330
|
|
|
255,657
|
|
|
152,659
|
|
Total
Costs and Expense
|
|
|
1,310,814
|
|
|
259,810
|
|
|
3,283,534
|
|
|
759,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM OPERATIONS
|
|
|
(886,209
|
)
|
|
8,994
|
|
|
(1,174,799
|
)
|
|
(613
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
470
|
|
|
429
|
|
|
667
|
|
|
674
|
|
Gain
on sale of equipment
|
|
|
|
|
|
56,149
|
|
|
|
|
|
98,638
|
|
Interest
expense
|
|
|
(690,995
|
)
|
|
(52,363
|
)
|
|
(1,319,751
|
)
|
|
(165,386
|
)
|
Total
Other Income (Expense)
|
|
|
(690,525
|
)
|
|
4,215
|
|
|
(1,319,084
|
)
|
|
(66,074
|
)
|
NET
INCOME (LOSS)
|
|
$
|
(1,576,734
|
)
|
$
|
13,209
|
|
$
|
(2,493,883
|
)
|
$
|
(66,687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted - Loss per Share
|
|
|
(0.16
|
)
|
|
|
|
|
(0.26
|
)
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted -Shares Outstanding
|
|
|
10,022,922
|
|
|
9,383,856
|
|
|
9,674,601
|
|
|
9,141,342
|
|
See
notes
to consolidated financial statements.
MILLER
PETROLEUM, INC
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common
|
|
Shares
|
|
Paid-in
|
|
Unearned
|
|
Retained
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Compensation
|
|
Earnings
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated
balance, April 30, 2005
|
|
|
9,396,856
|
|
$
|
939
|
|
$
|
4,495,498
|
|
|
|
|
$
|
$
(2,123,077
|
)
|
$
|
2,373,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants as prepayment of financing costs
|
|
|
|
|
|
|
|
|
370,392
|
|
|
|
|
|
|
|
|
370,392
|
|
Issuance
of warrants for financing cost penalty
|
|
|
|
|
|
|
|
|
36,000
|
|
|
|
|
|
|
|
|
36,000
|
|
Issuance
of shares as payments of services
|
|
|
1,580,000
|
|
|
158
|
|
|
1,612,842
|
|
|
(824,831
|
)
|
|
|
|
|
788,169
|
|
Issuance
of shares for stock sales commission
|
|
|
400,000
|
|
|
40
|
|
|
459,960
|
|
|
|
|
|
|
|
|
460,000
|
|
Cost
of stock sales
|
|
|
|
|
|
|
|
|
(460,000
|
)
|
|
|
|
|
|
|
|
(460,000
|
)
|
Issuance
of shares
|
|
|
2,900,000
|
|
|
290
|
|
|
4,349,710
|
|
|
|
|
|
|
|
|
4,350,000
|
|
Deferred
offering cost
|
|
|
|
|
|
|
|
|
(88,842
|
)
|
|
|
|
|
|
|
|
(88,842
|
)
|
Net
loss for the nine months ended January 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,493,883
|
)
|
|
(2,493,883
|
)
|
Balance,
January 31, 2006
|
|
|
14,276,856
|
|
$
|
1,427
|
|
$
|
10,775,560
|
|
$
|
(824,831
|
)
|
$
|
(4,616,960
|
)
|
$
|
5,335,196
|
|
See
notes
to consolidated financial statements.
MILLER
PETROLEUM, INC.
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
As
Restated
|
|
|
|
For
the Nine
|
|
For
the Nine
|
|
|
|
Months
Ended
|
|
Months
Ended
|
|
|
|
January
31, 2006
|
|
January
31, 2005
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(2,493,883
|
)
|
$
|
(66,687
|
)
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
|
255,657
|
|
|
152,659
|
|
|
|
|
|
|
|
|
|
Adjustments
to Reconcile Net Loss to Net Cash Provided (Used) by Operating
Activities:
|
|
|
|
|
|
|
|
Gain
on sale of equipment
|
|
|
|
|
|
6,665
|
|
Issuance
of stock for services
|
|
|
788,169
|
|
|
110,000
|
|
Accretion
of warrant costs
|
|
|
406,392
|
|
|
|
|
Changes
in Operating Assets and Liabilities:
|
|
|
|
|
|
|
|
Decrease
(increase) in accounts receivable
|
|
|
(31,716
|
)
|
|
48,169
|
|
Decrease
(increase) in participant receivables
|
|
|
(268,371
|
)
|
|
(339
|
)
|
Decrease
(increase) in prepaid expenses
|
|
|
|
|
|
88,590
|
|
Increase
(decrease) in accounts payable
|
|
|
(167,670
|
)
|
|
(37,864
|
)
|
Increase
(decrease) in accrued expenses
|
|
|
(180,787
|
)
|
|
44,820
|
|
Net
Cash Provided (Used) by Operating Activities
|
|
|
(1,692,209
|
)
|
|
346,013
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchase
of Equipment
|
|
|
(79,832
|
)
|
|
|
|
Net
additions to oil and gas properties
|
|
|
(335,905
|
)
|
|
(324,065
|
)
|
Decrease
(increase) in restricted cash
|
|
|
(12,000
|
)
|
|
2,000
|
|
Net
Cash Used by Investing Activities
|
|
|
(427,737
|
)
|
|
(322,065
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Payments
on notes payable
|
|
|
(6,135,415
|
)
|
|
(122,552
|
)
|
Proceeds
from borrowing
|
|
|
4,150,000
|
|
|
48,909
|
|
Net
proceeds from issuance of Common Stock
|
|
|
4,350,000
|
|
|
96,001
|
|
Proceeds
from sale of equipment
|
|
|
17,029
|
|
|
|
|
Change
in note receivable
|
|
|
4,750
|
|
|
|
|
Net
Cash Provided by Financing Activities
|
|
|
2,386,364
|
|
|
22,358
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH
|
|
|
266,418
|
|
|
46,306
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
2,362
|
|
|
2,416
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
268,780
|
|
$
|
48,722
|
|
CASH
PAID FOR
|
|
|
|
|
|
|
|
INTEREST
|
|
$
|
389,835
|
|
$
|
143,386
|
|
INCOME
TAXES
|
|
$
|
0
|
|
$
|
0
|
|
See
notes
to consolidated financial statements.
MILLER
PETROLEUM, INC.
(1) Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the Registrant's April 30, 2005 Annual Report on
Form 10-KSB/A. The results of operations for the period ended January 31, 2006
are not necessarily indicative of operating results for the full year. In the
opinion of management, the consolidated financial statements and other
information furnished herein reflect all adjustments in fiscal year 2005
consisting of normal recurring accruals which are necessary for a fair
presentation of the results of the interim periods covered by this report.
(2) RESTATEMENT
OF CONSOLIDATED FINANCIAL STATEMENTS
Our
Consolidated Financial Statements for the three months ended January 31, 2005
are restated in this Form 10-QSB to reflect a $22,000 amortization of prepaid
financing costs and $110,000 in selling, general and administrative expenses
to
record stock issued for services. The effect of the restatements on net loss
was
to increase net loss by $132,000 for the three months ended January 31,
2005.
(3) LONG-TERM
DEBT, WARRANTS, LOAN FEES AND RESTRICTED CASH
On
May 9,
2005, we entered into a credit agreement, under which terms we received
$4,150,000 in debt financing under two convertible promissory notes of
$3,150,000 and $1,000,000, respectively. Repayment was to be made on or before
June 30, 2006, with monthly interest-only payments during the interim. These
notes were convertible into Common Stock at the lesser price of $1.50 per share
or the price of Common Stock issued to investors in a future equity
offering. The
lenders were also granted registration rights to any shares issued on conversion
of the notes.
The
notes
were secured by all of our assets and a security interest in a debt service
account provided for by the agreement, under which $160,000 was placed in escrow
to provide the lenders a reserve for future interest payments. When the loans
were paid on December 27, 2005, the balance of $71,000 in the escrow account
was
released.
The
loans
were paid off on December 27, 2005 and, in connection with the payoff of the
loans, we incurred fees of $281,897 and $523,523 for the three and nine months
ended January 31, 2006, respectively, which were amortized to interest expense
over the life of the loan.
To
secure
the funding, an aggregate total of 1,000,000 non-callable five year warrants
exercisable at $0.50 per share, were also issued, with registration rights
requiring us to register the Common Stock into which the warrants can be
converted. The warrants were recorded, at fair value, as $370,392 of prepaid
financing costs. Fair value was computed as the estimated present value at
grant
date of the warrants using the Black-Scholes option-pricing model with the
following assumptions: expected volatility of 50%; a risk free interest rate
of
4.50% and an expected option life of 2 years, six months. The options were
amortized to interest expense over the term of the loan. The loans were paid
off
December 27, 2005, resulting in fees of $211,652 and $370,392, which were
included in interest expense for the three and nine months ended January 31,
2006, respectively.
The
loan
agreement for the $4,150,000 debt financing provided for registration of the
warrants by a certain date. The registration was not filed and made effective
by
the U.S. Securities and Exchange Commission (“SEC”) by a certain date and we
re-negotiated the penalty provision to provide for 40,000 additional warrants
per month, beginning December 31, 2005 until the registration statement is
filed
and declared effective by the SEC. For the three and nine months ended January
31, 2006, 80,000 additional warrants were issued and were included in interest
expense in the amount of $36,000.
Interest
expense in the financial statements for the three and nine months ended January
31, 2006 consisted of the following:
|
|
Three
Months
|
|
Nine
Months
|
|
|
|
ended
|
|
ended
|
|
|
|
January
31, 2006
|
|
January
31, 2006
|
|
|
|
|
|
|
|
Payments
for interest
|
|
$
|
161,446
|
|
$
|
389,835
|
|
Loan
cost
|
|
|
281,897
|
|
|
523,524
|
|
Warrants
|
|
|
211,652
|
|
|
370,392
|
|
Penalty
warrants
|
|
|
36,000
|
|
|
36,000
|
|
|
|
$
|
690,995
|
|
$
|
1,319,751
|
|
(4) SHAREHOLDERS
’ EQUITY
In
addition to the warrants issued as discussed on Note 3, during the nine months
ended January 31, 2006 we entered into five employment/service contracts wherein
we agreed to issue 1,580,000 shares of Common Stock for compensation and
services. As part of an employment agreement 500,000 shares of Common Stock
were
issued to our President under a three-year employment contract and 1,080,000
common shares were issued to consultants. Three of the contracts were completed
or cancelled and two of the contracts require continued performance, one until
September 9, 2007 and one until December 10, 2008. Of the $1,613,000 total
value
of the shares, $73,973 and $714,196 were reflected in selling, general and
administrative expense for the quarters ended October 31, 2005 and January
31,
2006, respectively, and $824,831 has been deferred to the future periods covered
by the agreements.
On
December 23, 2005 we entered into a joint venture agreement (JV) with Wind
City
Oil & Gas, LLC to form Wind Mill Oil & Gas, LLC to explore, drill and
develop certain oil and gas properties. The JV provides for Wind Mill Oil &
Gas, LLC to repay us for our efforts involved in these activities and for our
retention of a 49.9% interest in any resulting production.
As
part
of the agreement, Wind City Oil & Gas, LLC purchased 2,900,000 common shares
for $4,350,000 on December 23, 2005. The stock purchase agreement contains
a put
whereby Wind City Oil & Gas, LLC can put the stock back to us until
September 30, 2006. Because of this provision the Company has classified the
stock as temporary equity, in accordance with Accounting Series Release (“ASR”)
No. 268 and Emerging Issues Task Force (“EITF”) Topic D-98, which require that
stock subject to rescission or redemption requirements outside the control
of
the Company to be classified outside of permanent equity.
Since
the
Company had a net loss for the three and nine months ended January 31, 2006
and
for the nine months ended January 31, 2005, the assumed effects from the
exercise of outstanding options and warrants would have been anti-dilutive.
For
the three months ended January 31, 2005, the change in earnings per share due
to
dilution is immaterial. Therefore, there are no diluted per share amounts in
the
2005 and 2004 statements of operations.
(5) PARTICIPANT
RECEIVABLES
Participant
receivable consist of receivables contractually due from our various joint
venture partners in connection with routine exploration, betterment and
maintenance activities. The balance in participant receivables over 90 days
old
is approximately $75,000. Our collateral for these receivables generally
consists of lien rights over the related oil producing properties. Approximately
$99,000 is due from Wind Mill Oil & Gas, LLC, a related party.
(6) RECENT
ACCOUNTING PRONOUNCEMENTS
In
March
2004, The Emerging Issues Task Force (“EITF”) reached a consensus that mineral
rights, as defined in EITF Issue No. 04-02, Whether Mineral Rights are “Tangible
or Intangible Asset”, are tangible assets and that they should be removed as
examples of intangibles assets in SFAS Nos. 141 and 142. The FASB has recently
ratified this consensus and directed the FASB staff to amend SFAS Nos. 141
and
142 through the issuance of FASB Staff Positions FSP FAS 141-1 and FSP FAS
142-1. Historically we have included the cost of such mineral rights as tangible
assets, which is consistent with the EITF’s consensus. As such, EITF 04-02 did
not affect our Consolidated Financial Statements.
In
December 2004, The FASB issued SFAS No. 123R, “Share-Based Payment.” This
statement is a revision to SFAS No. 123, “Accounting for Stock-Based
Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to
Employees”. This statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods
or
services, primarily focusing on the accounting for transactions. Companies
will
be required to measure the cost of employee services received in exchange for
an
award of equity instruments based on the grant date fair value of the award
(with limited exceptions). That cost will be recognized over the period during
which an employee is required to provide service, the requisite service period
(usually the vesting period), in exchange for the award. The grant date fair
value of employee share options and similar instruments will be estimated using
option-pricing models.
If
an
equity award is modified after the grant date, incremental compensation cost
will be recognized in an amount equal to the excess of the fair value of the
modified award over the fair value of the original award immediately before
the
modifications for small business issuers. SFAS No. 123R will be effective for
periods beginning after December 15, 2005. Accordingly, we will adopt SFAS
No.
123R in our fourth quarter of fiscal 2006. We are currently evaluating the
provisions of SFAS No. 123R and have not determined the impact that this
Statement will have on its results of operations or financial
position.
In
April
2005, the FASB issued Staff Interpretation No. 19-1 (”FSP FAS 19-1”) “Accounting
for Suspended Well Costs”, which provides guidance on the accounting for
exploratory well costs and proposes an amendment to FASB Statement No. 19,
Financial Accounting and Reporting By Oil and Gas Producing Companies. The
guidance in FSP FAS 19-1 applies to enterprises that use the successful efforts
method of accounting as described in FASB 19. Currently we have no exploration
activities; therefore, the guidance in FSP FAS 19-1 does not impact the
consolidated financial position, result of operations or cash
flows.
MILLER
PETROLEUM, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
April
30,
2005 and 2004
Board
of
Directors Miller Petroleum, Inc. and Subsidiary
Huntsville,
Tennessee
We
have
audited the accompanying consolidated balance sheets of Miller Petroleum, Inc.
and its subsidiary as of April 30, 2005 and April 30, 2004 and the related
consolidated statements of operations, changes in shareholders ’ equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration
of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall 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
its Subsidiary as of April 30, 2005 and 2004, and the results of their
operations and cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
As
discussed in Note 2 to the financial statements, the Company has restated its
financial statements for the year ended April 30, 2004 to properly reflect
transactions in its Common Stock.
/s/
Rodefer Moss & Co, PLLC
Knoxville,
Tennessee
July
28,
2005
Miller
Petroleum, Inc.
|
|
|
|
|
|
|
|
|
|
Restated
|
|
|
|
April
30,
|
|
April
30,
|
|
|
|
2005
|
|
2004
|
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,362
|
|
$
|
2,416
|
|
Accounts
receivable
|
|
|
182,951
|
|
|
117,167
|
|
Current
portion of note receivable
|
|
|
47,000
|
|
|
18,875
|
|
Inventory
|
|
|
67,389
|
|
|
50,911
|
|
Deferred
offering costs
|
|
|
88,842
|
|
|
88,842
|
|
Prepaid
expenses
|
|
|
|
|
|
66,590
|
|
Total
Current Assets
|
|
|
388,544
|
|
|
344,801
|
|
|
|
|
|
|
|
|
|
FIXED
ASSETS
|
|
|
|
|
|
|
|
Machinery
|
|
|
941,601
|
|
|
1,036,802
|
|
Vehicles
|
|
|
333,583
|
|
|
385,465
|
|
Buildings
|
|
|
313,335
|
|
|
313,335
|
|
Office
equipment
|
|
|
72,549
|
|
|
72,549
|
|
Less:
accumulated depreciation
|
|
|
(939,579
|
)
|
|
(905,531
|
)
|
Total
Fixed Assets
|
|
|
721,489
|
|
|
902,620
|
|
|
|
|
|
|
|
|
|
OIL
AND GAS PROPERTIES
|
|
|
2,941,832
|
|
|
2,638,005
|
|
(On
the basis of successful efforts accounting)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PIPELINE
FACILITIES
|
|
|
206,298
|
|
|
218,637
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
Land
|
|
|
496,500
|
|
|
511,500
|
|
Investments
|
|
|
500
|
|
|
500
|
|
Well
equipment and supplies
|
|
|
431,462
|
|
|
443,942
|
|
Long-term
notes receivable
|
|
|
|
|
|
56,338
|
|
Cash
- restricted
|
|
|
71,000
|
|
|
71,000
|
|
Total
Other Assets
|
|
|
999,462
|
|
|
1,083,280
|
|
TOTAL
ASSETS
|
|
$
|
5,257,625
|
|
$
|
5,187,343
|
|
See
notes
to consolidated financial statements.
MILLER
PETROLEUM, INC.
|
|
|
|
|
|
|
|
|
|
Restated
|
|
|
|
April
30,
|
|
April
30,
|
|
|
|
2005
|
|
2004
|
|
LIABILITIES
AND SHAREHOLDERS ’ EQUITY
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable - trade
|
|
$
|
330,620
|
|
$
|
335,556
|
|
Accrued
expenses
|
|
|
224,306
|
|
|
116,011
|
|
Current
portion of notes payable
|
|
|
|
|
|
|
|
Related
parties
|
|
|
|
|
|
1,360,000
|
|
Other
|
|
|
|
|
|
176,624
|
|
Total
Current Liabilities
|
|
|
554,926
|
|
|
1,988,191
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
|
|
|
|
|
Related
parties
|
|
|
1,673,693
|
|
|
269,230
|
|
Other
|
|
|
655,646
|
|
|
616,739
|
|
Total
Long-Term Liabilities
|
|
|
2,329,339
|
|
|
885,969
|
|
Total
Liabilities
|
|
|
2,884,265
|
|
|
2,874,160
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS
’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock: 500,000,000 shares authorized at $0.0001 par value, 9,396,856
and
8,378,856 shares issued and outstanding
|
|
|
939
|
|
|
838
|
|
Additional
paid-in capital
|
|
|
4,495,498
|
|
|
4,173,998
|
|
Accumulated
deficit
|
|
|
(2,123,077
|
)
|
|
(1,861,653
|
)
|
Total
Shareholders ’ Equity
|
|
|
2,373,360
|
|
|
2,313,183
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS ’ EQUITY
|
|
$
|
5,257,625
|
|
$
|
5,187,343
|
|
See
notes
to consolidated financial statements.
MILLER
PETROLEUM, INC.
|
|
|
|
Restated
|
|
|
|
For
the
|
|
For
the
|
|
|
|
Year
Ended
|
|
Year
Ended
|
|
|
|
April
30,
|
|
April
30,
|
|
|
|
2005
|
|
2004
|
|
REVENUES
|
|
|
|
|
|
Oil
and gas revenue
|
|
$
|
784,409
|
|
$
|
773,033
|
|
Service
and drilling revenue
|
|
|
245,627
|
|
|
1,193,762
|
|
Total
Revenue
|
|
|
1,030,036
|
|
|
1,966,795
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
Oil
and gas cost
|
|
|
177,287
|
|
|
228,301
|
|
Service
and drilling cost
|
|
|
82,730
|
|
|
765,673
|
|
Selling,
general and administrative
|
|
|
604,040
|
|
|
567,112
|
|
Depreciation,
depletion and amortization
|
|
|
366,279
|
|
|
233,439
|
|
Total
Costs and Expenses
|
|
|
1,230,336
|
|
|
1,794,525
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM OPERATIONS
|
|
|
(200,300
|
)
|
|
172,270
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
Interest
income
|
|
|
875
|
|
|
1,918
|
|
Gain
on sale of equipment
|
|
|
157,562
|
|
|
42,897
|
|
Interest
expense
|
|
|
(219,561
|
)
|
|
(228,436
|
)
|
Total
Other Expense
|
|
|
(61,124
|
)
|
|
(183,621
|
)
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(261,424
|
)
|
$
|
(11,351
|
)
|
BASIC
AND DILUTED LOSS PER SHARE
|
|
$
|
(0.03
|
)
|
$
|
(0.00
|
)
|
BASIC
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
|
|
|
9,030,738
|
|
|
8,350,048
|
|
See
notes
to consolidated financial statements.
MILLER
PETROLEUM, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
Common
|
|
Shares
|
|
Paid-in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated
balance, April 30, 2003
|
|
|
8,293,856
|
|
$
|
830
|
|
$
|
4,000,871
|
|
|
($1,850,302
|
)
|
$
|
2,151,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares in connection with deferred offering
|
|
|
85,000
|
|
|
8
|
|
|
88,834
|
|
|
|
|
|
88,842
|
|
Issuance
of warrants as prepayment of financing costs
|
|
|
|
|
|
|
|
|
59,293
|
|
|
|
|
|
59,293
|
|
Issuance
of options for services
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
25,000
|
|
Net
loss for the year ended April 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
(11,351
|
)
|
|
(11,351
|
)
|
Restated
balance, April 30, 2004
|
|
|
8,378,856
|
|
|
838
|
|
|
4,173,998
|
|
|
(1,861,653
|
)
|
|
2,313,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
of restricted shares for cash at discounts from market for free-trading
shares
|
|
|
275,000
|
|
|
27
|
|
|
79,974
|
|
|
|
|
|
80,001
|
|
Issuance
of restricted shares for services at prevailing discounts from market
for
free trading shares
|
|
|
113,000
|
|
|
11
|
|
|
42,589
|
|
|
|
|
|
42,600
|
|
Issuance
of restricted shares for leasehold interests in mineral rights at
prevailing discount from market price for free-trading
shares
|
|
|
500,000
|
|
|
50
|
|
|
105,950
|
|
|
|
|
|
106,000
|
|
Issuance
of shares for cash
|
|
|
20,000
|
|
|
2
|
|
|
15,998
|
|
|
|
|
|
16,000
|
|
Issuance
of shares for services
|
|
|
110,000
|
|
|
11
|
|
|
76,989
|
|
|
|
|
|
77,000
|
|
Net
loss for the year ended April 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
(261,424
|
)
|
|
(261,424
|
)
|
Balance
April 30, 2005
|
|
|
9,396,856
|
|
$
|
939
|
|
$
|
4,495,498
|
|
$
|
(2,123,077
|
)
|
$
|
2,373,360
|
|
See
notes
to consolidated financial statements.
MILLER
PETROLEUM, INC.
|
|
|
|
|
|
|
|
|
|
Restated
|
|
|
|
April
30,
|
|
April
30,
|
|
|
|
2005
|
|
2004
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
loss
|
|
$
|
(261,424
|
)
|
$
|
(11,351
|
)
|
Adjustments
to Reconcile Net Loss to
|
|
|
|
|
|
|
|
Net
Cash Provided by Operating Activities:
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
|
393,061
|
|
|
265,950
|
|
Gain
on sale of equipment
|
|
|
(157,562
|
)
|
|
(42,897
|
)
|
Options
issued in exchange for services
|
|
|
|
|
|
25,000
|
|
Common
Stock issued in exchange for services
|
|
|
119,600
|
|
|
|
|
Changes
in Operating Assets and Liabilities:
|
|
|
|
|
|
|
|
Increase
in accounts receivable
|
|
|
(65,784
|
)
|
|
(8,894
|
)
|
Increase
in inventory
|
|
|
(16,478
|
)
|
|
(13,092
|
)
|
Decrease
(increase) in prepaid expenses
|
|
|
39,808
|
|
|
(10,398
|
)
|
Increase
(decrease) in accounts payable
|
|
|
(4,936
|
)
|
|
121,729
|
|
Increase
in accrued expenses
|
|
|
108,295
|
|
|
31,820
|
|
Net
Cash Provided by Operating Activities
|
|
|
154,580
|
|
|
357,867
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds
from sales of investments
|
|
|
|
|
|
12,812
|
|
Proceeds
from sale of land
|
|
|
15,000
|
|
|
|
|
Purchase
of equipment
|
|
|
(1,500
|
)
|
|
(113,834
|
)
|
Purchase
of oil and gas properties
|
|
|
(386,687
|
)
|
|
(565,779
|
)
|
Proceeds
from sale of equipment
|
|
|
187,682
|
|
|
392,499
|
|
Decrease
in restricted cash
|
|
|
|
|
|
3,000
|
|
Changes
in note receivable
|
|
|
28,125
|
|
|
14,201
|
|
Net
Cash Used by Investing Activities
|
|
|
(157,380
|
)
|
|
(257,101
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds
from issuance of stock
|
|
|
96,001
|
|
|
|
|
Payments
on Notes Payables
|
|
|
(137,716
|
)
|
|
(502,376
|
)
|
Proceeds
from borrowings
|
|
|
44,461
|
|
|
400,662
|
|
Net
Cash Provided (Used) by Financing Activities
|
|
|
2,746
|
|
|
(101,714
|
)
|
|
|
|
|
|
|
|
|
NET
DECREASE IN CASH
|
|
|
(54
|
)
|
|
(948
|
)
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF YEAR
|
|
|
2,416
|
|
|
3,364
|
|
CASH
AND CASH EQUIVALENTS, END OF YEAR
|
|
$
|
2,362
|
|
$
|
2,416
|
|
See
notes
to consolidated financial statements.
MILLER
PETROLEUM, INC.
April
30,
2005 and 2004
NOTE
1 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a.
Organization and Basis of Presentation
These
consolidated financial statements include the accounts of Miller Petroleum,
Inc.
(“The Company”) formerly Triple Chip Systems, Inc. and the accounts of its
subsidiary, Miller Pipeline Company, Inc. All inter-company balances have been
eliminated in consolidation.
The
Company’s principal business consists of oil and gas exploration, production and
related property management in the Appalachian region of eastern Tennessee
and
in the state of Texas. The Company’s corporate offices are in Huntsville,
Tennessee. The Company operates as one reportable business segment, based on
the
similarity of activities. The
Company formed Miller Pipeline Corporation Inc. (“MPC, Inc.”), a wholly-owned
subsidiary, to manage the construction and operation of the gathering system
used to transport natural gas to market.
b.
Accounting Method
The
Company follows the successful efforts method of accounting for its oil and
gas
activities. Accordingly, costs associated with the acquisition, drilling and
equipping of successful exploratory wells are capitalized. Geological and
geophysical costs, delay and surface rentals and drilling costs of unsuccessful
exploratory wells are charged to expense as incurred. Costs of drilling
development wells are capitalized. Upon the sale or retirement of oil and gas
properties, the cost thereof and the accumulated depreciation or depletion
are
removed from the accounts and any gain or loss is credited or charged to
operations.
Depreciation,
depletion and amortization of capitalized costs of proved oil and gas properties
is provided on a field by field basis using the units-of-production method
based
upon proved reserves. Acquisition costs are amortized by using total proved
reserves as the denominator. Development costs are amortized using proved
developed reserves, rather than total proved reserves, as the
denominator.
Pipeline
and facilities are stated at original cost. Depreciation of pipeline and
facilities is provided on a straight-line basis over the estimated useful life
of the pipeline of forty years.
c.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
SFAS
144,
“Accounting for the Impairment or Disposal of Long-Lived Assets,” requires that
an asset be evaluated for, impairment when the carrying amount of an asset
exceeds the sum of the undiscounted estimated future cash flows of the asset.
In
accordance with the provisions of SFAS 144, the Company reviews the carrying
values of its long-lived assets whenever events or changes in circumstances
indicate that such carrying values may not be recoverable. If, upon review,
the
sum of the undiscounted pretax cash flows is less than the carrying value of
the
asset group, the carrying value is written down to estimated fair value.
Individual assets we grouped for impairment purposes at the lowest level for
which there are identifiable cash flows that are largely independent of the
cash
flows of other groups of assets, generally on a field-by-field basis. The fair
value of impaired assets is determined based on quoted market prices in active
markets, if available, or upon the present values of expected future cash flows
using discount rates commensurate with the risks involved in the asset group.
The long-lived assets of the Company, which are subject to evaluation, consist
primarily of oil and gas properties. For the years ended April 30, 2005 and
2004
the Company has recognized no charges or allowances for impairment.
MILLER
PETROLEUM, INC.
Notes
to
the Consolidated Financial Statements
April
30,
2005 and 2004
NOTE
1 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
d.
Net
earnings (loss) per share:
The
Company presents “basic” earnings (loss) per share and, if applicable, “diluted”
earnings per share pursuant to the provisions of Statement of Financial
Accounting Standards No. 128. “Earnings Per Share.” Basic earnings (loss) per
share is calculated by dividing net income or loss by the weighted average
number of common shares outstanding during each period. The calculation of
diluted earnings per share is similar to that of basic earnings per share,
except that the denominator is increased to include the number of additional
common shares that would have been outstanding if all potentially dilutive
common shares, such as those issuable upon the exercise of stock options and
warrants, were issued during the period.
Since
the
Company had a net loss for the years ended April 30, 2005 and 2004, the assumed
effects of the exercise of the options and warrants to purchase 555,177 and
2,435,672 and shares of Common Stock that were outstanding at April 30, 2005
and
2004, respectively, and the application of the treasury stock method would
have
been anti-dilutive. Therefore, there are no diluted per share amounts in the
2005 and 2004 statements of operations.
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, and
its
wholly-owned subsidiary MPC, Inc. All significant intercompany transactions
have
been eliminated.
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
|
|
|
5-20
|
|
Vehicles
|
|
|
5-7
|
|
Office
equipment
|
|
|
5
|
|
Depreciation
expense for the years ended April 30, 2005 and 2004 was $120,419 and $182,047
respectively.
MILLER
PETROLEUM, INC.
Notes
to
the Consolidated Financial Statements
April
30,
2005 and 2004
NOTE
1 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Revenue
Recognition
Oil
and
gas production revenue is recognized as income as production is extracted and
sold. Service and drilling income is recognized at the time it is both earned
and we have a contractual right to receive the revenue. Turnkey contracts not
completed at year end are reported on the completed contract method of
accounting. There were no uncompleted contracts at the end of fiscal 2005 and
2004. Retail sales of various parts and equipment is recognized as income at
the
time the item is sold and, under the 10% rule, has been combined with service
and drilling revenue.
i.
Concentrations of Credit Risk
Financial
instruments which potentially subject the Company to concentrations of credit
risk are primary cash and cash equivalents and accounts receivable. The Company
places its cash investments, which at times may exceed federally insured
amounts, in highly rated financial institutions.
Accounts
receivable arise from sales of gas and oil, equipment and services. Credit
is
extended based on the evaluation of the customer’s creditworthiness, and
generally collateral is not required. Accounts receivable more than 45 days
old
are considered past due. The Company does not accrue late fees or interest
income on past due accounts. Management uses the aging of accounts receivable
to
establish an allowance for doubtful accounts. Credit losses are written off
to
the allowance at the time they are deemed not to be collectible. Credit losses
have historically been minimal and within management’s expectations. The
allowance for doubtful accounts was $6,944 and $8,684 at April 30, 2005 and
2004, respectively. Accounts receivable more than 90 days old were $32,498
at
April 30, 2005 and $ 22,722 at April 30, 2004.
j.
Inventory
Inventory
consists primarily of crude oil in tanks and is carried at market
value.
k.
Well
Equipment and Supplies
Well
equipment represents equipment held by the Company and is carried at salvage
value. When well equipment is acquired by the Company in basket purchases,
the
cost is applied only to the marketable portion of the equipment.
l.
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported on the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates. The most significant assumptions are for asset retirement
obligation liabilities and estimated reserves of oil and gas. Oil and gas
reserve estimates are developed from information provided by the Company’s
management to Netherland Sewell and Associates, Inc., of Dallas Texas (“NSAI”)
and Glover Petroleum Consultants, of Crossville, Tennessee (“Glover”), for the
years ended April 30, 2005 and 2004, respectively. In 2005, management’s
estimate of its proved reserves was revised downward from approximately 350,000
barrels of oil to about 94,000, and its proved reserves estimates for natural
gas were revised from about 8,700,000 thousand cubic feet (“Mcf”) to about
1,200,000 Mcf. This revision was the result primarily of NSAI’s reclassification
of proved reserves to probable and possible reserves. While reserves are not
reflected on the Company’s balance sheet, the revision in estimate did affect
the 2005 depletion expense associated with its oil and gas properties, which
is
calculated on the basis of proved reserves only. The change was accounted for
as
a revision in an estimate, and the effect on net income was approximately
$160,000 or $0.02 per basic diluted share of Common Stock.
MILLER
PETROLEUM, INC.
Notes
to
the Consolidated Financial Statements
April
30,
2005 and 2004
NOTE
1 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
m.
Reclassifications
Certain
amounts and balances pertaining to the April 30, 2004 financial statements
have
been reclassified to conform with the April 30, 2005 financial statement
presentations.
n.
Stock
Warrants
The
Company measures its equity transactions with non-employees using the fair
value
based method of accounting prescribed by Statement of Financial Accounting
Standards No. 123. The Company continues to use the intrinsic value approach
as
prescribed by APB Opinion No. 25 in measuring equity transactions with
employees.
o.
Income
Taxes
The
Company accounts for income taxes using the “asset and liability method.”
Accordingly, deferred tax liabilities and assets are determined based on the
temporary differences between the financial reporting and tax basis of assets
and liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred tax assets arise primarily from
net operating loss carry forwards. Management evaluates the likelihood of
realization of such assets at year-end reserving any such amounts not likely
to
be recovered in future periods.
p.
Recent
Accounting Pronouncements
In
June
2003, the FASB approved SFAS 150, “Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity” SFAS 150 establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. This Statement
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise was effective at the beginning of the first interim period
beginning after June 15, 2003. SFAS 150 did not have an effect on the Company’s
financial position.
In
December 2003, the FASB issued a revised interpretation No 46, “Consolidation of
Variable Interest Entities.” The interpretation clarifies the application of
Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to
certain types of entities. Adoption did not have an impact on the Company’s
financial statements.
In
March
2004, The Emerging Issues Task Force (“EITF”) reached a consensus that mineral
rights, as defined in EITF Issue No. 04-02, “Whether Mineral Rights are Tangible
or Intangible Asset,” are tangible assets and that they should be removed as
examples of intangible assets in SFAS Nos. 141 and 142. The FASB has recently
ratified this
consensus
and directed the FASB staff to amend SFAS Nos. 141 and 142 through the issuance
of FASB Staff Positions FSP FAS 141-1 and FSP FAS 142-1. Historically the
Company has included the cost of such mineral rights as tangible assets, which
is consistent with the EITF’s consensus. As such, EITF 04-02 is not expected to
affect the Company’s consolidated financial statements.
In
December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment.” This
statement is a revision to SFAS No. 123, “Accounting for Stock-Based
Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to
Employees.” This statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods
or
services, primarily focusing on the accounting for transactions in which an
entity obtains employee services in share-based payment transactions. Companies
will be required to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant date fair value of the
award (with limited exceptions). That cost will be recognized over the period
during which an employee is required to provide service, the requisite service
period (usually the vesting period), in exchange for the
MILLER
PETROLEUM, INC.
Notes
to
the Consolidated Financial Statements
April
30,
2005 and 2004
NOTE
1 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
award.
The grant date fair value of employee share options and similar instruments
will
be estimated using option-pricing models.
If
an
equity award is modified after the grant date, incremental compensation cost
will be recognized in an amount equal to the excess of the fair value of the
modified award over the fair value of the original award immediately before
the
modifications for small business issuers. SFAS No. 123R will be effective for
periods beginning after December 15, 2005. Accordingly, the Company will adopt
SFAS No. 123R in its fourth quarter of fiscal 2006. The Company is currently
evaluating the provisions of SFAS No. 123R and has not determined the impact
that this Statement will have on its results of operations or financial
position.
In
April
2005, the FASB issued Staff Interpretation No. 19-1 FSP FAS 19-1 (“FSP 19-1”)
“Accounting for Suspended Well Costs,” which provides guidance on the accounting
for exploratory well costs and proposes an amendment to FASB Statement No.
19
(“FASB 19”), “Financial Accounting and Reporting By Oil and Gas Producing
Companies.” The guidance in FSP 19-1 applies to enterprises that use the
successful efforts method of accounting as described in FASB 19. The guidance
in
FSP 19-1 is not expected to impact the consolidated financial position, result
of operations or cash flows.
q.
Major
Customers
The
Company depends upon local purchasers of hydrocarbon in the areas where its
properties are located. The Company has three major customers. The loss of
one
or more purchasers may substantially reduce its sales and ability to operate
profitably. These major customers are:
Delta
Producers, Inc. accounted for $406,246 of the Company’s total revenue which was
about 39% of the Company’s total revenue.
Nami
Resources, LLC accounted for $79,111 of the Company’s total revenue which was
about 8% of the Company’s total revenue.
South
Kentucky Purchasing Co. - South Kentucky accounted for $256,235 of the Company’s
total revenue which was about 25% of the Company’s total revenue. South Kentucky
purchases all of the Company’s crude oil.
NOTE
2 -
RESTATEMENT OF FINANCIAL STATEMENTS
The
Company previously issued its financial statements as of and for the year ended
April 30, 2004, which were included in its Form 10KSB filed on July 29, 2004.
The filing included a report, dated July 20, 2004, which expressed an
unqualified opinion on those statements by independent accountants who had
not
registered with the Public Companies Accounting Oversight Board (PCAOB).
Additionally, the report, failed to note the conduct of the audit in accordance
with the standards of the PCAOB. Because of these failures, the Company’s
financial reporting was not in compliance with rules established by the
Securities Exchange Commission, and accordingly, the Company engaged other
auditors to conduct a PCAOB-compliant audit of its April 30, 2004 financial
statements.
In
connection with the PCAOB-compliant audit of the 2004 financial statements,
management identified errors in amounts previously reported in the Company’s
financial statements for the years ended April 30, 2002, 2003 and 2004. The
Company made an error in failing to record, in total, bad debt expense of
approximately $237,500 in relation to the non-payment of a stockholder
receivable in 2002, resulting in a misstatement of retained earnings
in
MILLER
PETROLEUM, INC.
Notes
to
the Consolidated Financial Statements
April
30,
2005 and 2004
NOTE
2 -
RESTATEMENT OF FINANCIAL STATEMENTS (CONTINUED)
2002,
2003 and 2004. In 2004 the Company’s previously issued financial statements
failed to include compensation and interest expense of approximately $57,000
in
connection with issuances of options and warrants. The Company, therefore,
is
restating its financial statements beginning with financial position at April
30, 2002 and including its annual financial statements for 2003 and
2004.
NOTE
3 -
STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURE
|
|
2005
|
|
2004
|
|
CASH
PAID FOR:
|
|
|
|
|
|
Interest
|
|
$
|
70,990
|
|
$
|
195,919
|
|
Income
Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Financing
costs from issuance of warrants
|
|
|
|
|
|
59,293
|
|
Common
Stock issued for deferred offering costs
|
|
|
|
|
|
88,842
|
|
Stock
issued for mineral rights
|
|
|
106,000
|
|
|
|
|
Common
Stock issued for services
|
|
|
119,600
|
|
|
|
|
Conversion
of account to note payable
|
|
|
|
|
|
250,689
|
|
Amortization
of prepaid interest
|
|
|
26,786
|
|
|
32,511
|
|
NOTE
4 -
DEFERRED OFFERING COST
Through
April 30, 2004, the Company issued 85,000 shares of its Common Stock valued
at
approximately $89,000 in connection with a proposed public offering of its
Common Stock. In June, 2004, the Company postponed its proposed public offering
due to market conditions. If the proposed offering were to be permanently
abandoned, the costs incurred would be charged to expense in the period the
decision is made. If the proposed offering is successful, the contribution
to
shareholders’ equity will be reduced by these costs.
NOTE
5 -
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 of 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 $549,687 and $565,779 of
oil
and gas properties for the years ended April 30, 2005 and 2004, respectively,
and recorded $245,860 and $43,800 of amortization expense for the years ended
April 30, 2005 and 2004, respectively.
MILLER
PETROLEUM, INC.
Notes
to
the Consolidated Financial Statements
April
30,
2005 and 2004
NOTE
6 -
LONG-TERM DEBT AND SUBSEQUENT EVENT
The
Company had the following debt obligations at
April
30, 2005 and April 30 2004
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Note
payable to First National Bank of Oneida secured by stock and equipment,
bearing interest at 7.50% due in quarterly payments of $15,000 on
January
14, 2006.
|
|
$
|
85,097
|
|
$
|
136,650
|
|
Note
payable to American Fidelity Bank secured by equipment, bearing interest
at 4.00% due in monthly payments of $2,272 with final payment due
in
August 2008.
|
|
$
|
353,891
|
|
$
|
366,724
|
|
Line
of credit payable to First National Bank of the Cumberlands, secured
by
equipment and accounts receivable, bearing interest at 10.388% due
on
October 12, 2005.
|
|
$
|
16,835
|
|
$
|
19,380
|
|
Note
payable to supplier secured by assignment of royalty income from
five gas
wells in Campbell County, Tennessee, interest at prime 5.75% at April
30,
2005.
|
|
$
|
199,824
|
|
$
|
250,688
|
|
MILLER
PETROLEUM, INC.
Notes
to
the Consolidated Financial Statements
April
30,
2005 and 2004
NOTE
6 -
LONG-TERM DEBT AND SUBSEQUENT EVENT (Continued)
|
|
2005
|
|
2004
|
|
Note
payable to related party, unsecured, interest at 7.00% with payments
due
yearly with the principle due in May of 2005.
|
|
$
|
59,692
|
|
$
|
15,230
|
|
Note
payable to related party secured by twelve oil and gas wells, bearing
interest at 9.00% and requiring interest payments quarterly with
principle
due in December 2004.
|
|
$
|
1,110,000
|
|
$
|
1,110,000
|
|
Note
payable to related party bearing interest at 8.00% with principle
due in
December 2005.
|
|
$
|
254,000
|
|
$
|
254,000
|
|
Note
payable to related party secured by twelve oil and gas wells, bearing
interest at 9.00% and requiring interest payments quarterly with
principle
due in December 2004.
|
|
$
|
250,000
|
|
$
|
250,000
|
|
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
|
|
|
|
|
$
|
7,001
|
|
Note
payable to General Motors Acceptance Corporation secured by a pickup
truck, bearing interest at 0.00% due in monthly payments of $721
with
final payment due in October 2004.
|
|
|
|
|
$
|
5,768
|
|
Note
payable to General Motors Acceptance Corporation Secured by a Suburban,
bearing interest at 0.00% due in monthly payments of $894 with final
payment due in October 2004.
|
|
|
|
|
$
|
7,152
|
|
Total
notes payable
|
|
$
|
2,329,339
|
|
$
|
2,422,593
|
|
Less
current maturities
|
|
|
|
|
|
1,536,624
|
|
Notes
payable - long-term
|
|
$
|
2,329,339
|
|
$
|
885,969
|
|
On
May 9,
2005 the Company entered into a credit agreement with Prospect Energy
Corporation, Inc. (“Prospect”) and Petro Capital III, LP (“Petro”). Under the
agreement, the Company received an aggregate of $4,150,000 in debt financing
under two convertible promissory notes with Prospect and Petro, for $3,150,000
and $1,000,000, respectively. Proceeds from this borrowing were used to satisfy
the obligations existing at the balance sheet date. Accordingly, the maturities
reflected above represent the maturities of the debt entered into subsequent
to
April 30, 2005.
MILLER
PETROLEUM, INC.
Notes
to
the Consolidated Financial Statements
April
30,
2005 and 2004
NOTE
6 -
LONG-TERM DEBT AND SUBSEQUENT EVENT (Continued)
The
notes
are due on June 30, 2006, with interest only payments accruing at 12% during
the
interim. The notes are convertible into Common Stock at the lesser price of
$1.50 per share or the price of Common Stock issued to investors in a planned
equity offering of the Company. The notes contain restrictive covenants
pertaining to debt to equity, asset and liquidity ratios, and imposes other
affirmative conditions upon the Company. Upon event of default, the interest
rate of the notes reset to the highest rate allowed by law.
NOTE
7 -
RELATED PARTY TRANSACTIONS
The
Company has a note payable to Sharon Miller (wife of Deloy Miller, majority
stockholder) for $59,693 at April 30, 2005. The note is payable with a principle
payment of $59,693 due in May 2006. The note is the balance remaining on the
original purchase of the property that houses the Company’s
offices.
The
Company issued a note payable of $1,110,000 and $250,000 on August 13, 2003
at
9% with a one year term to Sherri Ann Parker Lee and William Parker Lee
respectively. This note payable was issued to raise working capital. The related
party notes were due to members of the Company’s board of directors or their
immediate families.
NOTE
8 -
ASSET RETIREMENT OBLIGATION
In
2001,
the Financial Accounting Standards Board approved the issuance of SFAS No.
143,
"Accounting for Asset Retirement Obligations." SFAS 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. This
statement requires companies to record the present value of obligations
associated with the retirement of tangible long-lived assets in the period
in
which it is incurred. The liability is capitalized as part of the related
long-lived asset's carrying amount. Over time, accretion of the liability is
recognized as an operating expense and the capitalized cost is depreciated
over
the expected useful life of the related asset. The Company's asset retirement
obligations relate primarily to the plugging, dismantlement, removal, site
reclamation and similar activities of its oil and gas properties. Prior to
adoption of this statement, such obligations were accrued ratably over the
productive lives of the assets through its liability for such amounts. The
Company adopted SFAS 143 beginning on May 1, 2003 and using a credit-adjusted
risk free rate of 12%, an estimated useful life of wells ranging from five
to
forty-five years and estimated plugging and abandonment cost of $1,000 per
well,
the Company recorded a non-cash charge related to the cumulative effect of
a
change in accounting principle of $7,592
The
changes in the Company’s liability from adoption at July 1, 2004 to April
30, 2005 were as follows:
|
|
|
|
Liability
from adoption of SFAS No. 143 May 1, 2003
|
|
$
|
11,538
|
|
Accretion
expense for 2004
|
|
|
1,768
|
|
Asset
retirement obligation as of December 31, 2003
|
|
|
13,306
|
|
Accretion
expense for 2004
|
|
|
1,890
|
|
Asset
retirement obligation as of December 31, 2004
|
|
$
|
15,196
|
|
MILLER
PETROLEUM, INC.
Notes
to
the Consolidated Financial Statements
April
30,
2005 and 2004
NOTE
9 -
INCOME TAXES
The
Company provides deferred income tax assets and liabilities using the liability
method for temporary differences between book and taxable income.
A
reconciliation of the statutory U. S. Federal income tax and the income tax
provision included in the accompanying consolidated statements of operations
is
as follows:
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Federal
statutory rate
|
|
|
34
|
%
|
|
34
|
%
|
Federal
tax benefit at statutory rate
|
|
$
|
89,000
|
|
$
|
13,000
|
|
State
income tax benefit
|
|
|
19,600
|
|
|
2,800
|
|
|
|
|
|
|
|
|
|
Increase
in deferred tax asset and valuation allowance
|
|
$
|
108,600
|
|
$
|
15,800
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
$
|
1,451,000
|
|
$
|
1,362,000
|
|
|
|
|
1,451,000
|
|
|
1,362,000
|
|
Valuation
allowance
|
|
|
(1,451,000
|
)
|
|
(1,362,000
|
)
|
Net
deferred taxes
|
|
$
|
|
|
$
|
|
|
The
Company recorded a valuation allowance at April 30, 2005, and 2004 equal to
the
excess of deferred tax assets over deferred tax liabilities, as management
is
unable to determine that these tax benefits are more likely than not to be
realized.
The
Company had available, to offset taxable income, cumulative net operating loss
carry forwards arising from the periods since the year ended April 30, 1989
of
approximately $ 4,000,000 at April 30, 2005. The carry forwards begin expiring
in 2005.
NOTE
10 -
SHAREHOLDERS ’ EQUITY
During
the year ended April 30, 2004, the Company issued 85,000 shares for services
in
connection with a planned offering. The Company recorded $88,842 in deferred
offering costs on its balance sheet in connection with the
transaction.
MILLER
PETROLEUM, INC.
Notes
to
the Consolidated Financial Statements
April
30,
2005 and 2004
NOTE
10 -
SHAREHOLDERS ’ EQUITY (Continued)
In
August
2003, the Company issued 1,110,000 warrants to Sherri Ann Parker Lee and 250,000
warrants to William Parker Lee. The warrants were issued along with the note
payable to them dated August 13, 2003 and can be exercised for $0.80 per share,
and expired on January 1, 2005. The warrants were recorded as $59,293 of prepaid
financing costs and will be amortized to interest expense over the term of
the
loan. Interest expense connected with the warrants was $26,782 for the year
ended April 30, 2005.
In
March
2004, the Company issued 100,000 options in exchange for services. The warrants
can be exercised for $0.50 per share, and expire in March 2006. In connection
with the transaction the Company recorded an expense of $25,000.
During
the year ended April 30, 2005, the Company issued 130,000 free trading shares
of
its Common Stock for cash and services valued at $93,000. Also during fiscal
2005, the Company sold 275,000 restricted Common Stock in private placements
for
proceeds of $80,000. The sales transpired at discounts ranging from 66% to
43%
from prices prevailing for free-trading shares.
Further,
the Company issued 113,000 restricted shares of its Common Stock in exchange
for
services and 500,000 shares of its restricted Common Stock for leasehold
interests in oil and gas properties at a discount of 60% from prices prevailing
for free-trading shares.
Additionally,
the Company has warrants and options outstanding from prior periods. 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, unless exercised in accordance with the particular
warrant.
MILLER
PETROLEUM, INC.
Notes
to
the Consolidated Financial Statements
April
30,
2005 and 2004
NOTE
10 -
SHAREHOLDERS ’ EQUITY (Continued)
Information
regarding the warrants at April 30, 2005 and 2004 is as follows:
|
|
2005
|
|
2004
|
|
|
|
Weighted
|
|
Average
|
|
Weighted
|
|
Average
|
|
|
|
Shares
|
|
Exercise
Price
|
|
Shares
|
|
Exercise
Price
|
|
Options
outstanding, beginning of year
|
|
|
2,235,000
|
|
$
|
0.88
|
|
|
875,000
|
|
$
|
1.19
|
|
Options
canceled
|
|
|
1,695,000
|
|
|
0.77
|
|
|
100,000
|
|
|
2.00
|
|
Options
exercised
|
|
|
|
|
|
n/a
|
|
|
|
|
|
n/a
|
|
Options
granted
|
|
|
|
|
|
0.00
|
|
|
1,460,000
|
|
$
|
0.78
|
|
Options
outstanding, end of year
|
|
|
540,000
|
|
$
|
1.30
|
|
|
2,235,000
|
|
$
|
0.88
|
|
Options
exercisable, end of year
|
|
|
540,000
|
|
$
|
1.30
|
|
|
2,435,672
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
price range, end of year
|
|
|
|
|
$
|
0.50
to 2.00
|
|
|
|
|
$
|
0.46
to 2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
price range, exercised shares
|
|
|
|
|
|
n/a
|
|
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
available for grant at end of year
|
|
|
|
|
|
n/a
|
|
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value of options granted during the year
|
|
|
|
|
|
n/a
|
|
|
|
|
$
|
0.05
|
|
For
non-employees, the fair value of stock options used to compute pro forma net
loss and loss per share disclosures is the estimated present value at grant
date
using the Black-Scholes option-pricing model with the following weighted average
assumptions for 2004. Expected volatility of 40%; a risk free interest rate
of
3.00% and an expected option life of 1 year, five months.
NOTE
11 -
CONTINGENCIES
The
Company’s activities are subject to federal, state and local laws and
regulations governing environmental quality and pollution control in the United
States. The company cannot predict what effect future regulations or
legislation, enforcement policies, and claims for damages to property,
employees, other persons and the environment resulting from the Company’s
operations could have on its activities. Although no assurances can be made,
the
Company’s management believes that absent the occurrence of an extraordinary
event, compliance with existing laws, rules and regulations regulating the
release of materials in the environment or otherwise relating to the protection
of the environment will not have a material effect upon the Company’s financial
position.
MILLER
PETROLEUM, INC.
Notes
to
the Consolidated Financial Statements
April
30,
2005 and 2004
NOTE
12 -
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The
carrying amount reported on the balance sheet for cash, accounts and notes
receivable, accounts payable and accrued liabilities approximates fair value
because of the immediate or short-term maturity of these financial instruments.
The carrying value of notes payable approximate fair value due to the settlement
at carrying value of these obligations subsequent to the balance sheet date
(see
Note 6, Long Term Debt).
NOTE
13 -
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (Unaudited)
(1)
Capitalized Costs Relating to Oil and Gas Producing Activities at April 30,
2005
and 2004 is as follows:
|
|
2005
|
|
2004
|
|
Proved
oil and gas properties and related lease equipment
|
|
|
|
|
|
|
|
|
|
|
|
Developed
|
|
$
|
3,841,996
|
|
$
|
3,362,316
|
|
Non-developed
|
|
|
31,053
|
|
|
31,053
|
|
|
|
|
3,873,049
|
|
|
3,393,369
|
|
Accumulated
depreciation and depletion
|
|
|
(931,217
|
)
|
|
(755,364
|
)
|
Net
Capitalized Costs
|
|
$
|
2,941,832
|
|
$
|
2,638,005
|
|
(2)
Costs
Incurred in Oil and Gas Property Acquisition, Exploration, and Development
Activities
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Acquisition
of Properties Proved and Unproved
|
|
$
|
|
|
$
|
|
|
Exploration
Costs
|
|
|
|
|
|
|
|
Development
Costs
|
|
|
549,687
|
|
|
565,779
|
|
Total
|
|
$
|
549,687
|
|
$
|
565,779
|
|
(3)
Results of Operations for Producing Activities
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Production
revenues
|
|
$
|
784,409
|
|
$
|
773,033
|
|
Production
costs
|
|
|
177,287
|
|
|
228,301
|
|
Depreciation
and amortization
|
|
|
245,860
|
|
|
43,800
|
|
Results
of operations for producing activities (excluding corporate overhead
and
interest costs)
|
|
$
|
361,262
|
|
$
|
500,932
|
|
MILLER
PETROLEUM, INC.
Notes
to
the Consolidated Financial Statements
April
30,
2005 and 2004
NOTE
13 -
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (Unaudited) (Continued)
(4)
Reserve Quantity Information
The
following schedule estimates 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 thousands 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 than other estimates
presented in connection with financial statement disclosures.
|
|
Oil
(Bbls)
|
|
Gas
(Mcf)
|
|
|
|
|
|
|
|
Proved
reserves
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
April 30, 2003
|
|
|
208,821
|
|
|
5,365,057
|
|
Discoveries
and extensions
|
|
|
68,903
|
|
|
718,160
|
|
Revisions
of previous estimates
|
|
|
79,169
|
|
|
2,642,073
|
|
Productions
|
|
|
(5,957
|
)
|
|
(28,771
|
)
|
|
|
|
|
|
|
|
|
Balance,
April 30, 2004
|
|
|
350,936
|
|
|
8,696,519
|
|
Discoveries
and extensions
|
|
|
35,400
|
|
|
220,000
|
|
Revisions
of previous estimates
|
|
|
(284,979
|
)
|
|
(7,592,419
|
)
|
Production
|
|
|
(7,532
|
)
|
|
(74,534
|
)
|
|
|
|
|
|
|
|
|
Balance,
April 30, 2005
|
|
|
93,825
|
|
|
1,249,566
|
|
Proved
developed producing reserves at April 30, 2005
|
|
|
60,734
|
|
|
697,916
|
|
Proved
developed producing reserves at April 30, 2004
|
|
|
62,106
|
|
|
1,035,850
|
|
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 were by Netherland Sewell and Associates, Inc. and
Glover Petroleum Consultants of Crossville, Tennessee for the year ended April
30, 2005 and April 30, 2004, respectively.
MILLER
PETROLEUM, INC.
Notes
to
the Consolidated Financial Statements
April
30,
2005 and 2004
NOTE
13 -
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (Unaudited) (Continued)
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 2006. However, such timing as well as the actual
financing arrangements that will be secured by the Company is
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, 2005,
nor
are such reserves being considered in calculating depreciation, depletion and
amortization expense for the year based on the April 30, 2005 and April 30,
2004
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, 2005 and 2004. Estimated future cash flows were based on
independent reserves evaluation from Netherland Sewell & Associates, Inc.
and Glover Petroleum Consultants for the years ended April 30, 2005 and April
30, 2004, respectively. Because the standardized measure of future net cash
flows was prepared using the prevailing economic conditions existing at April
30, 2005 and 2004, it should be emphasized that such conditions continually
change. Accordingly, such information should not serve as a basis in making
any
judgment on the potential value of the Company’s recoverable reserves or in
estimating future results of operations.
Estimated
future net cash flows represent an 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, 2005 and 2004 were $44.50 and $32.75 per barrel of
oil
and $6.75 and $6.25 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.
MILLER
PETROLEUM, INC.
Notes
to
the Consolidated Financial Statements
April
30,
2005 and 2004
NOTE
13 -
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (Unaudited) (Continued)
Standardized
measures of discounted future net cash flows at April 30, 2005 and 2004 is
as
follows:
|
|
2005
|
|
2004
|
|
Future
cash flows
|
|
$
|
12,747,600
|
|
$
|
65,105,641
|
|
Future
production costs and taxes
|
|
|
(1,939,000
|
)
|
|
(2,769,464
|
)
|
Future
development costs
|
|
|
(745,000
|
)
|
|
(4,740,000
|
)
|
Future
income tax expense
|
|
|
(3,119,716
|
)
|
|
(17,854,815
|
)
|
Future
cash flows before income taxes
|
|
|
6,943,884
|
|
|
39,741,362
|
|
Discount
at 10% for timing of cash flows
|
|
|
(3,463,248
|
)
|
|
(16,591,415
|
)
|
Discounted
future net cash flows from proved reserves
|
|
$
|
3,480,636
|
|
$
|
23,149,947
|
|
Of
the
Company’s total proved reserves as of April 30, 2005 and 2004, approximately 59%
and 7%, respectively, were classified as proved developed producing, 11% and
4%,
respectively, were classified as proved developed non-producing
and 30% and 89%, 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, 2005 and
2004.
|
|
April
30,
|
|
|
|
2005
|
|
2004
|
|
Balance,
beginning of year
|
|
$
|
23,149,947
|
|
$
|
13,165,412
|
|
Sales,
Net of production costs and taxes
|
|
|
(784,409
|
)
|
|
(773,033
|
)
|
Changes
in prices and production costs
|
|
|
7,490,059
|
|
|
9,737,935
|
|
Revisions
of quantity estimates
|
|
|
(39,206,898
|
)
|
|
5,505,439
|
|
Development
costs incurred
|
|
|
3,995,000
|
|
|
|
|
Net
changes in income taxes
|
|
|
8,836,937
|
|
|
(4,485,806
|
)
|
Balances,
end of year
|
|
$
|
3,480,636
|
|
$
|
23,149,947
|
|
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
24. Indemnification
of Officers and Directors
The
Tennessee Business Corporation Act (the “TBCA”) provides that a corporation may
indemnify any of its directors and officers against liability incurred in
connection with a proceeding if:
|
·
|
the
director or officer acted in good
faith;
|
|
·
|
in
the case of conduct in his or her official capacity with the corporation,
the director or officer reasonably believed such conduct was in the
corporation’s best interest;
|
|
·
|
in
all other cases, the director or officer reasonably believed that
his or
her conduct was not opposed to the best interest of the corporation;
and
|
|
·
|
in
connection with any criminal proceeding, the director or officer
had no
reasonable cause to believe that his conduct was unlawful.
|
In
actions brought by or in the right of the corporation, however, the TBCA
provides that no indemnification may be made if the director or officer was
adjudged to be liable to the corporation. In cases where the director or officer
is wholly successful, on the merits or otherwise, in the defense of any
proceeding instituted because of his or her status as an officer or director
of
a corporation, the TBCA mandates that the corporation indemnify the director
or
officer against reasonable expenses incurred in the proceeding. The TBCA also
provides that in connection with any proceeding charging improper personal
benefit to an officer or director, no indemnification may be made if the officer
or director is adjudged liable on the basis that personal benefit was improperly
received. Notwithstanding the foregoing, the TBCA provides that a court of
competent jurisdiction, upon application, may order that an officer or director
be indemnified for reasonable expenses if, in consideration of all relevant
circumstances, the court determines that the individual is fairly and reasonably
entitled to indemnification, notwithstanding the fact that:
|
·
|
the
officer or director was adjudged liable to the corporation in a proceeding
by or in the right of the
corporation;
|
|
·
|
the
officer or director was adjudged liable on the basis that personal
benefit
was improperly received by him or her;
or
|
|
·
|
the
officer or director breached his or her duty of care to the corporation.
|
Our
Board
of Directors has adopted these provisions to indemnify our directors, executive
officers and agents.
Item
25. Other
Expenses of Issuance and Distribution
The
following table sets forth estimated expenses we expect to incur in connection
with the resale of the shares being registered. All such expenses are estimated
except for the SEC Registration fee.
|
|
|
|
|
SEC
Filing Fee
|
|
$
|
648.18
|
|
Accounting
Fees and Expenses
|
|
|
5,000.00
|
|
Legal
Fees and Expenses
|
|
|
50,000.00
|
|
Miscellaneous
|
|
|
5,000.00
|
|
Total
|
|
$
|
60,648.18
|
|
Item
26. Recent
Sales of Unregistered Securities
We
have
sold the following securities within the past three years without registering
them under the Securities Act. Each
of these securities was sold without registration under the Securities Act
of
1933, as amended, in reliance on Section 4(2) of the Securities Act of 1933,
as
amended, and/or Regulation D of the Securities Act of 1933, as
amended.
On
December 23, 2005, in connection with our joint venture arrangement with
Wind City, we entered into a stock purchase agreement pursuant to
which
Wind City agreed to purchase 2,900,000 shares of our Common Stock in exchange
for $4,350,000. Proceeds from this borrowing were used to pay off the
outstanding Senior
Secured Notes (as defined below) under the Credit Agreement (as defined below)
with approximately $200,000 remaining for working capital.
For
advisement services in connection with the above transaction, GunnAllen
Financial Inc. was compensated by the issuance of 400,000 common
shares.
On
December 10, 2005 we agreed to issue 50,000 shares of Common Stock to Northstar
Capital Markets, Inc. as consideration for consulting services to us valued
at
$53,000.
On
December 10, 2005 we agreed to issue 500,000 common shares to our president,
Ernest Payne, in connection with a three-year employment contract. The stock
is
valued in these financial statements at $530,000.
On
September 8, 2005, we agreed to issue 600,000 shares of Common Stock to Growth
Management in consideration of consulting services valued at $
600,000.
On
September 8, 2005, we agreed to issue 400,000 shares of Common Stock to Scott
Boruff in consideration Of consulting services valued at $ 400,000.
On
May 9,
2005, we entered into a credit agreement “Credit Agreement with Prospect Energy
Corporation, a Maryland Corporation (“Prospect Energy”) and Petro Capital III,
L.P., a Texas limited liability company (“Petro Capital”), and with MPC, Inc.,
our wholly owned subsidiary as guarantor, for the issuance and sale of senior
secured convertible promissory notes (“Senior Secured Notes”) in the aggregate
principal amount of $4,150,000 and accruing interest at 12% per annum. The
Senior Secured Notes are convertible into Common Stock, par value $0.0001 per
share at the lesser price of $1.50 our planned per share or the price of Common
Stock issued to investors should we engage in a planned equity financing. The
Senior Secured Notes were paid off with part of the proceeds from our December
2003 private placement transaction with Wind City. In addition, we issued to
Prospect Energy, Petro Capital and Petro Capital Advisors, LLC, an
affiliate of Petro Capital, five-year warrants to purchase an aggregate of
1,000,000 shares of our Common Stock, par value $0.0001 per share at an exercise
price of $0.50 per share.
In
connection with the above private placement transaction and for failure to
file
the required registration statement and to have that registration statement
become effective by a certain date, we subsequently issued five additional
warrants (the “Penalty Warrants”) to each of Prospect Energy and Petro Capital
to purchase aggregate amounts of 151,805 and 48,195 shares of our Common Stock,
respectively. The Penalty Warrants are exercisable at an exercise price of
$1.15
per share and have a term of five years.
On
July
14, 2005, we agreed to issue 30,000 shares to the principals of TNC, Inc. in
connection with an agreement to terminate the Financial Consulting Agreement
dated August 26, 2004.
On
April
2, 2004, we issued 200,000 shares to Ratcliff Farms, Inc. in a private placement
for an aggregate consideration of $50,000.
On
August
13, 2003, warrants were granted to Sherri Ann Parker Lee and William Parker
Lee
in the amount of 1,110,000 and 250,000, respectively, as partial consideration
for a subordinated loan in the amount of $1,360,000. These warrants were
exercisable at a price of $0.80 per share and expired on January 1, 2005 without
being exercised.
Item
27. Exhibits
EXHIBIT
INDEX
The
following exhibits are filed as a part of this Registration
Statement:
Exhibit
|
|
|
Number
|
|
Description
|
|
|
Charter
of Miller Contract Drilling. (Filed as exhibit to Registration Statement
No. 333-53856 on Form SB-2 and incorporated herein by
reference.)
|
|
|
Articles
of Merger between Miller Resources Inc. and Miller Contract Drilling,
Inc.
(Filed
as exhibit to Registration Statement No. 333-53856 on Form SB-2 and
incorporated herein by reference.)
|
|
|
Articles
of Merger between Miller Trucking Co., Inc. and Miller Contract Drilling,
Inc. (Filed as exhibit to Registration Statement No. 333-53856 on
Form
SB-2 and incorporated herein by reference.)
|
|
|
Articles
of Amendment to the Charter of Miller Contract Drilling, changing
its name
to Miller Petroleum, Inc. (Filed as exhibit to Registration Statement
No.
333-53856 on Form SB-2 and incorporated herein by
reference.)
|
|
|
Articles
of Merger between Miller Enterprises, Inc. and Miller Petroleum,
Inc.
(Filed as exhibit to Registration Statement No. 333-53856 on Form
SB-2 and
incorporated herein by reference.)
|
|
|
Articles
of Amendment to the Charter of Miller Petroleum (increasing the number
of
authorized shares) (Filed as exhibit to Registration Statement No.
333-53856 on Form SB-2 and incorporated herein by
reference.)
|
|
|
Articles
of Merger between Miller Services, Inc., Energy Cell, Inc. and Miller
Petroleum, Inc. (Filed as exhibit to Registration Statement No. 333-53856
on Form SB-2 and incorporated herein by reference.)
|
|
|
Certificate
of Ownership and Merger and Articles of Merger. (Filed as exhibit
to
Registration Statement No. 333-53856 on Form SB-2 and incorporated
herein
by reference.)
|
|
|
By-laws.
(Filed as exhibit to Registration Statement No. 333-53856 on Form
SB-2 and
incorporated herein by reference.)
|
|
|
Form
of Stock Purchase Warrant issued as of December 31, 2005, by the
Company
to Petro Capital III, L.P. (Filed as Exhibit to Quarterly Report
on Form
10-Q for the period ended January 31, 2006 and incorporated herein
by
reference.)
|
|
|
Form
of Stock Purchase Warrant, issued as of December 31, 2005, by the
Company
to Prospect Energy Corporation. (Filed as exhibit to Quarterly Report
on
Form 10-Q for the period ended January 31. 2006 and incorporated
herein by
reference.)
|
|
|
Form
of Stock Purchase Warrant, issued as of January 31, 2006, by the
Company
to Petro Capital III, L.P. (Filed as exhibit to Quarterly Report
on Form
10-Q for the period ended January 31, 2006 and incorporate herein
by
reference.)
|
|
|
Form
of Stock Purchase Warrant, issued as of January 31, 2006, by the
Company
to Prospect Energy Corporation. (Filed as exhibit to Quarterly Report
on
Form 10-Q for the period ended January 31, 2006 and incorporated
herein by
reference.)
|
|
|
Form
of Stock Purchase Warrant, issued as of February 28, 2006, by the
Company
to Petro Capital III, L.P. (Filed as exhibit to Quarterly Report
on Form
10-Q for the period ended January 31, 2006 and incorporated herein
by
reference.)
|
|
|
Form
of Stock Purchase Warrant, issued as of February 28, 2006, by the
Company
to Prospect Energy Corporation. (Filed as exhibit to Quarterly Report
on
Form 10-Q for the period ended January 31, 2006 and incorporated
herein by
reference.)
|
4.7
|
|
Form
of Stock Purchase Warrant, issued as of March 31, 2006, by the Company
to
Prospect Energy Corporation.
|
4.8
|
|
Form
of Stock Purchase Warrant, issued as of March 31, 2006, by the Company
to
Petro Capital III, L.P.
|
4.9
|
|
Form
of Stock Purchase Warrant, issued as of April 30, 2006, by the Company
to
Prospect Energy Corporation.
|
4.10
|
|
Form
of Stock Purchase Warrant, issued as of April 30, 2006, by the Company
to
Petro Capital III, L.P.
|
5.1
|
|
Opinion
of Snow Becker Krauss P.C.**
|
|
|
Credit
Agreement dated as of May 4, 2005 by and among MPC, Inc., Prospect
Energy
orporation and Petro Capital III, L.P. (Filed as exhibit to the Current
Report on Form 8-K dated May 9, 2005 and incorporated herein by
reference.)
|
|
|
Guaranty
dated as of May 4, 2005 from MPC, Inc. to Prospect Energy Corporation
(Filed as exhibit to the Current Report on Form 8-K dated May 9,
2005 and
incorporated herein by reference.)
|
|
|
Commercial
Security Agreement dated as of May 3, 2005 by and between Prospect
Energy
Corporation and Petro Capital III, L.P. (Filed as Exhibit 10.5 to
the
Current Report on Form 8-K dated May 9, 2005 and incorporated herein
by
reference.)
|
|
|
Mortgage,
Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of May 4, 2005 from Miller Petroleum, Inc. and
MPC,
Inc. for the benefit of Prospect Energy Corporation. (Filed as exhibit
to
the Current Report on Form 8-K dated May 9, 2005 and incorporated
herein
by reference.)
|
|
|
Stock
Purchase Warrant dated as of May 4, 2005 between Prospect Energy
Corporation and Miller Petroleum, Inc. (Filed as exhibit to the Current
Report on Form 8-K dated May 9, 2005 and incorporated herein by
reference.)
|
|
|
Stock
Purchase Warrant dated as of May 4, 2005 between Petro Capital III,
L.P.
and Miller Petroleum, Inc. (Filed as exhibit to Current Report on
Form 8-K
dated May 9, 2005 and incorporated herein by
reference.)
|
|
|
Stock
Purchase Warrant dated as of May 4, 2005 between Petro Capital Advisors,
LLC and Miller Petroleum, Inc. (Filed as exhibit to the Current Report
on
Form 8-K dated May 9, 2005 and incorporate herein by
reference.)
|
|
|
Registration
Statement dated as of May 4, 2005 among Prospect Energy Corporation,
Petro
Capital Advisors, LLC and Petro Capital III, L.P. (Filed as exhibit
to the
Current Report on Form 8-K dated May 9, 2005 and incorporate herein
by
reference.)
|
10.11
|
|
Amendment
to Registration Statement dated as of December 1, 2005 among Prospect
Energy Corporation, Petro Capital Advisors, LLC and Petro Capital
III,
L.P.
|
|
|
Stock
Purchase Agreement dated as of December 23, 2005 by and between Miller
Petroleum, Inc. and Wind City Oil & Gas, LLC. (Filed as exhibit to
Quarterly Report on Form 10-Q for the period ended January 31, 2006
and
incorporated herein by reference.)
|
|
|
Stock
Purchase Agreement, dated December 23, 2005, by and between the Company
and Wind City Oil & Gas, LLC. (Filed as exhibit to Quarterly Report on
Form 10-Q for the period ended January 31, 2006 and incorporated
herein by
reference.)
|
|
|
Wind
Mill Oil & Gas, LLC Limited Liability Company Agreement, dated as of
December 23, 2005, by and between the Company and Wind City Oil & Gas,
LLC. (Filed as exhibit to Quarterly Report on Form 10-Q for the period
ended January 31, 2006 and incorporated herein by
reference.)
|
|
|
Employment
Agreement, dated February 21, 2006, by and between the Company and
Ernest
Payne. (Filed as exhibit to Quarterly Report on Form 10-Q for the
period
ended January 31, 2006 and incorporated herein by
reference.)
|
23.1
|
|
Consent
of Snow Becker Krauss P.C. (contained in Exhibit 5.1)**
|
23.2
|
|
Consent
of Rodefer Moss & Co., PLLC
|
|
|
|
** |
To
be filed by amendment.
|
Item
28. Undertakings
The
undersigned Registrant hereby undertakes:
|
·
|
To
file during any period in which it offers or sells securities, a
post-effective amendment to this registration statement
to:
|
|
(i)
|
Include
any prospectus required by 10(a)(3) of the Securities Act of 1933
(the
“Securities Act”);
|
|
(ii)
|
Reflect
in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease
in the
volume of securities offered (if the total value of the securities
offered
would not exceed that which was registered) and any deviation from
the low
or high end of the estimated maximum offering range may be reflected
in
the form of prospectus filed with the Commission pursuant to Rule
424(b)
if, In the aggregate, the changes in volume and the price represent
no
more than a 20 percent change in the maximum aggregate offering price
set
forth in the “Calculation of Registration Fee” table in the effective
registration statement.
|
|
(iii)
|
Include
any additional or changed material information on the plan of
distribution.
|
|
·
|
That,
for determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at the time to be the
initial
bona
fide
offering.
|
|
·
|
To
file a post-effective amendment to remove from registration any of
the
securities that remain unsold at the end of the
offering.
|
Insofar
as indemnification for liabilities arising under the Securities Act may be
available to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the act and is,
therefore, unenforceable.
In
the
event that a claim for indemnification against such liabilities (other than
the
payment by the small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer, or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
is
against public policy as expressed in the Securities Act and will be governed
by
the final adjudication of such issue.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the
city of Huntsville, State of Tennessee on the 24th day of April,
2006.
|
|
|
|
MILLER
PETROLEUM, INC. |
|
|
|
April
24, 2006
|
By: |
/s/ Deloy
Miller |
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Name:
Deloy Miller
Title:
Chief Executive Officer
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In
accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated:
Signature
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Title
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Date
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/s/
Deloy
Miller
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Chief
Executive Officer and
Chairman
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April
24, 2006
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Deloy
Miller
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/s/
Lyle
H. Cooper
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Chief
Financial Officer
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April
24, 2006
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Lyle
H. Cooper
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/s/
Herbert
J. White
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Vice
President and Director
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April
24, 2006
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Herbert
J. White
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/s/
Herman
E. Gettelfinger
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Director
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April
24, 2006
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Herman
E. Gettelfinger
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/s/ Charles
M. Stivers
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Director
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April
24, 2006
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Charles
Stivers
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