Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D. C. 20549
FORM
10-QSB
x QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF
1934
For
the
quarterly period ended July 31, 2006
___________________________
o TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF
1934
For
the
transition period from _____to _____
Commission
File No. 33-2249-FW
MILLER
PETROLEUM, INC.
(Exact
name of small business issuer as specified in its charter)
TENNESSEE
|
62-1028629
|
(State
or other jurisdiction of
|
(I.R.S.
Employer Identification. No.)
|
incorporation
or organization)
|
|
3651
Baker Highway
Huntsville,
Tennessee 37756
(Address
of principal executive offices)
(423)
663-9457
Issuer's
telephone number
N/A
(Former
name, former address and former fiscal year if changed from last
report.)
Check
whether the issuer: (1) has filed all reports required to be filed by Section
13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. YES x NO o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) YES o NO
x
As
of
July 31, 2006, the registrant had a total of 14,366,856 shares of Common Stock,
$0.001 par value, outstanding.
Transitional
Small Business Disclosure Format (check one): YES o NO x
Miller
Petroleum, Inc.
Form
10-QSB
For
the Quarter Ended July 31, 2006
Table
of Contents
PART
1-FINANCIAL INFORMATION
|
|
|
|
|
|
|
Item
1
|
Condensed
Consolidated Financial Statements
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of July 31, 2006
(Unaudited)
|
|
|
|
and
April 30, 2006
|
3
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations for the Three Months
|
|
|
|
ended
July 31, 2006 and 2005 (Unaudited)
|
5
|
|
|
|
|
|
|
Condensed
Consolidated Statement of Permanent Stockholders’ Equity for the Twelve
Months ended April 30, 2006
|
|
|
|
and
the Three Months ended July 31, 2006 (Unaudited)
|
6
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the Three Months
|
|
|
|
Ended
July 31, 2006 and 2005 (Unaudited)
|
7
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
8
|
|
|
|
|
|
Item
2
|
Management’s
Discussion and Analysis of Financial Condition and Results of
|
|
|
|
Operations
|
10
|
|
|
|
|
|
Item
3
|
Controls
and Procedures
|
13
|
|
|
|
|
PART
II-OTHER INFORMATION
|
|
|
|
|
|
|
Item
6
|
Exhibits
|
14
|
|
|
|
|
SIGNATURES
|
|
15
|
MILLER
PETROLEUM, INC.
Condensed
Consolidated Balance Sheets
|
|
July
31
|
|
April
30
|
|
|
|
2006
|
|
2006
|
|
|
|
Unaudited
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
114,201
|
|
$
|
0
|
|
Accounts
receivable
|
|
|
145,964
|
|
|
311,286
|
|
Participant
receivables
|
|
|
268,029
|
|
|
347,060
|
|
Note
receivable
|
|
|
7,900
|
|
|
43,000
|
|
Inventory
|
|
|
107,144
|
|
|
97,388
|
|
Unbilled
service and drilling costs
|
|
|
0
|
|
|
76,944
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
643,238
|
|
|
875,678
|
|
|
|
|
|
|
|
|
|
FIXED
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
and equipment
|
|
|
880,904
|
|
|
880,904
|
|
Vehicles
|
|
|
374,836
|
|
|
321,895
|
|
Buildings
|
|
|
315,835
|
|
|
315,835
|
|
Office
Equipment
|
|
|
27,705
|
|
|
23,028
|
|
|
|
|
1,599,280
|
|
|
1,541,662
|
|
Less:
accumulated depreciation
|
|
|
(805,161
|
)
|
|
(782,971
|
)
|
Total
Fixed assets
|
|
|
794,119
|
|
|
758,691
|
|
|
|
|
|
|
|
|
|
OIL
AND GAS PROPERTIES
|
|
|
1,559,950
|
|
|
1,576,950
|
|
(On
the basis of successful efforts accounting)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PIPELINE
FACILITIES
|
|
|
190,860
|
|
|
193,948
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
Investment
in joint venture at cost
|
|
|
801,319
|
|
|
801,319
|
|
Land
|
|
|
496,500
|
|
|
496,500
|
|
Investments
|
|
|
500
|
|
|
500
|
|
Equipment
held for sale
|
|
|
429,362
|
|
|
440,712
|
|
Cash
- restricted
|
|
|
83,000
|
|
|
83,000
|
|
|
|
|
|
|
|
|
|
Total
Other Assets
|
|
|
1,810,681
|
|
|
1,822,031
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
4,998,848
|
|
$
|
5,227,298
|
|
See
notes
to condensed consolidated financial statements.
MILLER
PETROLEUM, INC.
Condensed
Consolidated Balance Sheets
|
|
July
31
|
|
April
30
|
|
|
|
2006
|
|
2006
|
|
|
|
Unaudited
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
Bank
overdraft
|
|
$
|
0
|
|
$
|
27,253
|
|
Accounts
payable - trade
|
|
|
107,593
|
|
|
305,494
|
|
Accrued
expenses
|
|
|
55,572
|
|
|
43,189
|
|
Current
portion of notes payable
|
|
|
16,587
|
|
|
16,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
179,752
|
|
|
392,572
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
|
|
|
|
|
Related
parties
|
|
|
|
|
|
|
|
Other
|
|
|
320,524
|
|
|
323,898
|
|
|
|
|
|
|
|
|
|
Total
Long-Term Liabilities
|
|
|
320,524
|
|
|
323,898
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
500,276
|
|
|
716,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TEMPORARY
EQUITY
|
|
|
|
|
|
|
|
Common
stock subject to put rights, 2,900,000 shares
|
|
|
4,350,000
|
|
|
4,350,000
|
|
|
|
|
|
|
|
|
|
PERMANENT
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Common
Stock: 500,000,000 shares authorized
|
|
|
|
|
|
|
|
at
$0.0001 par value, 11,466,856 shares issued
|
|
|
|
|
|
|
|
and
outstanding
|
|
|
1,146
|
|
|
1,146
|
|
Additional
paid-in capital
|
|
|
6,648,683
|
|
|
6,624,683
|
|
Unearned
compensation
|
|
|
(657,049
|
)
|
|
(751,990
|
)
|
Accumulated
deficit
|
|
|
(5,844,208
|
)
|
|
(5,713,011
|
)
|
Total
Stockholders' Equity
|
|
|
148,572
|
|
|
160,828
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
$
|
4,998,848
|
|
$
|
5,227,298
|
|
See
notes
to condensed consolidated financial statements.
MILLER
PETROLEUM, INC.
Condensed
Consolidated Statements of Operations
(UNAUDITED)
|
|
For
the Three
|
|
For
the Three
|
|
|
|
Months
Ended
|
|
Months
Ended
|
|
|
|
July
31
|
|
July
31
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas revenue
|
|
$
|
134,350
|
|
$
|
185,821
|
|
Service
and drilling revenue
|
|
|
397,568
|
|
|
1,298,245
|
|
|
|
|
|
|
|
|
|
Total
Revenue
|
|
|
531,918
|
|
|
1,484,066
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of oil and gas revenue
|
|
|
14,779
|
|
|
20,440
|
|
Cost
of service and drilling revenue
|
|
|
354,509
|
|
|
960,118
|
|
Selling,
general and administrative, net of
|
|
|
|
|
|
|
|
joint
venture reimbursement
|
|
|
223,239
|
|
|
371,469
|
|
Administrative
salaries and wages, net of reimbursement
|
|
|
0
|
|
|
76,416
|
|
Depreciation,
depletion and amortization
|
|
|
42,278
|
|
|
74,218
|
|
|
|
|
|
|
|
|
|
Total
Costs and Expense
|
|
|
634,805
|
|
|
1,502,661
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM OPERATIONS
|
|
|
(102,887
|
)
|
|
(18,595
|
)
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
52
|
|
|
51
|
|
Gain
on sale of equipment
|
|
|
0
|
|
|
300
|
|
Interest
expense
|
|
|
(4,362
|
)
|
|
(171,531
|
)
|
Penalty
warrants
|
|
|
(24,000
|
)
|
|
0
|
|
|
|
|
|
|
|
|
|
Total
Other Income (Expense)
|
|
|
(28,310
|
)
|
|
(171,180
|
)
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
$
|
(131,197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted - Loss per Share
|
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
Basic
and Diluted -Shares Outstanding
|
|
|
14,366,856
|
|
|
9,396,856
|
|
See
notes
to condensed consolidated financial statements.
MILLER
PETROLEUM, INC
Condensed
Consolidated Statement of Permanent Stockholders' Equity
for
the Twelve Months ended April 30, 2006 and
the Three Months ended July 31, 2006
(UNAUDITED)
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common
|
|
Shares
|
|
Paid-in
|
|
Unearned
|
|
Retained
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Compensation
|
|
Earnings
|
|
Total
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
66,000 |
|
|
|
|
|
|
|
|
66,000 |
|
|
Issuance
of
shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as
payments of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
services
|
|
|
1,650,000 |
|
|
|
|
165 |
|
|
1,682,835 |
|
|
(751,990 |
) |
|
|
|
|
931,010 |
|
|
Issuance
of
shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
stock sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
commission
|
|
|
400,000 |
|
|
|
|
40 |
|
|
459,960 |
|
|
|
|
|
|
|
|
460,000 |
|
|
Cost
of stock
sales |
|
|
|
|
|
|
|
|
|
|
(460,000 |
) |
|
|
|
|
|
|
|
(460,000 |
) |
|
Exercise
of
warrants |
|
|
20,000 |
|
|
|
|
2 |
|
|
9,998 |
|
|
|
|
|
|
|
|
10,000 |
|
|
Net
loss for
the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
year
ended April 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,589,934 |
) |
|
(3,589,934 |
) |
|
Balance,
April 30,
2006 |
|
|
11,466,856 |
|
|
|
|
1,146 |
|
|
6,624,683 |
|
|
(751,990 |
) |
|
(5,713,011 |
) |
|
160,828 |
|
|
To
reflect
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earned
for the three months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ended
July 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,941 |
|
|
|
|
|
94,941 |
|
|
Issuance
of warrants
for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financing
cost penalty
|
|
|
|
|
|
|
|
|
|
|
24,000 |
|
|
|
|
|
|
|
|
24,000 |
|
|
Net
loss for the three
months |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ended
July 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(131,197 |
) |
|
(131,197 |
) |
|
Balance
July 31,
2006 |
|
|
11,466,856 |
|
$
|
|
|
1,146 |
|
$ |
6,648,683 |
|
$ |
(657,049 |
) |
$ |
(5,844,208 |
) |
$ |
148,572 |
|
See
notes
to condensed consolidated financial statements.
MILLER
PETROLEUM, INC.
Condensed
Consolidated Statement of Cash Flows
(UNAUDITED)
|
|
For
the Three
|
|
For
the Three
|
|
|
|
Months
Ended
|
|
Months
Ended
|
|
|
|
July
31, 2006
|
|
July
31, 2005
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(131,197
|
)
|
$
|
(189,775
|
)
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
|
42,278
|
|
|
74,218
|
|
|
|
|
|
|
|
|
|
Adjustments
to Reconcile Net Loss to
|
|
|
|
|
|
|
|
Net
Cash Provided (Used) by Operating Activities:
|
|
|
|
|
|
|
|
Gain
on sale of equipment
|
|
|
0
|
|
|
300
|
|
Issuance
of stock for services
|
|
|
94,941
|
|
|
0
|
|
Warrant
costs
|
|
|
24,000
|
|
|
79,370
|
|
Changes
in Operating Assets and Liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
244,353
|
|
|
(31,136
|
)
|
Accrued
drilling income
|
|
|
0
|
|
|
(126,015
|
)
|
Participant
receivables
|
|
|
0
|
|
|
(231,223
|
)
|
Inventory
|
|
|
(9,756
|
)
|
|
0
|
|
Bank
overdraft
|
|
|
(27,253
|
)
|
|
0
|
|
Unbilled
service & drilling cost
|
|
|
76,944
|
|
|
0
|
|
Accounts
payable
|
|
|
(197,901
|
)
|
|
(151,310
|
)
|
Accrued
expenses
|
|
|
12,383
|
|
|
138,621
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided (Used) by Operating Activities
|
|
|
128,792
|
|
|
(436,950
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchase
of Equipment
|
|
|
(57,618
|
)
|
|
(27,480
|
)
|
Sale
of equipment
|
|
|
11,350
|
|
|
0
|
|
Net
additions to oil and gas properties
|
|
|
0
|
|
|
(230,681
|
)
|
|
|
|
|
|
|
|
|
Net
Cash Used by Investing Activities
|
|
|
(46,268
|
)
|
|
(258,161
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Payments
on notes payable
|
|
|
(3,423
|
)
|
|
(1,978,737
|
)
|
Proceeds
from borrowing
|
|
|
0
|
|
|
4,150,000
|
|
Loan
fees
|
|
|
0
|
|
|
(402,710
|
)
|
Increase
in restricted cash
|
|
|
0
|
|
|
(91,358
|
)
|
Change
in note receivable
|
|
|
35,100
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Financing Activities
|
|
|
31,677
|
|
|
1,682,195
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH
|
|
|
114,201
|
|
|
987,084
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
0
|
|
|
2,362
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
114,201
|
|
$
|
989,446
|
|
|
|
|
|
|
|
|
|
CASH
PAID FOR
|
|
|
|
|
|
|
|
INTEREST
|
|
|
|
|
$
|
92,161
|
|
INCOME
TAXES
|
|
$
|
0
|
|
$
|
0
|
|
See
notes
to condensed consolidated financial statements.
MILLER
PETROLEUM, INC.
Notes
to the Condensed Consolidated Financial Statements
(1) Interim
Reports / Going Concern
The
accompanying condensed consolidated financial statements have been prepared
assuming the Company will continue as a going concern. However, in addition
to
successive losses for three years, declining revenues, a net loss of $131,197
for the quarter ended July 31, 2006, and net equity of $148,572 as of July
31,
2006, the Company was informed on August 30, 2006 by Wind City Oil & Gas,
LLC that it would exercise its put to return the stock as of September 30,
2006.
Management believes that the Company will therefore need total additional
financing of approximately $5,000,000 to effect the repurchase and continue
to
operate as planned during the twelve month period subsequent to July 31, 2006.
These conditions raise substantial doubt about the Company’s ability to continue
as a going concern.
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, 2006 Annual Report on
Form 10-KSB. The results of operations for the period ended July 31, 2006 are
not necessarily indicative of operating results for the full year. In the
opinion of management, all adjustments (consisting of only normal recurring
accruals) considered necessary for a fair presentation have been included.
(2) Participant
Receivables and Related Party Receivables
Participant
receivable and related party receivables consist of receivables contractually
due from our various joint venture partners in connection with routine
exploration, betterment and maintenance activities. Our collateral for these
receivables generally consists of lien rights over the related oil producing
properties. Approximately $267,000 included in the balance sheet among
Participant Receivables is due from Wind Mill Oil & Gas, LLC, a related
party.
(3) Long-Term
Debt, Warrants, Loan Fees And Restricted Cash
Long-term
debt consisted of a mortgage loan on our land and building. Interest in the
amount of $4,077 was paid on this note for the quarter ended July 31,
2006.
(4) Stockholders’
Equity
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% 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.
MILLER
PETROLEUM, INC.
Notes
to the Consolidated Financial Statements
(4) Stockholders’
Equity (continued)
Penalty
warrants for 120,000 common shares at a price of $1.15 per share, and a
five-year term were issued during the three months ended July 31, 2006. The
warrants were valued at $24,000.
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. 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 three months ended July 31, 2006 and
for the year ended April 30, 2006, the assumed effects from the exercise of
outstanding options and warrants would have been anti-dilutive, and, therefore
only basic earnings per share is presented.
(5) Recent
Accounting Pronouncements
In
February 2006 the FASB issued SFAS No 155 “Accounting for Certain Hybrid
Financial Instruments - an amendment of FASB Statements No 133 and 140”. This
Statement amends FASB Statements No 133, “Accounting for Derivative Instruments
and Hedging Activities” and No 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities”. This Statement revolves
around issues addressed in Statement No 133 Implementation Issue No D1,
“Application of Statement 133 to Beneficial Interests in Securitized Financial
Assets”. This Statement is effective for all financial instruments acquired or
issued after the beginning of an entity’s first fiscal year that begins after
September 15, 2006. Adoption of SFAS No 155 is not expected to have a material
effect on the Company’s results of operations, financial condition or cash
flows.
In
March
2006 the Financial Accounting Standards Board (“FASB”) issued SFAS No 156
“Accounting for Servicing of Financial Assets - an amendment of FASB Statement
No 140. SFAS No 156 amends SFAS No 140, “Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities”, with respect to
accounting for separately recognized servicing assets and servicing liabilities.
SFAS No 156 is effective for fiscal years that begin after September 15, 2006,
with early adoption permitted as of the beginning of an entity’s fiscal year.
The Company does not have any servicing assets or servicing liabilities and,
accordingly, the adoption of SFAS No 156 will not have any effect on the results
of operations, financial condition or cash flows.
Financial
Accounting Standards Board Interpretation No. 48 (“FIN 48”), Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement No.
109,
was
issued in July 2006 and will be effective for the Company on January 1, 2007.
FIN 48 defines the threshold for recognizing the benefits of uncertain tax
return positions in the financial statements. The Company has not yet determined
the impact this Interpretation will have on its financial position, results
of
operations or cash flows.
(6) Subsequent
Event
On
August
30, 2006, Wind City notified us of its intent to unwind and exercise the put
provision of the stock purchase agreement, which could require us to repurchase
the 2,900,000 shares of common stock originally issued to Wind City for an
aggregate consideration of $4,350,000. In connection therewith, the parties
are
negotiating to continue the Wind Mill Joint Venture under modified mutually
acceptable terms.
MILLER
PETROLEUM, INC.
Notes
to the Consolidated Financial Statements
(6) Subsequent
Event (continued)
Presented
below is a condensed, pro-forma balance sheet showing the impact of the put,
had
it been exercised by July 31, 2006.
Assets
|
|
|
|
|
Cash
|
|
$
|
114,201
|
|
Accounts
and notes receivable
|
|
|
421,893
|
|
Inventory
|
|
|
107,144
|
|
Total
Current Assets
|
|
|
643,238
|
|
Net
Fixed Assets
|
|
|
794,119
|
|
Net
Oil & Gas Properties
|
|
|
2,361,269
|
|
Other
Assets
|
|
|
1,200,222
|
|
Total
Assets
|
|
$
|
4,998,848
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
Accounts
and expenses payable
|
|
$
|
179,752
|
|
Payable
to Wind City Oil & Gas, LLC
|
|
|
4,350,000
|
|
Total
Current Liabilities
|
|
|
4,529,752
|
|
Long-term
Liabilities
|
|
|
320,524
|
|
Total
Liabilities
|
|
|
4,850,276
|
|
Stockholders’
Equity
|
|
|
148,572
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
4,998,848
|
|
Item
2 Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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
audited 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. Wind City contributed $10,000,000. 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 reimbursement for certain salaried employees and revenue for
providing labor and equipment. Including the leases that were contributed to
the
Wind Mill Joint Venture, we have approximately 50,000 acres under lease. About
90% of such leases are held by production.
On
August
30, 2006 Wind City notified us of its intent to unwind and exercise the put
provision of the stock purchase agreement, which could require us to repurchase
the 2,900,000 shares of common stock originally issued to Wind City for an
aggregate consideration of $4,350,000. In connection therewith, the parties
are
negotiating to continue the Wind Mill Joint Venture under modified mutually
acceptable terms.
Our
present financial condition precludes us from being able to repurchase the
shares under the put. We are exploring various financing opportunities in this
regard; however, there can be no assurance that we will be able to obtain
financing sufficient to repurchase such shares. In the event that we are unable
to obtain financing on acceptable terms sufficient to consummate the repurchase,
we may be in breach of contract, and our business and financial condition could
be materially adversely affected.
Liquidity
and Capital Resources
Cash
provided by operating activities was $128,792 for the three months ended July
31, 2006, an increase of $565,742 from cash used by operating activities for
the
three months ended July 31, 2005 of $436,950. Our principal source of liquidity
has been oil and gas revenues, loans from related parties and directors, private
placement transactions of our common stock, and participation with investors
in
various oil and gas wells. The increase in oil and gas prices and the fact
that
we have approximately 50,000 acres under lease in Tennessee enhances our ability
to attract investors and to pursue joint ventures in oil and gas.
On
December 23, 2005 we entered into the Wind Mill Oil & Gas LLC Agreement
(“Wind Mill”) and also sold 2,900,000 shares of common stock to Wind City Oil
& Gas, LLC (“Wind City”) for $4,350,000. These funds were used to pay off
the $4,150,000 of loans and to provide some working capital. Wind City also
contributed $10,000,000 to Wind Mill and we contributed oil and gas leases
as
part of the Wind Mill agreement. For the three months ended July 31, 2006 we
received $217,364 of administrative salary reimbursements and revenue of
$314,527 for various labor, parts and use of equipment. The continued receipt of
salary reimbursements and revenue from Wind Mill is a significant factor in
our
cash flow as we are completing wells to obtain revenue.
Our
long-term cash flows are subject to a number of variables including the level
of
production and prices as well as various economic conditions that have
historically affected the oil and gas business. A material drop in oil and
gas
prices or a reduction in production and reserves would reduce our ability to
fund capital expenditures, service new debt, meet financial obligations and
remain profitable. We operate in an environment with numerous financial and
operating risks, including, but not limited to, the inherent risks of the search
for, development and production of oil and gas, the ability to buy properties
and sell production at prices which provide an attractive return and the highly
competitive nature of the industry. Our ability to expand our reserve base
is,
in part, dependent on obtaining sufficient capital through internal cash flow
or
the issuance of debt or equity securities. There can be no assurance that
internal cash flow and other capital sources will provide sufficient funds
to
maintain capital expenditures that we believe are necessary to offset future
declines in production and proved reserves.
Results
of Operations
Three
Months Ended July 31, 2006 compared to Three Months Ended July 31,
2005
|
|
For
the Three Months Ended
|
|
Increase
/
|
|
|
|
July
31
|
|
(Decrease)
|
|
|
|
2006
|
|
2005
|
|
2005
to 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas revenue
|
|
$
|
134,350
|
|
$
|
185,821
|
|
$
|
(51,471
|
)
|
Service
and drilling revenue
|
|
|
397,568
|
|
|
1,298,245
|
|
|
(900,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenue
|
|
|
531,918
|
|
|
1,484,066
|
|
|
(952,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of oil and gas revenue
|
|
|
14,779
|
|
|
20,440
|
|
|
(5,661
|
)
|
Cost
of service and drilling revenue
|
|
|
354,509
|
|
|
960,118
|
|
|
(605,609
|
)
|
Selling,
general and administrative
|
|
|
223,239
|
|
|
371,469
|
|
|
(148,230
|
)
|
Administrative
salaries and wages
|
|
|
|
|
|
76,416
|
|
|
(76,416
|
)
|
Depreciation,
Depletion and amortization
|
|
|
42,278
|
|
|
74,218
|
|
|
(31,940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
Costs and Expenses
|
|
|
634,805
|
|
|
1,502,661
|
|
|
(867,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM OPERATIONS
|
|
|
(102,887
|
)
|
|
(18,595
|
)
|
|
(84,292
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
52
|
|
|
51
|
|
|
(1
|
)
|
Gain
on sale of equipment
|
|
|
|
|
|
300
|
|
|
300
|
|
Interest
expense
|
|
|
(4,362
|
)
|
|
(171,531
|
)
|
|
(167,169
|
)
|
Penalty
warrants
|
|
|
|
|
|
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income (Expense)
|
|
|
(28,310
|
)
|
|
(171,180
|
)
|
|
(142,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(131,197
|
)
|
$
|
(189,775
|
)
|
$
|
(58,578
|
)
|
Revenue
Oil
and
gas revenue was $134,350 for the three months ended July 31, 2006 as compared
to
$185,821 for the three months ended July 31, 2005, a decrease of $51,471. This
resulted from changing oil vendors such that oil was not collected for
approximately one month, requiring a cessation of production.
Service
and drilling revenue was $397,568 for the three months ended July 31, 2006
as
compared to $1,298,245 for the three months ended July 31, 2005, a decrease
of
$900,677. This resulted from a decrease in drilling activity, however, through
the Wind Mill Joint Venture nine wells were drilled during the quarter ended
July 31, 2006.
Cost
and Expense
The
cost
of oil and gas revenue was $14,779 for the three months ended July 31, 2006
as
compared to $20,440 for the three months ended July 31, 2005, a decrease of
$5,661. This decrease resulted from the cost associated with decreased
production due to changing oil vendors and no collection of oil for
approximately one month.
The
cost
of service and drilling revenue was $354,509 for the three months ended July
31,
2006 as compared to $960,118 for the three months ended July 31, 2005, a
decrease of $605,609. This decrease is due to the decrease in drilling
activities.
Selling,
general and administrative expense was $223,239 for the three months ended
July
31, 2006 as compared to $371,469 for the three months ended January 31, 2005,
a
decrease of $148,230. This decrease resulted from a decrease in consulting,
legal and professional fees and payments of $64,513 from Wind Mill Oil &
Gas, LLC.
Administrative
salaries and wages expense was $0 for the three months ended July 31, 2006
as
compared to $76,416 for the three months ended July 31, 2005, a decrease of
$76,416. This decrease resulted from salary reimbursements from Wind Mill Oil
& Gas, LLC.
Depreciation,
depletion and amortization was $42,278 for the three months ended July 31,
2006
as compared to $74,218 for the three months ended July 31, 2005, a decrease
of
$31,940. This resulted from management’s decision to write off $624,255 of well
cost at April 30, 2006 with a corresponding decrease in depletion
expense.
Interest
expense was $4,362 for the three months ended July 31, 2006 as compared to
$171,531 for the three months ended July 31, 2005, a decrease of $167,169.
This
resulted from the Wind City Oil & Gas, LLC stock purchase and the payoff of
most notes.
Item
3 Controls
and Procedures
Our
Chief
Executive Officer and Chief Financial Officer have conducted an evaluation
of
the effectiveness of our disclosure controls and procedures (as defined in
Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended)
as
of a date as of the end of the period covered by the report. Based upon that
evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures are effective in gathering, analyzing and disclosing
information needed to satisfy our disclosure obligations under the Securities
Exchange Act of 1934.
There
was
no change in our internal control over financial reporting identified in
connection with the evaluation that occurred during our last fiscal quarter
that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART
II - OTHER INFORMATION
Exhibit
31.1
|
Section
302 Certification of Chief Executive Officer
|
|
|
Exhibit
31.2
|
Section
302 Certification of Chief Financial Officer
|
|
|
Exhibit
32.1
|
Section
906 Certification of Chief Executive Officer
|
|
|
Exhibit
32.2
|
Section
906 Certification of Chief Financial
Officer
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant duly caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
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MILLER PETROLEUM, INC. |
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Date: September 19, 2006 |
By:/s/ Deloy
Miller
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Deloy Miller |
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Chief Executive Officer, principal
executive officer |
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Date: September 19, 2006 |
By: /s/ Lyle
H.
Cooper
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Lyle H. Cooper |
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Chief Financial Officer, principal financial
and |
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accounting
officer |