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 October 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 I.D. 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
December 15, 2006, the Registrant had a total of 14,366,856 shares of Common
Stock, $.0001 par value, outstanding.
Transitional
Small Business Disclosure Format (check one): YES o NO x
Miller
Petroleum, Inc.
Form
10-QSB
For
the Quarter Ended October 31, 2006
Table
of Contents
PART
1-FINANCIAL INFORMATION
|
|
|
|
Item
1.
|
|
Condensed
Consolidated Financial Statements
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of October 31,
2006(Unaudited)
|
3-4
|
|
|
and
April 30, 2006
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations for the Three Months
|
|
|
|
Ended
October 31, 2005 and 2006. (Unaudited) and the Six Months
Ended
|
|
|
|
October
31, 2005 and 2006 (Unaudited)
|
5
|
|
|
|
|
|
|
Condensed
Consolidated Statement of Stockholders’ Equity for the Six
Months
|
|
|
|
Ended
October 31, 2006 (Unaudited)
|
6 |
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the Six Months
Ended
|
|
|
|
October
31, 2005 and 2006 (Unaudited)
|
7
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
8
|
|
|
|
|
Item
2.
|
|
Management’s
Discussion and Analysis of Financial Condition and Results
of
|
|
|
|
Operations
|
11
|
|
|
|
|
Item
3.
|
|
Controls
and Procedures
|
14
|
|
|
|
|
PART
2-OTHER INFORMATION
|
|
|
|
Item
3. |
|
Legal
Proceedings |
14 |
|
|
|
|
SIGNATURES
|
|
|
|
MILLER
PETROLEUM, INC.
Consolidated
Balance Sheets
|
|
October
31
|
|
April
30
|
|
|
|
2006
|
|
2006
|
|
|
|
Unaudited
|
|
|
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
110,748
|
|
$ |
|
|
Accounts
receivable
|
|
|
68,285
|
|
|
311,286
|
|
Accounts
receivable - related parties
|
|
|
258,719
|
|
|
347,060
|
|
Current
portion of note receivable
|
|
|
7,900
|
|
|
43,000
|
|
Inventory
|
|
|
126,435
|
|
|
97,388
|
|
Unbilled
service and drilling cost
|
|
|
|
|
|
76,944
|
|
Total
Current Assets
|
|
|
572,087
|
|
|
875,678
|
|
|
|
|
|
|
|
|
|
FIXED
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
and equipment
|
|
|
912,592
|
|
|
880,904
|
|
Vehicles
|
|
|
406,077
|
|
|
321,895
|
|
Buildings
|
|
|
315,835
|
|
|
315,835
|
|
Office
Equipment
|
|
|
30,083
|
|
|
23,028
|
|
|
|
|
1,664,587
|
|
|
1,541,662
|
|
Less:
accumulated depreciation
|
|
|
(830,547
|
)
|
|
(782,971
|
|
Total
Fixed assets
|
|
|
834,040
|
|
|
758,691
|
|
|
|
|
|
|
|
|
|
OIL
AND GAS PROPERTIES
|
|
|
1,539,950
|
|
|
1,576,950
|
|
(On
the basis of successful efforts accounting)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PIPELINE
FACILITIES
|
|
|
187,773
|
|
|
193,948
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
Investments
in joint venture at cost
|
|
|
801,319
|
|
|
801,319
|
|
Land
|
|
|
496,500
|
|
|
496,500
|
|
Investments
|
|
|
500
|
|
|
500
|
|
Well
equipment and supplies
|
|
|
429,360
|
|
|
440,712
|
|
Cash
- restricted
|
|
|
83,000
|
|
|
83,000
|
|
|
|
|
|
|
|
|
|
Total
Other Assets
|
|
|
1,810,679
|
|
|
1,822,031
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
4,944,529
|
|
$
|
5,227,298
|
|
See
notes
to consolidated financial statements.
MILLER
PETROLEUM, INC.
Consolidated
Balance Sheets
|
|
October
31 |
|
April
30 |
|
|
|
2006
|
|
2006
|
|
|
|
Unaudited
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
Bank
overdraft
|
|
$
|
|
|
$
|
$
27,253
|
|
Accounts
payable - trade
|
|
|
181,995
|
|
|
305,494
|
|
Accrued
expenses
|
|
|
68,239
|
|
|
43,189
|
|
Current
portion of notes payable
|
|
|
28,103
|
|
|
16,636
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
278,337
|
|
|
392,572
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
payable
|
|
|
315,197
|
|
|
323,898
|
|
Total
Long-Term Liabilities
|
|
|
|
|
|
323,898
|
|
Total
Liabilities
|
|
|
593,534
|
|
|
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
|
|
|
1,436
|
|
|
1,146
|
|
Additional
paid-in capital
|
|
|
6,663,393
|
|
|
6,624,683
|
|
Unearned
compensation
|
|
|
(562,108
|
)
|
|
(751,990
|
)
|
Accumulated
deficit
|
|
|
(6,101,726
|
)
|
|
(5,713,011
|
)
|
Total
Stockholders’ Equity
|
|
|
995
|
|
|
160,828
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES, TEMPORARY EQUITY
|
|
|
|
|
|
|
|
AND
PERMANENT STOCKHOLDERS'S EQUITY
|
|
$
|
4,944,529
|
|
$
|
5,227,298
|
|
See
notes
to consolidated financial statements.
MILLER
PETROLEUM, INC.
Consolidated
Statement s of Operations
(UNAUDITED)
|
|
For
the Three Months Ended
|
|
For
the Six Months Ended
|
|
|
|
October
31
|
|
October
31
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
Oil
and gas revenue
|
|
$
|
128,683
|
|
$
|
183,056
|
|
$
|
263,033
|
|
$
|
368,877
|
|
Service
and drilling revenue
|
|
|
252,957
|
|
|
16,467
|
|
|
650,526
|
|
|
1,314,666
|
|
Other
revenue
|
|
|
|
|
|
241
|
|
|
|
|
|
287
|
|
Total
Revenue
|
|
|
381,640
|
|
|
199,764
|
|
|
913,559
|
|
|
1,683,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of oil and gas revenue
|
|
|
14,155
|
|
|
21,967
|
|
|
28,935
|
|
|
40,576
|
|
Cost
of service and drilling revenue
|
|
|
220,013
|
|
|
103,713
|
|
|
574,522
|
|
|
1,065,662
|
|
Selling,
general and administrative
|
|
|
313,060
|
|
|
275,364
|
|
|
558,096
|
|
|
646,833
|
|
Salaries
and wages
|
|
|
21,797
|
|
|
102,279
|
|
|
|
|
|
178,695
|
|
Depreciation,
depletion and amortization
|
|
|
48,473
|
|
|
87,549
|
|
|
90,751
|
|
|
161,767
|
|
Total
Costs and Expense
|
|
|
617,498
|
|
|
590,872
|
|
|
1,252,304
|
|
|
2,093,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM OPERATIONS
|
|
|
(235,858
|
)
|
|
(391,108
|
)
|
|
(338,745
|
)
|
|
(409,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
234
|
|
|
146
|
|
|
286
|
|
|
197
|
|
Gain
on sale of equipment
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
Interest
expense
|
|
|
(6,894
|
)
|
|
(336,412
|
)
|
|
(11,256
|
)
|
|
(507,943
|
)
|
Penalty
Warrants
|
|
|
(15,000
|
)
|
|
|
|
|
(39,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income (Expense)
|
|
|
(21,660
|
)
|
|
(336,266
|
)
|
|
(49,970
|
)
|
|
(507,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
$
|
(257,518
|
)
|
$
|
(727,374
|
)
|
$
|
(388,715
|
)
|
$
|
(917,149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
& DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) PER SHARE
|
|
$
|
(0.02
|
)
|
$
|
(0.08
|
)
|
$
|
(0.03
|
)
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHARES
OUTSTANDING
|
|
|
14,366,856
|
|
|
9,396,856
|
|
|
14,366,856
|
|
|
9,396,035
|
|
See
notes
to consolidated financial statements.
Consolidated
Statement of Permanent Stockholders' Equity
(UNAUDITED)
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common
|
|
Shares
|
|
Paid-in
|
|
Unearned
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Compensation
|
|
Deficit
|
|
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 payment for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 six months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ended
October 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
189,882
|
|
|
|
|
|
189,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financing
cost penalty
|
|
|
|
|
|
|
|
|
39,000
|
|
|
|
|
|
|
|
|
39,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the six months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ended
October 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(388,715
|
)
|
|
(388,715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
October 31, 2006
|
|
|
11,466,856
|
|
$
|
1,146
|
|
$
|
6,663,683
|
|
$
|
(562,108
|
)
|
$
|
(6,101,726
|
)
|
$
|
995
|
|
See
notes
to consolidated financial statements.
MILLER
PETROLEUM, INC.
Consolidated
Statement of Cash Flows
(UNAUDITED)
|
|
For
the Six
|
|
For
the Six
|
|
|
|
Months
Ended
|
|
Months
Ended
|
|
|
|
October
31, 2006
|
|
October
31, 2005
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
Loss
|
|
$
|
(388,715
|
)
|
$
|
(917,149
|
)
|
Adjustments
to Reconcile Net Loss to Net Cash Provided (Used)
|
|
|
|
|
|
|
|
by
Operating Activities:
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
|
90,751
|
|
|
161,767
|
|
Gain
on sale of equipment
|
|
|
|
|
|
300
|
|
Issuance
of stock for services
|
|
|
189,882
|
|
|
73,973
|
|
Warrant
costs
|
|
|
39,000
|
|
|
158,740
|
|
Changes
in Operating Assets and Liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
331,342
|
|
|
324,730
|
|
Unbilled
service and drilling cost
|
|
|
76,944
|
|
|
|
|
Inventory
|
|
|
(17,696
|
)
|
|
|
|
Loan
fees
|
|
|
|
|
|
(281,897
|
)
|
Bank
overdraft
|
|
|
(27,253
|
)
|
|
|
|
Accounts
payable
|
|
|
(123,499
|
)
|
|
(172,935
|
)
|
Accrued
expenses
|
|
|
25,050
|
|
|
(199,075
|
)
|
Net
Cash Provided (Used) by Operating Activities
|
|
|
195,806
|
|
|
(1,501,006
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchase
of Equipment
|
|
|
(122,924
|
)
|
|
(28,394
|
)
|
Net
additions to oil and gas properties
|
|
|
|
|
|
(328,155
|
)
|
Net
Cash Provided (Used) by Investing Activities
|
|
|
(122,924
|
)
|
|
(356,549
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Payments
on notes payable
|
|
|
(17,310
|
)
|
|
(1,982,059
|
)
|
Proceeds
from borrowing
|
|
|
20,076
|
|
|
4,150,000
|
|
Net
proceeds from issuance of common stock
|
|
|
|
|
|
0
|
|
Increase
in restricted cash
|
|
|
|
|
|
(92,358
|
)
|
Change
in note receivable
|
|
|
35,100
|
|
|
5,000
|
|
Net
Cash Provided by Financing Activities
|
|
|
37,866
|
|
|
2,080,583
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
|
|
110,748
|
|
|
223,028
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
0
|
|
|
2,362
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
110,748
|
|
$
|
225,390
|
|
|
|
|
|
|
|
|
|
CASH
PAID FOR
|
|
|
|
|
|
|
|
INTEREST
|
|
$
|
11,256
|
|
$
|
507,943
|
|
INCOME
TAXES
|
|
|
|
|
|
0
|
|
See
notes
to consolidated financial statements.
MILLER
PETROLEUM, INC.
Notes
to the Condensed Consolidated Financial Statements
(1) Interim
Reports / Going Concern
The
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 $(388,715) for the
six
months ended October 31, 2006, and net equity of $995 as of October 31, 2006,
the Company was informed on August 30, 2006 by Wind City Oil & Gas, LLC
that, by September 30, 2006, it would exercise its put to return its stock,
which had originally been recorded as temporary equity. Wind City has also
filed
a lawsuit, which is discussed in Notes 4 and 7 of these condensed, consolidated
financial statements. Management believes that the Company may 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
October 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 October 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 $249,904 included in the balance sheet among Accounts
receivable - related party 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 $11,256 was paid on this note for the six months ended October 31,
2006.
(4) Stockholders’
Equity
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, under certain
conditions, 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.
On
August 30, 2006, we received notice from Wind City Oil & Gas LLC that they
were seeking to exercise the put provision of the stock purchase agreement.
We
do not believe that such notice was properly given. On November 6, 2006, Wind
City filed a summons and complaint against us in an action in the United States
District Court for the Southern District of New York seeking to force the
exercise of the put provision of the stock purchase agreement. Because of the
uncertainty surrounding the eventual disposition of the case, Management has
continued to treat this stock as temporary equity in these financial
statements.
MILLER
PETROLEUM, INC.
Notes
to the Consolidated Financial Statements
(4) Stockholders’
Equity (continued)
Penalty
warrants for 240,000 common shares at a price of $1.15 per share, and a
five-year term were issued during the six months ended October 31, 2006. The
warrants were valued at $39,000.
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 six months ended October 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.
MILLER
PETROLEUM, INC.
Notes
to the Consolidated Financial Statements
(6) Related
Party Transactions
For
the
three months ended October 31, 2006 we had revenues from Wind City of $214,216
and salary reimbursement of $136,276. For the six months ended October 31,
2006
we had revenue of $528,743 and salary reimbursement of $353,640.
|
|
3
Months
|
|
6
Months
|
|
|
|
Ended
10-31-06
|
|
Ended
10-31-06
|
|
|
|
|
|
|
|
Revenue
from Windmill
|
|
$
|
350,492
|
|
$
|
882,383
|
|
|
|
|
350,492
|
|
|
882,383
|
|
Salaries
QE 07-31-06
|
|
|
|
|
|
(217,364
|
|
QE
10-31-06
|
|
|
136,276
|
|
|
(136,276
|
|
Revenue
|
|
$
|
214,216
|
|
$
|
528,743
|
|
(7) Litigation
/ Going Concern
The
outcome of our current litigation with Wind City could have a material adverse
effect on our financial condition.
As
previously discussed in Notes 1 and 4, Wind City Oil & Gas, LLC has filed
suit to force the exercise of the put provision of the stock purchase agreement.
Neither we nor our attorneys believe the notice was properly given in accordance
with the agreements; however, if the suit is successful and we are required
to
repurchase the shares, we would have a significant cash flow 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 materially adversely affected and our ability
to
continue as a going concern could be jeopardized.
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.
As
part
of this Joint Venture Agreement, Wind City purchased 2,900,000 shares of our
common stock with the right, under certain conditions, to put the stock back
to
us by September 30, 2006. On August 30, 2006 Wind City notified us of its intent
to exercise the put provision of the stock purchase agreement. On November
7,
2006 Wind City filed a lawsuit to force the exercise of the put provision.
We do
not believe the put was properly exercised and have filed an application to
stay
the litigation and force arbitration as is required by the
agreements.
Our
present financial condition precludes us from being able to repurchase the
shares under the put if we were to lose the lawsuit. 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, our business and financial condition could be
materially adversely affected.
Liquidity
and Capital Resources
Cash
provided by operating activities was $195,806 for the six months ended October
31, 2006, an increase of $1,696,812 over cash used by operating activities
for
the six months ended October 31, 2005 of $1,501,006. 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 six months ended October 31, 2006
we
received $353,640 of administrative salary reimbursements and revenue of
$412,093 for various labor, parts and use of equipment. The cessation of
operations with Wind Mill has had a major impact on our cash flow.
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 October 31, 2006 compared to Three Months Ended October 31,
2005
|
|
|
For
the Three Months Ended
|
|
|
Increase
/
|
|
|
|
|
October
31
|
|
|
(Decrease)
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2005
to 2006
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas revenue
|
|
$
|
128,683
|
|
$
|
183,056
|
|
$
|
(54,373
|
)
|
Service
and drilling revenue
|
|
|
252,957
|
|
|
16,467
|
|
|
236,490
|
|
Other
revenue
|
|
|
|
|
|
241
|
|
|
(241
|
)
|
Total
Revenue
|
|
|
381,640
|
|
|
199,764
|
|
|
181,876
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
Cost
of oil and gas revenue
|
|
|
14,155
|
|
|
21,967
|
|
|
(7,812
|
)
|
Cost
of service and drilling revenue
|
|
|
220,013
|
|
|
103,713
|
|
|
116,300
|
|
Selling,
general and administrative
|
|
|
313,060
|
|
|
275,364
|
|
|
37,696
|
|
Salaries
and wages
|
|
|
21,797
|
|
|
102,279
|
|
|
(80,482
|
)
|
Depreciation,
Depletion and amortization
|
|
|
48,473
|
|
|
87,549
|
|
|
(39,076
|
)
|
Total
Costs and Expenses
|
|
|
617,498
|
|
|
590,872
|
|
|
26,626
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS)
FROM
OPERATIONS
|
|
|
(235,858
|
)
|
|
(391,108
|
)
|
|
155,250
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME
(EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
234
|
|
|
146
|
|
|
88
|
|
Interest
expense
|
|
|
(6,894
|
)
|
|
(336,412
|
)
|
|
329,518
|
|
Penalty
warrants
|
|
|
(15,000
|
)
|
|
|
|
|
(15,000
|
)
|
Total
Other Income (Expense)
|
|
|
(21,660
|
)
|
|
(336,266
|
)
|
|
314,606
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
(LOSS)
|
|
$
|
(257,518
|
)
|
$
|
(727,374
|
)
|
$
|
469,856
|
|
Revenue
Oil
and
gas revenue was $128,683 for the three months ended October 31, 2006 as compared
to $183,056 for the three months ended October 31, 2005, a decrease of $54,373.
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 $252,957 for the three months ended October 31, 2006
as
compared to $16,467 for the three months ended October 31, 2005, an increase
of
$236,490. This resulted from an increase in drilling activity, however, through
the Wind Mill Joint Venture nine wells were drilled during the quarter ended
October 31, 2006.
Cost
and Expense
The
cost
of oil and gas revenue was $14,155 for the three months ended October 31, 2006
as compared to $21,967 for the three months ended October 31, 2005, a decrease
of $7,812. 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 $220,013 for the three months ended October
31, 2006 as compared to $103,713 for the three months ended October 31, 2005,
an
increase of $116,300. This increase is due to the increase in drilling
activities.
Selling,
general and administrative expense was $313,060 for the three months ended
October 31, 2006 as compared to $275,364 for the three months ended October
31,
2005, an increase of $37,696. This increase resulted from a increase in
consulting, legal and professional fees and the cessation of payments from
Wind
Mill Oil & Gas, LLC.
Salaries
and wages expense was $21,797 for the three months ended October 31, 2006 as
compared to $102,279 for the three months ended October 31, 2005, a decrease
of
$80,482. This decrease resulted from salary reimbursements from Wind Mill Oil
& Gas, LLC.
Depreciation,
depletion and amortization was $48,473 for the three months ended October 31,
2006 as compared to $87,549 for the three months ended October 31, 2005, a
decrease of $39,076. 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 $6,894 for the three months ended October 31, 2006 as compared
to
$336,412 for the three months ended October 31, 2005, a decrease of $329,518.
This resulted from the Wind City Oil & Gas, LLC stock purchase and the
payoff of most notes.
Six
Months Ended October 31, 2006 compared to Six Months Ended October 31,
2005
|
|
For
the Six Months Ended
|
|
Increase
/
|
|
|
|
October
31
|
|
(Decrease)
|
|
|
|
2006
|
|
2005
|
|
2005
to 2006
|
|
REVENUES
|
|
|
|
|
|
|
|
Oil
and gas revenue
|
|
$
|
263,033
|
|
$
|
368,877
|
|
$
|
(105,844
|
)
|
Service
and drilling revenue
|
|
|
650,526
|
|
|
1,314,953
|
|
|
664,427
|
)
|
Total
Revenue
|
|
|
913,559
|
|
|
1,683,830
|
|
|
(770,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
Cost
of oil and gas revenue
|
|
|
28,935
|
|
|
40,576
|
|
|
(11,641
|
)
|
Cost
of service and drilling revenue
|
|
|
574,522
|
|
|
1,065,662
|
|
|
(491,140
|
)
|
Selling,
general and administrative
|
|
|
558,096
|
|
|
646,833
|
|
|
(88,737
|
)
|
Salaries
and wages
|
|
|
|
|
|
178,695
|
|
|
(178,695
|
)
|
Depreciation,
Depletion and amortization
|
|
|
90,751
|
|
|
161,767
|
|
|
(71,016
|
)
|
Total
Costs and Expenses
|
|
|
1,252,304
|
|
|
2,093,533
|
|
|
(841,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS)
FROM
OPERATIONS
|
|
|
(338,745
|
)
|
|
(409,703
|
)
|
|
70,958
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME
(EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
286
|
|
|
197
|
|
|
(89
|
)
|
Gain
on sale of equipment
|
|
|
|
|
|
300
|
|
|
300
|
|
Interest
expense
|
|
|
(11,256
|
)
|
|
(507,943
|
)
|
|
(496,687
|
)
|
Penalty
warrants
|
|
|
(39,000
|
)
|
|
|
|
|
39,000
|
|
Total
Other Income (Expense)
|
|
|
(49,970
|
)
|
|
(507,446
|
)
|
|
(457,476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
(LOSS)
|
|
$
|
(388,715
|
)
|
$
|
(917,149
|
)
|
$
|
528,434
|
|
Revenue
Oil
and
gas revenue was $263,033 for the six months ended October 31, 2006 as compared
to $368,877 for the six months ended October 31, 2005, a decrease of $105,844.
This resulted from changing oil vendors such that oil was not collected for
over
one month, requiring a cessation of production.
Service
and drilling revenue was $650,526 for the six months ended October 31, 2006
as
compared to $1,314,953 for the six months ended October 31, 2005, a decrease
of
$664,427. This resulted from a decrease in drilling activity, however, through
the Wind Mill Joint Venture 14 wells were drilled during the six months ended
October 31, 2006.
Cost
and Expense
The
cost
of oil and gas revenue was $28,935 for the six months ended October 31, 2006
as
compared to $40,576 for the six months ended October 31, 2005, a decrease of
$11,641. This decrease resulted from the cost associated with decreased
production due to changing oil vendors and no collection of oil for over one
month.
The
cost
of service and drilling revenue was $574,522 for the six months ended October
31, 2006 as compared to $1,065,662 for the six months ended October 31, 2005,
a
decrease of $491,140. This decrease is due to the decrease in drilling
activities since most of the drilling was in Wind Mill.
Selling,
general and administrative expense was $558,096 for the six months ended October
31, 2006 as compared to $646,833 for the six months ended October 31, 2005,
a
decrease of $88,737. A decrease in consulting, legal and professional fees
and
payments of $42,716 from Wind Mill Oil & Gas, LLC reduced selling, general
and administrative expense.
Salaries
and wages expense was $0 for the six months ended October 31, 2006 as compared
to $178,695 for the six months ended October 31, 2005, a decrease of $178,695.
This decrease resulted from salary reimbursements from Wind Mill Oil & Gas,
LLC.
Depreciation,
depletion and amortization was $90,751 for the six months ended October 31,
2006
as compared to $161,767 for the six months ended October 31, 2005, a decrease
of
$70,016. 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 $11,256 for the six months ended October 31, 2006 as compared to
$507,943 for the six months ended October 31, 2005, a decrease of $496,687.
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
Item
3 Legal
Proceedings
Reference
is made to the Current Report on Form 8-K filed on November 20, 2006 for
a full
description of the pending litigation involving Wind City Oil & Gas,
LLC.
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.
|
|
|
|
MILLER
PETROLEUM,
INC. |
|
|
|
Date: December
20, 2006 |
By: |
/s/ Deloy Miller |
|
Deloy
Miller |
|
Chief
Executive Officer, principal executive
officer |
|
|
|
Date: December
20, 2006 |
By: |
/s/ Lyle H. Cooper |
|
Lyle
H. Cooper |
|
Chief
Financial Officer, principal financial and accounting
officer |