UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB/A
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended July 31, 2005
|_| 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
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(Address of principal executive offices)
(423) 663-9457
-------------------------
Issuer's telephone number
N/A
---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not applicable.
---------------
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest
practicable date:
September 14, 2005
9,396,856 Common Shares
Transitional Small Business Issuer Format Yes |_| No |X|
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EXPLANATORY NOTE
We are filing this amendment on Form 10-QSB/A to our Quarterly Report on Form
10-QSB for the quarter ended July 31, 2005 (the "Original Form 10-QSB"), which
was originally filed with the Securities and Exchange Commission (the "SEC") on
September 20, 2005, in order to restate our Consolidated Financial Statements
for the quarter ended July 31, 2005. Our Consolidated Financial Statements for
the quarter ended July 31, 2004 are also restated in this Form 10-QSB/A. The
Consolidated Notes to the Financial Statements in Original Form 10-QSB were
amended to include Note 2, "Restatement of Consolidated Financials," Note 3,
"Long Term Debt" and Note 4, "Accrued Drilling and Expense." Please refer to
Note 2, "Restatement of Consolidated Financials" in this Form 10-QSB for a
discussion of the nature of the restatement adjustments and the impact of the
restatement adjustments on net income loss.
The following items of the Original Form 10-QSB were modified or revised in this
Form 10-QSB/A to reflect the following restatements:
o Part I, Item 1. Financial Statements.
o Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
o Part I, Item 3. Controls and Procedures.
In addition, the financial statements contained in the Original Form 10-QSB were
not, as required by SEC rules, reviewed by our independent auditors.
Accordingly, the filing was deficient. This filing constitutes an amendment to
that report to correct that deficiency of the Original Form 10-QSB. This Form
10-QSB/A also revises and restates in its entirety Exhibits 31.1 and 31.2 to
make certain corrections to Exhibits 31.1 and 31.2 of the Original Form 10-QSB.
This Form 10-QSB/A does not otherwise modify or update disclosure presented in
the Original Form 10-QSB, except as required to reflect the effects of the
restatements, and does not modify or update disclosure in the Original From
10-QSB to reflect facts or events occurring subsequent to the date of the
original filing.
Our financial statements required to be filed with this quarterly report, were
prepared by our management. In the opinion of management, these financial
statements fairly present our financial condition as of the end of the quarter
ended July 31, 2005.
MILLER PETROLEUM, INC.
CONSOLIDATED BALANCE SHEETS
As Restated
July 31 April 30
2005 2005
Unaudited
ASSETS
CURRENT ASSETS
Cash $ 989,446 $ 2,362
Accounts receivable 214,087 182,951
Participant receivables 231,223 --
Accrued drilling income 126,015 -0-
Current portion of note receivable 42,000 47,000
Inventory 67,389 67,389
Deferred offering costs 88,842 88,842
Prepaid expenses 291,022 -0-
Loan Fees 402,710 --
----------- -----------
Total Current Assets 2,452,734 388,544
FIXED ASSETS
Machinery and equipment 970,842 941,601
Vehicles 333,583 333,583
Buildings 313,335 313,335
Office Equipment 76,490 72,549
Less: accumulated depreciation (955,212) (939,579)
----------- -----------
Total Fixed assets 739,038 721,489
OIL AND GAS PROPERTIES 3,111,013 2,941,832
(On the basis of successful
efforts accounting)
PIPELINE FACILITIES 203,211 206,298
OTHER ASSETS
Land 496,500 496,500
Investments 500 500
Equipment held for sale 431,462 431,462
Cash - restricted 162,358 71,000
----------- -----------
Total Other Assets 1,090,820 999,462
----------- -----------
TOTAL ASSETS $ 7,596,816 $ 5,257,625
=========== ===========
See notes to consolidated financial statements.
MILLER PETROLEUM, INC.
CONSOLIDATED BALANCE SHEETS
As Restated
July 31 April 30
2005 2005
Unaudited
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 179,310 $ 330,620
Accrued expenses 362,927 224,306
Current portion of notes payable -
Other 4,172,290 0
----------- ------------
Total Current Liabilities 4,714,527 554,926
LONG-TERM LIABILITIES
Notes payable-Related parties 0 1,673,693
Other 328,312 655,646
----------- ------------
Total Long-Term Liabilities 328,312 2,329,339
Total Liabilities 5,042,839 2,884,265
----------- ------------
STOCKHOLDERS' EQUITY
Common Stock: 500,000,000 shares
authorized at $0.0001 par value,
9,396,856 shares
issued and outstanding 939 939
Additional paid-in capital 4,865,890 4,495,498
Retained Earnings (2,312,852) (2,123,077)
Total Stockholders' Equity 2,553,977 2,373,360
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS'S EQUITY $ 7,596,816 $ 5,257,625
=========== ============
See notes to consolidated financial statements.
MILLER PETROLEUM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
As Restated As Restated
For the Three For the Three
Months Ended Months Ended
July 31, 2005 July 31, 2004
REVENUES
Oil and gas revenue $ 185,821 $ 226,944
Service and drilling revenue 1,298,199 31,813
Retail sales 0 27,900
Other revenue 46 649
----------- ------------
Total Revenue 1,484,066 287,306
COSTS AND EXPENSES
Cost of sales 980,558 42,151
Selling, general and
administrative 371,469 202,744
Salaries and wages 76,416 33,706
Depreciation, depletion and
amortization 74,218 41,056
----------- ------------
Total Costs and Expenses $ 1,502,661 $ 319,657
=========== ============
Loss FROM OPERATIONS (18,595) (32,351)
OTHER INCOME (EXPENSE)
Interest Income 51 59
Gain on sale of equipment 300 6,500
Interest expense (171,531) (56,930)
----------- ------------
Total Other Income (Expense) (171,180) (50,371)
Net Loss $ (189,775) $ (82,722)
=========== ============
NET LOSS PER SHARE $ (0.02) $ (0.01)
=========== ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 9,396,856 8,753,856
=========== ============
See notes to consolidated financial statements.
MILLER PETROLEUM, INC
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Additional
Common Shares Paid-in Retained
Shares Amount Capital Earnings Total
Restated balance,
April 30, 2005 9,396,856 $ 939 4,495,498 (2,123,077) 2,373,360
Issuance of warrants 370,392 370,392
As prepayment of
Financing costs
Net loss for the
three months ended
July 31, 2005 -- -- -- (189,775) (189,775)
-------- --------
Restated balance,
July 31, 2005 9,396,856 $ 939 $ 4,865,890 $(2,312,852) $(2,553,977)
========= ==== =========== =========== ===========
See notes to consolidated financial statements.
MILLER PETROLEUM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
As Restated As Restated
For the Three For the Three
Months Ended Months Ended
July 31, 2005 July 31, 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (189,775) $ (82,722)
Adjustments to Reconcile Net Income to
Net Cash Provided (Used) by Operating
Activities:
Depreciation, depletion and amortization 74,218 52,056
Gain on sale of equipment 300 0
Issuance of stock for services -- 110,000
Accretion of warrant costs 79,370
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts receivable (31,136) 7,685
Decrease (increase) in accrued drilling income (126,015) 0
Decrease.(increase).in. participant receivables (231,223) --
Decrease (increase) in loan fees (402,710) 0
Decrease (increase) in prepaid expenses 0 25,175
Increase (decrease) in accounts payable (151,310) (57,242)
Increase (decrease) in accrued expenses 138,621 138
----------- ------------
Net Cash Provided (Used) by Operating
Activities (839,660) 55,090
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Equipment (27,480) 0
Net additions to oil and gas properties (230,681) (118,125)
----------- ------------
Net Cash (Used) by Investing
Activities (258,161) (118,125)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (1,978,737) (23,628)
Proceeds from borrowing 4,150,000 31,388
Net proceeds from issuance of common stock 0 96,001
Increase in restricted cash (91,358) 0
Change in note receivable 5,000 0
----------- ------------
Net Cash Provided (Used) by Financing
Activities 2,084,905 103,761
----------- ------------
NET INCREASE IN CASH 987,084 40,726
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 2,362 73,416
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 989,446 114,142
----------- ------------
CASH PAID FOR INTEREST $ (92,161) $(45,930)
INCOME TAXES 0 0
See notes to consolidated financial statements.
MILLER PETROLEUM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted accounting
principles has 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. The results of operations for the period ended July 31,
2005 are not necessarily indicative of operating results for the full year. The
consolidated financial statements and other information furnished herein reflect
all adjustments which are, in the opinion of management of the Registrant,
necessary for a fair presentation of the results of the interim periods covered
by this report.
(2) RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
We amended our Consolidated Financial Statements for the quarter ended
July 31, 2005 to reflect $250,000 of accrued expenses and $126,000 of accrued
revenues, to properly record accruals of drilling revenues and expenses incurred
in fulfillment of our turn-key drilling contracts. A reclassification of
$172,000 between the cost of sales and revenues was necessary in order to
adequately record the reimbursement of expenses. Our Consolidated Financial
Statements for the quarter ended July 31, 2004 are also restated in this Form
10-QSB/A to reflect an $11,000 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 $123,986 and $121,000 for the quarters ended July 31, 2005 and 2004,
respectively.
(3) LONG-TERM DEBT, WARRANTS 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 must be made on or before
June 30, 2006, with monthly interest only payments during the interim. These
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 our planned equity offering.
The lenders were also granted registration rights to any shares issued on
conversion of the notes.
The notes are 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.
The account is subject to draw-downs under specified conditions, and its balance
of $ 85,358 is included on the balance sheet among restricted cash at July 31,
2005.
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 year, six months. The options
will be amortized to interest expense over the term of the loan which is payable
on June 30, 2006. Interest expense connected with warrants was $79,370 for the
quarter ended July 31, 2005. The balance of the amount, $291,022, is included on
the accompanying balance sheet at July 31, 2005, among prepaid expenses.
(4) ACCRUED DRILLING INCOME AND EXPENSE
Accrued drilling income of approximately $126,000 and drilling related
expenses of $250,000 included among accrued expenses on the July 31, 2005
balance sheet, represent amounts incurred but unbilled on our turn-key drilling
contracts at July 31, 2005. These amounts reflect substantial completion of the
related contracts.
(5) RELATED PARTY TRANSACTIONS
None
(6) 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 our
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
our 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 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 is not expected to 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 its fourth quarter of fiscal 2006. We are 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
19C1") "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 FAS 19-1 applies to enterprises that
use the successful efforts method of accounting as described in FASB 19. The
guidance in FSP FAS 19-1 is not expected to impact the consolidated financial
position, result of operations or cash flows.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
We have more than 43,000 acres under lease in Tennessee. About 90% of
these 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.
Currently, we are offering ten to twenty well drilling programs to
"accredited investors" or "sophisticated investors" to help spread the risk
associated with drilling projects and to facilitate investor returns. We will
sell up to a 70% working interest to investors while retaining a 30% working
interest. Each program will be made up of five to fifteen Chattanooga Shale
wells on our Koppers South acreage.
We completed the drilling and fracing of the first five wells on the
Koppers North and Carden Prospect in Campbell County, Tennessee. These are the
Koppers 6A and 7A and the Carden 1A, 2A and 3A. The wells have been drilled to
approximately 3000 feet in depth, to fully penetrate a thickened Devonian Shale,
with up to 828 feet of potential hydrocarbon entry. Average open flows are 130
Mcfd of natural gas each. Gathering lines have been installed to begin immediate
gas sales.
We are engaging in drilling and development on the Koppers North and
Carden in a joint venture with Golden Triangle Energy (GTC), Inc., Houston,
Texas and Norwest Energy NL, Perth, Australia. We will serve as operator and
retain a twenty percent carried net revenue interest for the first twenty wells
and a twenty five percent working interest in the remaining wells drilled by the
joint venture.
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 4700 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.
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.
Liquidity and Capital Resources
During the fiscal years ended April 30, 2004 and 2005, our principal
sources of liquidity were revenue from the production of oil and gas, the sale
of drilling contracts and the proceeds from our $4,150,000 debt financing in May
of 2005. Private placements of our common stock have been our principal external
sources of liquidity. In fiscal year 2004, our access to funding depended upon
borrowing transactions with related parties and directors. In 2005 with the
increase in the volatility of markets for petroleum products our access to
sources of funds was enhanced. Accordingly subsequent to our year end, on May 9,
2005 we entered into a credit agreement with Prospect Energy Corporation, Inc
and Petro Capital III, LP. Under the agreement, we 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 substantially all the obligations existing
at the balance sheet date. Remaining funds after retirement of debt were used to
institute the drilling program. The notes are interest only accruing at 12%,
payable on June 30, 2006. The notes are convertible into common stock at the
lesser of $1.50 or the price at which common stock will be issued to investors
in our planned equity offering. We have commitments to refinance the $4,150,000
in loans by June 30, 2006.
Results of Operations
We had revenues of $1,484,066 for the first quarter of fiscal 2005, up
from the $287,306 in revenues recognized during the first quarter of fiscal
2004. This is primarily attributable to our institution of our turn key drilling
program on the Koppers North tract.
Oil and gas revenue for the current quarter was $185,821, down from
$226,944 in the first quarter of fiscal 2004. This decrease was due primarily to
a decrease in production that was attributable to normal production declines
offset by a rise in natural gas and oil prices.
Service and drilling revenue for the first quarter was $1,298,199, up from
$31,813 for the same quarter last year. This increase was due to increased
drilling activity associated with the turn-key drilling contracts and the joint
venture agreements.
During the current quarter, retail sales were $0 compared to $27,900
during the first quarter of fiscal 2004. This relates to equipment that is sold
off of our lot, in discrete quantities, which by its nature tends to give rise
to variences
Our net loss for the current quarter was $189,775, down from a net loss of
$82,722 for the same quarter of fiscal 2004. This decrease was due primarily to
increased interest expense, depletion expense and professional fees and costs
associated with loan closing costs and the amortization of warrants associated
with the loan We feel these costs will be offset by the increased drilling
activity and reserve growth associated with new drilling efforts.
Cost of sales for the first quarter of fiscal 2005 was $980,558 up from
$42,151 in the same quarter of fiscal 2004, due primarily to increased drilling
activities and production.
Selling, general and administrative expenses were $371,469, up from
$202,744 in the first quarter of fiscal 2004. This increase was primarily due to
increases in legal and professional expenses, and an overall upgrade in our
financial reporting capabilities.
Salaries and wages for the current quarter were $76,416, up from $33,706
in the first quarter of fiscal 2004.
Depreciation, depletion and amortization for the first quarter of fiscal
2005 was $74,218, up from $41,056 in the first quarter of 2004. This increase
was due to increases in depletion expense, which resulted from the
reclassification of certain properties from proved undeveloped to probable
and/or possible.
Item 3. Controls and Procedures
Our Chief Executive Officer and our Chief Financial Officer have conducted
an evaluation of the effectiveness of our disclosure controls and procedures as
of the quarter ended July 31, 2005. Based on this evaluation, our Chief
Executive Officer concluded that our disclosure controls and procedures were
ineffective to provide reasonable assurance that information required to be
disclosed by us in reports that we file or submit under the Security Exchange
Act of 1934, as amended (the "Act"), is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms and to
ensure that information required to be disclosed by us in the reports that we
file under the Act is accumulated and communicated to management, including our
certifying officers, as appropriate, to allow timely decisions regarding
required disclosures.
In connection with the preparation and review of our Consolidated
Financial Statements for the quarter ended July 31, 2005 and subsequent to
filing our Original Form 10-QSB, management and our registered independent
accountants identified errors that led to a decision to restate our Consolidated
Financial Statements for the quarters ended July 31, 2005 and July 31, 2004. The
restatements are discussed more fully under the Note 2, "Restatement of
Consolidated Financial Statements." In light of these accounting errors, we have
determined that a deficiency in internal controls existed relating to the
adequacy of our cut-off controls in the reconciliation of transactions we engage
in with our joint venture partners, as well as the completeness and timeliness
of our disclosure. Accordingly, management determined that this control
deficiency constituted a material weakness.
Management is taking the remedial steps necessary to eliminate the
material weakness relating to financial disclosure controls that resulted in the
restatement discussed above. Other than the changes discussed above, there have
been no changes made in our internal controls or in other factors that could
materially affect its internal controls subsequent to the end of the period
covered by this report based on such evaluation.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
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.
Date: October 28, 2005 MILLER PETROLEUM, INC.
By: /s/ Deloy Miller
----------------------------------
Deloy Miller
Chief Executive Officer
By: /s/ Charles M. Stivers
----------------------------------
Charles M. Stivers
Chief Financial Officer