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 September 30, 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. 0-10089
Unioil
(Exact name of small business issuer as specified in its charter)
Nevada 93-0782780
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3817 Carson Avenue, P.O. Box 200310, Evans, Colorado 80620
(Address of principal executive offices)
(970) 330-6300
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports) Yes [ ] No [X]
and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of October 31, 2005, 99,941,657 shares of the issuer’s common stock, par value $0.01 per share, were outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
See attached Financial Statements and Schedules.
Item 2. Management's Discussion and Analysis or Plan of Operation
Liquidity and Capital Resources
In the nine months ended September 30, 2005, the Company had two primary sources of liquidity. The first was the Company’s cash position, held primarily in demand-deposit bank accounts. Cash was $819,189 at September 30, 2005. This compares to $420,321 at December 31, 2004, the end of the Company’s most recently completed fiscal year. Of the Company’s cash positions at each of the dates stated in this paragraph, $57,377 was held as a reserve for tax liabilities. The substantial increase in the Company’s cash position between 2004 year end and September 30, 2005, is attributable primarily to retained earnings from operations. See “Results of Operations,” below.
The Company’s second primary source of liquidity was cash flow from operations. In the nine months ended September 30, 2005, the Company’s monthly cash flow averaged $82,849. This figure compares to average monthly cash flows of $18,750 and $23,632 for fiscal 2004 and for the nine months ended September 30, 2004, respectively. The increase in cash flow for the nine months ended September 30, 2005, as compared to 2004, is attributable primarily to increases in the prices of oil and natural gas that began toward the end of the final quarter of 2004, and to an increase in the number of wells that had reached payout under the Unioil/Prima Agreement. See “Results of Operations,” below.
Over the four quarters ended June 30, 2005, the Company experienced a steady increase in net working capital. Net working capital progressed from a deficit of $(33,266) at June 30, 2004, to $94,189 at December 31, 2004. Net working capital improved further to $330,651 at June 30, 2005. The increases in net working capital resulted primarily from increases in the prices of oil and natural gas. See “Results of Operations,” below.
At September 30, 2005, however, the Company’s net working capital had decreased to $121,894. The decease at September 30, 2005, as compared to the end of the immediately preceding quarter, is attributable to the Company’s having expended $344,676 in re-completing two existing oil-and-gas wells during the last two weeks of the most recently ended quarter. Although the Company anticipates that the re-completions will result in increased revenues from those wells, the increases will not begin to be realized until subsequent quarters.
Management anticipates a further program of well workovers and re-completions. Management is engaged in an active evaluation of options for a combination of financial arrangements for that program, as well as for the drilling of new wells.
One available option would be for the Company itself to finance the workover and re-completion of some of its wells. The financing might be provided solely by the Company’s own current working capital, or from a possible augmentation of that capital by one or more loans.
1
The Company, however, remains in the early preliminary stages of determining the timing, the terms, and the choice of industry partner relative to the workover, re-completion, and drilling programs.
To the extent that the Company’s future well program shall involve Company-financed workovers and re-completions, management anticipates further decreases in the Company’s net working capital position. Management is unable, however, to predict the magnitude or timing of its future expenditures of working capital.
At September 30, 2005, the Company’s assets exceeded its liabilities by $3,198,648. This figure compares to $2,978,827 at December 31, 2004. The increase in net assets between 2004 year end and September 30, 2005, is attributable primarily to retained earnings from operations in 2005.
Management considers the Company’s liquidity and capital resources adequate to meet the Company’s current and foreseeable general and administrative expenses, and other internal needs. Management believes such liquidity and resources to be sufficient, moreover, to support the Company’s limited ongoing business operations, such as continued production from the Company’s existing wells, and a limited program for reworking selected wells.
The Company’s liquidity, however, is highly dependent upon market prices for oil and gas. Those prices have a history of rapid and dramatic fluctuation. Management’s assessments of the Company’s liquidity, therefore, must be qualified in recognition of instability in the market prices for the Company’s products. A change in those prices can be expected to have a material effect upon the Company’s liquidity.
Except as described above, the Company’s liquidity and capital resources are inadequate to support significant expansion of the Company’s business, and are insignificant in comparison to other participants in the industry. As a result, the Company is, and expects to remain, dependent upon possible industry partners or outside sources of capital. Management is unable to predict the availability of such partners or such capital, or the terms, if any, that might govern the Company’s participation with such partners or the Company’s access to such capital.
Results of Operations
The Company holds a 27.5% after-payout working interest in 43 wells drilled under the Company’s 1996 drilling agreement with Prima Oil & Gas Company (the “Unioil/Prima Agreement”). See Exhibits 10.1, 10.2, 10.3 and 10.4. At December 31, 2004, 22 of the 43 wells had reached payout. This compares to 19 of the 43 wells having reached payout at September 30, 2004. Between 2004 year end and September 30, 2005, four additional wells reached payout. As a result, a total of 26 of the 43 wells had reached payout as of the end of the first nine months of 2005.
Costs of production were $96,805 and $274,948 in the quarter and the nine months ended September 30, 2005, respectively. These figures compare to $78,681 and $278,332 for the corresponding periods of the previous fiscal year. The increase in such costs for the quarter ended September 30, 2005, as compared to the corresponding period of 2004, are attributable primarily to an increase in expenditures for repairs and maintenance at existing well locations.
The Company’s general and administrative expenses were $184,111 and $540,624 in the quarter and the nine months ended September 30, 2005, respectively. These figures compare to $57,854 and $180,841 for the corresponding periods of the previous fiscal year. The increases in these expenses for the quarter and the nine months ended September 30, 2005, as compared to 2004, are attributable primarily to increases in legal fees and other professional expenses, and consulting fees.
Depreciation, depletion and amortization expenses were $48,203 and $154,751 in the quarter and the nine months ended September 30, 2005, respectively. These figures compare to $45,887 and $131,665 for the corresponding periods of the previous fiscal year. The increases are primarily a result of increases in the number of wells that had reached payout under the Unioil/Prima Agreement.
Interest and other expenses were $110 and $351 in the quarter and the nine months ended September 30, 2005, respectively. These figures compare to $931 and $2,897 for the corresponding periods of the previous fiscal year. The decreases in these expenses for the quarter and the nine months ended September 30, 2005, as compared to 2004, are attributable primarily to reductions in the outstanding balance of the Company’s indebtedness to Ford Credit Corporation. See “Liquidity and Capital Resources,” above.
The Company had net incomes of $81,526 and $219,821 in the quarter and the nine months ended September 30, 2005, respectively. These figures compare to $84,967 and $39,123 in the corresponding periods of the previous fiscal year. The decrease in net income for the quarter ended September 30, 2005, as compared to the corresponding period of the previous fiscal year, is attributable primarily to increases in general and administrative expenses, as described above. Those increases in expenses, however, were somewhat offset by increases in revenues. The increase in net income for the nine months ended September 30, 2005, as compared to 2004, is attributable primarily to increases in revenues for the reasons described above.
Item 3. Controls and Procedures
The person who performs the functions of the Company's chief executive officer and chief financial officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act) as of a date within 90 days prior to the filing of this report (the "Evaluation Date"), has concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures were effective to ensure the timely collection, evaluation,
3
Special Note Regarding Forward-Looking Statements
Some of the statements under Item 2. Management’s Discussion and Analysis or Plan of Operation and elsewhere in this Report, and in the Company’s other periodic filings with the U.S. Securities and Exchange Commission, constitute forward-looking statements. These statements involve known and unknown risks, significant uncertainties, and other factors that may cause actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements.
In some cases, one can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “intends,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of such terms or other, similar terminology.
The forward-looking statements herein are based on current expectations that involve a number of risks and uncertainties. Such forward-looking statements are based on assumptions that the Company will obtain or have access to adequate financing for each successive phase of its operations or growth, that there will be no material, adverse competitive or technological change affecting the Company’s business, that the Company’s executive officers and other significant employees will remain employed as such by the Company, and that there will be no material, adverse change in the Company’s operations or business, or in governmental regulation affecting the Company. The foregoing assumptions are based on judgments with respect to, among other things, future economic, competitive, and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company’s control.
Although management believes that the expectations reflected in the forward-looking statements are reasonable, management cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither management nor any other persons assumes responsibility for the accuracy and completeness of such statements.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
During the period covered by this report, the Company was not a party to any pending legal proceeding, and none of the property of the Company was the subject of any such proceeding.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
For the period covered by this Report, no information is required to be furnished pursuant to this Item 2.
4
Exhibit No. | Description | Location |
10.1 | Farmout/Farmout Option Agreement, Weld County, Colorado, dated November 7, 1996, by and between Prima Oil & Gas Company and the Company. | Incorporated by reference to Exhibit No. 10.1 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998 (Commission File No. 0-10089) |
10.2 | Extension, dated March 24, 1999, of Farmout/Farmout Option Agreement, Weld County, Colorado, dated November 7, 1996, by and between Prima Oil and Gas Company and the Company | Incorporated by reference to Exhibit No. 10.3 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999 (Commission File No. 0-10089). |
10.3 | Extension, dated February 21, 2001, of Farmout/Farmout Option Agreement, Weld County, Colorado, dated November 7, 1996, by and between Prima Oil and Gas Company and the Company | Incorporated by reference to Exhibit No. 10.4 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001 (Commission File No. 0-10089). |
10.4 | Extension, dated December 13, 2001, of Farmout/Farmout Option Agreement, Weld County, Colorado, dated November 7, 1996, by and between Prima Oil and Gas Company and the Company | Incorporated by reference to Exhibit No. 10.4 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002 (Commission File No. 0-10089). |
31 | Certification of Mr. Ayers Pursuant to Rules 13a-14 or 15d-14 |
|
32 | Certification of Mr. Ayers Pursuant to Section 1350 |
|
6
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
UNIOIL
Date: November 1, 2005 /s/ Charles E. Ayers, Jr.
Charles E. Ayers, Jr., Chairman
(on behalf of the registrant, and as principal executive
officer, principal financial officer, and principal
accounting officer of the registrant)
8
UNIOIL
UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
UNIOIL
CONTENTS
PAGE
— Unaudited Condensed Balance Sheets,
September 30, 2005 and December 31, 2004 2
— Unaudited Condensed Statements of Operations,
For the three and nine months ended
September 30, 2005 and 2004 3
— Unaudited Condensed Statements of Cash Flows,
For the nine months ended
September 30, 2005 and 2004 4
— Notes to Unaudited Condensed Financial Statements 5 - 6
UNIOIL
UNAUDITED CONDENSED BALANCE SHEETS
ASSETS
September 30, December 31,
2005 2004
&n bsp; ___________ ___________
CURRENT ASSETS:
Cash $ 819,189 $ 420,321
Joint interest and trade accounts receivable, net of
allowance for doubtful accounts of
$6,796 and $6,624, respectively 88,969 85,502
Prepaid assets &n bsp; 8,634 7,838
Current deferred tax asset 855 855
&nbs p; __________ __________
Total Current Assets &nbs p; 917,647 514,516
PROPERTY AND EQUIPMENT, net 30,685 34,532
INVESTMENT IN OIL AND GAS PRODUCING
PROPERTIES, full cost method, net of depletion 3,060,413 2,871,899
__________ __________
TOTAL ASSETS $ 4,008,745 $ 3,420,947
& nbsp; __________ __________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable – current portion $ 9,909 $ 9,810
Joint interest and trade accounts payable 469,975 94,423
Accrued payroll taxes - 52,467
Accrued taxes 315,869 263,627
_________ __________
Total Current Liabilities 795,753 420,327
CONTINGENCIES - -
NOTE PAYABLE, less current portion 13,489 20,938
DEFERRED TAX LIABILITY 855 855
&nbs p; _________ __________
Total Liabilities 810,097 442,120
&nb sp; _________ __________
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares
authorized, 99,941,657 shares issued and outstanding 999,417 999,417
Capital in excess of par value 18,914,190 18,914,190
Retained deficit &nb sp; (16,714,959) (16,934,780)
; __________ __________
Total Stockholders' Equity 3,198,648 2,978,827
; __________ __________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 4,008,745 $ 3,420,947
&n bsp; __________ __________
Note: The Balance Sheet at December 31, 2004 was taken from the audited financial statements at that date and condensed.
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
UNIOIL
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For The Three months ended For The Nine months ended
; September 30, September 30,
________________________ ______________________
2005 2004 2005 2004
___________ ___________ ___________ __________
REVENUE:
Oil and gas sales $ 398,284 $ 271,258 $ 1,158,587 $ 642,791
Income from serving as operator 8,249 6,622 21,404 20,153
___________ ___________ __________ _________
Total Revenue 406,533 277,880 1,179,991 662,944
___________ ___________ __________ _________
EXPENSES:
Production costs and related taxes 96,805 78,681 274,948 278,332
General and administrative 184,111 57,854 540,624 180,841
Depreciation, depletion and amortization 48,203 45,887 154,751 131,665
___________ ___________ _________ ________
Total Expenses 329,119 182,422 970,323 590,838
___________ ___________ _________ ________
INCOME BEFORE OTHER
INCOME (EXPENSE) 77,414 95,458 209,668 72,106
___________ ___________ _________ ________
OTHER INCOME (EXPENSE):
Interest and other income 4,222 1,781 10,504 3,937
Interest and other expense (110) (931) (351) (2,897)
___________ ___________ _________ ________
Total Other Income (Expense) 4,112 850 10,153 1,040
___________ ___________ _________ ________
INCOME BEFORE INCOME TAXES 81,526 96,308 219,821 73,146
CURRENT TAX EXPENSE - - - -
DEFERRED TAX EXPENSE - - - -
___________ ___________ _________ ________
INCOME BEFORE EXTRAORDINARY
ITEM 81,526 96,308 219,821 73,146
EXTRAORDINARY ITEM, net of tax
effect of $0 - (11,341) - (34,023)
___________ ___________ _________ ________
NET INCOME $ 81,526 $ 84,967 $ 219,821 $ 39,123
___________ ___________ _________ ________
INCOME PER COMMON SHARE:
Continuing operations $ .00 $ .00 $ .00 $ .00
Extraordinary item - (.00) - (.00)
___________ ___________ _________ ________
Net Income Per Common Share $ .00 $ .00 $ .00 $ .00
___________ ___________ _________ ________
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
UNIOIL
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
Net Increase (Decrease) in Cash
For The Nine Months Ended
September 30,
________________________
2005 2004
___________ ___________
Cash Flows From Operating Activities:
Net income $ 219,821 $ 39,123
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 154,751 131,665
Bad debt expense 31,803 8,725
Changes in assets and liabilities:
(Increase) decrease in joint interest and trade
accounts receivable (35,270) 9,069
(Increase) decrease in prepaid assets (796) (203)
Increase (decrease) in joint interest and trade
accounts payable 375,552 (11,371)
Increase (decrease) in accrued payroll taxes (52,467) 12,853
Increase in accrued taxes 52,242 22,830
___________ ___________
Net Cash Provided by Operating Activities 745,636 212,691
___________ ___________
Cash Flows From Investing Activities:
Purchase of property and equipment (339,418) (5,914)
___________ ___________
Net Cash (Used) by Investing Activities (339,418) (5,914)
___________ ___________
Cash Flows From Financing Activities:
Payments to note payable (7,350) (7,191)
___________ ___________
Net Cash (Used) by Financing Activities (7,350) (7,191)
___________ ___________
Net Increase in Cash 398,868 199,586
Cash at Beginning of Period 420,321 210,814
___________ ___________
Cash at End of Period $ 819,189 $ 410,400
___________ ___________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period:
Interest $ 351 $ 510
Income taxes $ - $ -
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the nine months ended September 30, 2005:
None
For the nine months ended September 30, 2004:
None
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
UNIOIL
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Financial Statements - The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at September 30, 2005 and 2004 and for the periods then ended have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2004 audited financial statements. The results of operations for the periods ended September 30, 2005 and 2004 are not necessarily indicative of the operating results for the full year.
Recently Enacted Accounting Standards - Statement of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs - an amendment of ARB No. 43, Chapter 4”, SFAS No. 152, “Accounting for Real Estate Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67”, SFAS No. 153, “Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29”, SFAS No. 123 (revised 2004), “Share-Based Payment”, and SFAS No. 154, “Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3”, were recently issued. SFAS No. 151, 152, 153, 123 (revised 2004) and 154 have no current applicability to the Company or their effect on the financial statements would not have been significant.
NOTE 2 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less accumulated depreciation as of:
September 30, December 31,
2005 2004
___________ ___________
Shop tools and equipment $ 20,869 $ 20,869
Furniture and fixtures 31,587 26,672
Transportation equipment 52,908 52,908
___________ ___________
105,364 100,449
Less: accumulated depreciation (74,679) (65,917)
___________ ___________
Total $ 30,685 $ 34,532
___________ ___________
Depreciation expense for the nine months ended September 30, 2005 and 2004 amounted to $8,762 and $7,771, respectively.
NOTE 3 - OIL AND GAS ACTIVITIES
The Company’s activities primarily consist of operating existing wells and monitoring the status of its leases. Depletion expense on oil and gas properties was $145,990 and $123,787 for the nine months ended September 30, 2005 and 2004, respectively.
5
UNIOIL
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 4 - NOTE PAYABLE
In January 2003, the Company signed a note payable in the amount of $48,905 to a financing institution. The note is secured by a vehicle with a net book value of $22,007 at September 30, 2005. The note has an annual interest rate of 1.9% and matures in January 2008.
The note payable matures as follows for the twelve-month periods ended:
September 30, Principal Due
___________ ___________
2006 $ 9,909
2007 10,099
2008 3,390
2009 -
2010 -
___________
$ 23,398
___________
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company paid a shareholder of the Company $-0- and $45,000 as salary during the nine months ended September 30, 2005 and 2004, respectively.
The Company paid an officer/shareholder of the Company $40,000 and $30,000 as director’s fees during the nine months ended September 30, 2005 and 2004, respectively.
NOTE 6 - CONCENTRATIONS OF CREDIT RISKS
As of September 30, 2005, the Company had cash balances in excess of federally insured amounts of approximately $748,455.
NOTE 7 - INCOME PER SHARE
The following data show the amounts used in computing income per share:
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
______________________ _____________________
2005 2004 2005 2004
_________ ___________ _________ __________
Income from continuing operations available
to common stockholders (numerator) $ 81,526 $ 96,308 $ 219,821 $ 73,146
Extraordinary item (numerator) - (11,341) - (34,023)
_________ ___________ _________ __________
Income available to common stockholders
(numerator) $ 81,526 $ 84,967 $ 219,821 $ 39,123
_________ ___________ _________ __________
Weighted average number of common shares
outstanding used in income per share for the
period (denominator) 99,941,657 99,941,657 99,941,657 99,941,657
_________ ___________ _________ __________
Dilutive loss per share was not presented, as the Company had no options, warrants or other dilutive potential securities outstanding at September 30, 2005 or 2004.
6
