LATHROP
& GAGE L.C.
| JACK M. MERRITTS (720) 931-3217 EMAIL: JMERRITTS@LATHROPGAGE.COM WWW.LATHROPGAGE.COM | REPUBLIC PLAZA 370 17TH STREET, SUITE 4650 DENVER, COLORADO 80202-5607 (720) 931-3200, FAX (720) 931-3201 |
Karl Hiller, Branch Chief
Tracie Towner
United States Securities and Exchange Commission
Division of Corporate Finance
100 F Street, NE
Mail Stop 7010
Washington, DC 20549-7010
Re: Unioil
Form 10-KSB for Fiscal Year Ended December 31, 2005
Filed May 15, 2006
Form 10-QSB for the Quarter Ended June 30, 2006
Filed August 18, 2006
Response Letter Dated July 31, 2006
File No. 0-10089
Dear Mr. Hiller and Ms. Towner:
In regard to your letter dated August 24, 2006, Unioil (the “Company”) addressed most of the comments in that letter by our letter of September 8, 2006. The Company is now able to respond to the remaining comments in your letter of August 24, 2006 as follows with references to the subtitles and paragraph numbers as they appear in your letter:
Financial Statements
Note 2 – Correction of Errors, page 7
In the process of reviewing the financial statements to respond to this comment, the Company’s auditors determined that it would be appropriate to revise certain Notes to the Financial Statements to add clarity to the description of the changes made as a result of the restatement of the 2004 Financial Statements. Accordingly, Note 1 (“Summary of Significant Accounting Policies”) will be amended in that the first sentence of the fifth paragraph (subtitled “Property and Equipment”) under that Note 1 would read as follows: “Property and equipment with original cost in excess of $5,000 are recorded at cost.”
For similar reasons, Note 2 (“Correction of Errors”) will be revised as set forth in Exhibit 2 attached hereto. The proposed revisions in that Note 2 consist of the following: (1) revising virtually all of the first paragraph under that Note; (2) revising the table in the third paragraph of that Note 2 which “summarizes corrections to the December 31, 2004 statement of operations” by adding a line item “Adjust Insurance Expense” and adding the figure of a negative $51.00 for that line item; (3) revising the next line item in that table to refer to “Adjust penalties and interest expense” and change the dollar figure for that line item to $1,683; and (4) in the table at the end of Note 2 revising the line item for “Net income per share” to list the amount of $0.01 at the bottom of each of the first and fifth columns.
We believe that with these additional revisions the Company has responded to all of the comments in your letter of August 24, 2006. If these proposed revisions are acceptable, please advise me and the Company will file a Form 10-KSB/A1 for the fiscal year ending December 31, 2005 and Forms 10-QSB/A1 for the quarters ended March 31, 2006 and June 30, 2006 incorporating these revisions and the revisions described in our letter of September 8, 2006.
If you have any questions or comments concerning these proposed revisions or the contents of this letter, please contact me.
Very truly yours,
LATHROP & GAGE L.C.
By: /s/ Jack M. Merritts
Jack M. Merritts
:sy
Enclosures
cc: Charles E. Ayers, Jr. (w/encl)
EXHIBIT 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Unioil
I have audited the accompanying balance sheet of Unioil (a Nevada corporation) as of December 31, 2005, and the related statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2005. These financial statements are the responsibility of the company’s management. My responsibility is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor was I engaged to perform, an audit of its internal control over financial reporting. My audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, I express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Unioil as of December 31, 2005, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
As described in Note 2 to the financial statements, the Company has restated its 2004 financial statements to conform with accounting principles generally accepted in the United States of America by making the changes listed therein.
Michael J. Larsen, LLC
Salt Lake City, Utah
March 8, 2006
1
EXHIBIT 2
NOTE 2 – CORRECTION OF ERRORS
The accompanying financial statements have been restated to correct errors made in the year ended December 31, 2004 and prior years. Specifically, the Company has corrected the reporting of revenue from the cash method to the accrual method for non-operated wells, has reversed administrative overhead recoveries on uncollectible accounts, has corrected the amount charged to expense for an insurance policy, has recorded the effects of accounts payable forgiven in previous years, and has reduced accrued penalties and interest to amounts considered probable of assessment. The Company has also corrected the amount of valuation allowance of its deferred tax assets to take into account current and projected future taxable income, and has excluded from the fixed asset category assets which were previously retired or which were not recorded in accordance with its capitalization policy. In addition, the Company has reclassified overhead recoveries from income to a reduction of general a nd administrative expense, has reclassified operating revenues and expenses out from other income and expense, and has reclassified misappropriation loss from an extraordinary item to an item of other expense. For purposes of its depletion and ceiling test computations, the Company has adjusted the components of its full cost pool to reflect actual proved and unproved property designations, and has excluded oil and gas quantities from proved undeveloped reserves for which economic feasibility had not been established.
The effect of the restatement was to increase net income for the year ended December 31, 2004 by $173,903 ($0.02 per share) net of income tax of $26,587.
The following summarizes corrections to the December 31, 2004 statement of operations:
Per share
Net loss as previously reported $ (5,730) $ (0.00)
Additional revenue from non-operated wells 136,849 0.01
Additional lease operating expense (3,639) (0.00)
Depletion expense adjustment 64,806 0.01
Depreciation expense adjustment 842 0.00
Adjust insurance expense (51) (0.00)
Adjust penalties and interest expense 1,683 0.00
Adjust income tax expense (26,587) (0.00)
Net income, as restated $ 168,173 $ 0.02
Certain reclassifications were also made to 2004 operating results. Revenue earned from acting as an operator totaling $26,061 was reclassified from gross revenue to a reduction of general and
1
Retained earnings as previously reported
$
(16,929,050)
Correction of full cost pool
(1,869,972)
Correction of revenue recognition
22,760
Correction of operating expenses
48,709
Revision of valuation allowance for deferred
tax assets1,439,347
Retained earnings December 31, 2003,
as restated$
(17,288,206)
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- 7 -
UNIOIL
NOTES TO FINANCIAL STATEMENTS
NOTE 2 – CORRECTION OF ERRORS [Continued]
The Company has determined that it should have excluded from its prior year claims of proved undeveloped reserves any oil and gas deposits that could not have been recovered without the drilling of new wells, irrespective of the strength of geological evidence of the extent of such deposits, and even though such deposits lie within Company-controlled acreage. Such exclusion resulted in an impairment of the Company's full cost pool during 2001.
The Company determined that its history of taxable income combined with its expectations of future taxable income based on reserve information and projected operating results indicates that it was more likely than not that a portion of the deferred tax assets would be realized from the Company's net operating loss carryforwards. The Company's previous assessment of the likelihood of realization of its deferred tax assets which resulted in recording a full valuation allowance had been based upon a misinterpretation of the requirements of FASB 109 to evaluate
2
For the quarter ended
For the quarter ended
For the quarter ended
March 31, 2005
June 30, 2005
September 30, 2005
as reported
as restated
as reported
as restated
as reported
as restated
Oil and gas revenue
$ 400,999
$ 338,350
$372,459
$ 374,600
$ 406,533
$401,434
Production costs and
related taxes(84,836)
(84,836)
(93,307)
(93,307)
(96,805)
(96,805)
General and administrative
(158,900)
(152,394)
(197,613)
(190,913)
(184,111)
(183,494)
Depletion, depreciation,
and amortization(57,566)
(45,988)
(48,982)
(44,518)
(48,203)
(62,637)
Income before other
income and expense99,697
55,132
32,557
45,862
77,414
58,498
Other income (expense)
2,722
2,701
3,319
3,318
4,112
4,112
Income before income taxes
102,419
57,833
35,876
49,180
81,526
62,610
Deferred tax expense
-
(21,498)
-
(18,179)
-
(20,409)
Net income
$ 102,419
$ 36,335
$ 35,876
$ 31,001
$ 81,526
$ 42,201
======== ======= ======= ======== ======== ======= Net income per share
$ 0.01
$ 0.00
$ 0.00
$ 0.00
$ 0.01
$ 0.00
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=======
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