FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period of ____________ to____________
Commission file number 0-10089
UNIOIL
(Exact name of registrant as specified in its charter)
Nevada 93-0782780
(State or other jurisdiction (I.R.S. Employer identification number)
of incorporation or organization)
3817 Carson Avenue, P.O. Box 310
Evans, Colorado. 80620 .
(Address of principal executive offices) (ZipCode)
Registrant's phone number, including area code (970) 330-6300
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for a shorter period that the registrant was
required to file such reports),
Yes X No ___
and (2) has been subject to such filing requirements for the past
90 days.
Yes X No ___
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at September 30, 1996
(Common stock, $.01 par value) 9,441,657
UNIOIL
INDEX
Page No.
Part I Financial Information
Condensed balance sheets- 1
September 30, 1996 and December 31, 1995
Condensed statements of operations- 2
nine months ended September 30, 1996 and 1995
Condensed statements of cash flows- 3
nine months ended September 30, 1996 and 1995
Notes to condensed financial statements 4-5
Management's Discussion and Analysis of Financial 6-8
Condition and Results of Operations
Part II Other Information
Item 1 Legal Proceedings 9
Item 2 Changes in Securities 10
Item 3 Defaults upon Senior Securities 10
Item 4 Submission of Matters to a Vote of 10
Security Holders
Item 5 Other Information 10
Item 6 Exhibits and Reports on Form 8-K 10
PART I - FINANCIAL INFORMATION
UNIOIL
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
1996 1995
------------- -------------
(Unaudited) *
Current Assets
Cash $ 357,249 $ 61,636
Joint Interest and Trade Acct. Rec. 88,359 90,387
Prepaid Expenses 1,100 4,627
Deferred Loan Costs, net 49,550 49,550
------------ -------------
Total current assets 496,258 206,200
Property and Equipment 61,200 57,838
Less accumulated depreciation 57,836 57,295
------------- -------------
3,364 543
Investment in Oil and Gas Properties 9,446,260 9,445,940
Less accumulated depletion, 5,663,526 5,586,702
depreciation and amortization ------------- -------------
3,782,734 3,859,238
Deferred Tax Assets -0- -0-
Other Assets 2,152 2,152
------------ -------------
Total Assets $4,284,507 $4,068,133
============ =============
LIABILITIES
Current Liabilites
Accounts Payable & Taxes Payable $ 155,894 $ 166,864
Accrued Interest 7,951,468 7,517,146
Other Current Liabilities 156,266 156,266
Note Payable 6,417,251 6,364,300
Deferred Tax Liabilities -0- -0-
------------- --------------
Total Current Liabilites 14,680,879 14,204,576
Stockholders' Deficit
Common Stock 94,417 94,417
Capital in Excess of Par 4,062,520 4,062,519
Retained Earnings (Deficit) (14,553,309) (14,293,379)
------------- -------------
Total Stockholders' Deficit (10,396,372) (10,136,443)
------------- -------------
Total Liabilities and Stockholders'
Deficit $4,284,507 $4,068,133
============= =============
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed financial
statements.
-1-
UNIOIL
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Nine months ended Three months ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
Revenue
Oil & Gas Sales $ 430,303 $ 253,891 $ 283,965 $ 81,862
Interest Income 2,877 1,223 2,201 292
Income from serving as operator 23,660 40,770 8,365 13,784
Other Income-Settlements 177,858 0 177,858 0
Miscellaneous Income 3,764 (731) 755 700
--------- --------- --------- ---------
Total Revenue 638,462 295,153 473,144 96,638
Costs & Expenses
Production Costs and Related Taxes 186,025 160,685 89,945 61,275
General and Administrative Expenses 143,460 229,992 44,722 57,729
Depletion, Depreciation & Amortization 77,365 30,622 32,931 6,371
Interest Expense 491,541 478,577 165,792 160,858
--------- --------- --------- ---------
Total Costs & Expenses 898,391 899,876 333,390 286,233
--------- --------- --------- ---------
Loss before income taxes (259,929) (604,723) 139,754 (189,595)
Income Taxes --- --- --- ---
Net Loss $(259,929) $(604,723) $139,754 $(189,595)
========== ========== ========= ===========
Net Loss per share $(.03) $(.06) $.015 $(.02)
========== ========== ========= ===========
The accompanying notes are an integral part of these condensed
financial statements.
-2-
UNIOIL
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30, September 30,
1996 1995
-------------- -------------
Cash Flows From (To) Operating Activities
Net Loss $ (259,929) $ (604,723)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, Depletion & Amortization 77,365 30,622
Changes in Assets and Liabilities
Joint Interest & Trade Receivables 2,028 4,905
Other Assets 3,527 (27,221)
Accounts Payable and Taxes Payable (10,971) (14,976)
Accrued Interest Payable 434,322 434,322
------------- -----------
506,271 427,652
------------- -----------
Net Cash Provided (Used) by Operations 246,342 (177,071)
Cash Flows From (To) Investing Activities
Disposition of Property & Equipment (3,681) (2,102)
Disposition of Oil & Gas Properties ---- ----
------------- ----------
Net Cash Provided (Used) by Investing Activities (3,681) (2,102)
Cash Flows From (To) Financing Activities
Proceeds from issuance of Capital Stock 52,951 ----
------------- ----------
Net Cash Used by Financing Activities 49,270 154,582
Net Increase (Decrease) in Cash 295,612 (24,591)
Cash at Beginning of Period 61,636 72,629
------------- ----------
Cash at End of Period $ 357,248 $ 48,038
============= ==========
Supplemental Schedule of Noncash Investing and Financing Activities:
None
The accompanying notes are an integral part of these condensed
financial statements.
-3-
UNIOIL
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting soley of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of financial position, results of operation and cash flows for
the interim periods.
The results of operations for the nine month period ending September 30,
1996 are not necessarily indicative of the results to be expected for the
full year.
NOTE 2: INCOME TAXES
No provision for income taxes has been recorded due to net operating losses.
The Company has net operating loss carryforwards of approximately
$15,800,000 which may be applied against future taxable income expiring in
various years beginning in 1999 through 2010.
NOTE 3; RELATED PARTY TRANSACTIONS
During 1985, the Company borrowed approximately $6,000,000 from Joseph
Associates, Inc. [JA] in order to fund the reorganization plan approved by
the bankruptcy court. The loan is secured by basically all of the assets
of the Company, including interests in oil and gas wells. The original
term of the loan was for 60 months with the principal and interest payments
due the first day of each month beginning October 1, 1985. Almost from the
beginning, the Company has been in default with respect to payments due on
this loan. In 1989 JA exercised its right under the loan agreement to
receive directly from purchasers all proceeds derived from the sale of oil
and gas by the Company. Accordingly, all monies received from oil and gas
purchasers were then deposited into a checking account controlled by JA and
transferred as needed to accounts owned by the Company to cover operating
expenditures. During 1990 the rights of Joseph Associates, Inc. were
acquired by Joseph Associates of Greeley, Inc. and the same procedure is
still in effect during 1996. It is presently contemplated that this debt
will be restructured, but the terms of such restructuring have not been
determined or agreed to as of the date hereof.
At September 30, 1996, the unpaid note balance was $5,791,000.00 and the
related Accrued Interest balance was $7,951,468.00.
During the nine months ending September 30, 1996, interest in the amount of
$434,322.00 was accrued on the note and charged to expense. Additionally,
the Company has a non-interest bearing payable to Joseph Associates of
Greeley, Inc. in the amount of $156,266.00.
-4-
UNIOIL
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4: CONTINGENCIES
On September 28, 1988, the United States Securities and Exchange Commission
filed a complaint against the Company and its former president for allegedly
manipulating its common stock price and for misleading promotions with
regard to the "Soberz" pill. The Company was also charged with failure
to file required SEC reports. Final judgments and a permanent injunction
were entered against the Company on October 19, 1989. The Company filed a
motion to set aside the judgment which was not granted. Management believes
that the judgment will ultimately be dismissed as they demonstrate their
ability to file currently required SEC filing (see Legal Proceedings No. 1).
-5-
UNIOIL
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position
and operating results during the periods included in the accompanying
condensed financial statements.
LIQUIDITY and CAPITAL RESOURCES
At September 30, 1996, the issuer was insolvent, in that liabilities
greatly exceed assets. Revenues from operations were insufficient to
discharge liabilities or even pay interest accruing thereon. In such a
financial condition, the issuer cannot raise additional funds to meet such
commitments. Continuation as a going concern is dependent upon the ability
of the issuer to negotiate a settlement to discharge its principal
outstanding liability. The issuer has been able to continue operations only
because Joseph Associates of Greeley, Inc. ("JAGI"), whose secured position
has priority, has been foregoing its right to foreclose upon all the
issuer's assets, but is asserting its right to take direct payment of the
proceeds of production attributable to the issuer's interest in oil and gas
properties.
However, during 1993, JAGI commenced a foreclosure action against the
assets of the Company in Laramie County, Wyoming. This action was commenced
by JAGI in part to demonstrate its willingness and ability to foreclose upon
all the issuer's assets and thereby extinguish the claims of other creditors,
as a means of inducing such creditors to settle their claims on a reasonable
basis or have them extinguished. As of February 10, 1995, this action was
dismissed and JAGI has taken no further action to foreclose on its Mortgage
or to assert any rights under that Mortgage other than the rights to take
the direct payment of the Company's oil and gas proceeds. As a result of
this action and the fact that the Company was able to obtain a line of
credit with which to make cash offers in settlement of its remaining
judgment liabilities, during 1994 the Company was able to reach settlements
with all judgment creditors. Refer to December 31, 1994 Form 10-KSB for
details.
There are two major areas of indebtedness of the Company. The
principal one is the secured debt owed to JAGI. With the interest that has
been accrued each year, this debt is in excess of 13 million dollars.
Management of the Company and JAGI are attempting to work out some
restructuring of this debt; however, at September 30, 1996 and as of the date
-6-
hereof, the debt has not been restructured and remains on the books. As of
September 30, 1996, the other secured debt was a $350,000 line of credit
from a local bank and a $350,000 loan of which the Company had used
$626,251 against the loan and line of credit and is collateralized by a
first lien on the Company's Colorado oil and gas properties. The Company
used approximately $287,500 of these proceeds to settle outstanding judgment
liabilities. On October 7, 1996 the Company paid off $276,251 leaving a
loan at the local bank of $350,000. Management does not intend to borrow
additional money at this time. The following is an explanation as to how
the Company obtained the funds to pay the bank.
The Company operates two wells (South Prince #1 and #2) in Laramie
County, Wyoming (SWSW & NESW - Section 33-T16N-R64W) which holds the W1/2 of
Section 33. In March 1993, Union Pacific Resources Company ("UPRC"), who
hold the E1/2 of Section 33, applied to the Wyoming Oil & Gas Conservation
Commission requesting a permit to drill a horizontal well (640 acre spacing)
in Section 33 at the NE1/4NE1/4. Subsequently the Company was notified and
invited to participate in the drilling and completion of this horizontal
well. The Company chose not to participate and therefore became a
non-consenting partner subject to a 200% payout pursuant to Wyoming
statute. UPRC and other working interest owners drilled and completed the
horizontal well (known as the Leroy 41-33/1-H) in October 1993. Shortly
thereafter the Company requested and began receiving monthly payout
statements from UPRC. In time, management became concerned about some of
the high lease operating expenses and at the same time pleased with the
monthly oil production and monthly revenue. Because of this, management
suspected 200% payout may have been reached and therefore hired The Rockport-
Essex Company in December 1995 to perform an audit on this well in order to
determine if all expenses were correct and if payout had possibly been
reached which UPRC claimed it had not. Management's concern and reasoning
for this was that upon reaching 200% payout the Company comes in with an
interest in the well amounting to 43.345% working interest which results in
a 33.004213% net revenue interest as well as a 0.239172% overriding
royalty interest which is payable from the date of first production. During
the audit many incorrect expense postings were discovered resulting in
several adjustments to the payout status. In July 1996 the audit was
completed and settlement with UPRC was completed in October 1996. The auditors
found net adjustments totaling $160,075.35 in drilling, completion and
operating costs which resulted in the 200% payout of the well to be reached
in April 1995. The audit on the revenue side reflected an amount of
$220,846.61 which the Company should have eventually received without audit
adjustments. The overall effect of this audit as of July 1996 is that the
Company received revenue for 1995 oil and gas production of $241,887.74.
The total audit fee to date is $64,030.14 which has been applied against the
"95" revenue and shown as a net amount of $177,857.60 under Other
-7-
Income-Settlements. In July 1996 oil and gas revenue of $157,755.49 is
included which is oil revenue of $150,491.58 and gas revenue of $7,263.91.
By quarter this would be: First Quarter; Oil-$84,073.87 & Gas-$5,877.76.
Second Quarter; Oil-$66,417.71 & Gas-$1,386.15. The gas revenue for the
second quarter appears low due to the fact that gas sales are a month
behind oil sales. Production Costs have increased by $18,721.27, which is
the Company's share of lease operating expenses.
In addition to the above the Company is entitled to charge UPRC 18%
per annum on the unpaid balance for production after the 200% penalty was
reached. This amount totaled $19,414.00 and was paid to the Company in
October 1996.
RESULTS OF OPERATIONS
Due to its bankruptcy and adverse financial condition the issuer has
not engaged in drilling any new wells or acquiring any additional properties
since 1985. Operations of the issuer have been limited to continued
operation of wells previously drilled on properties already acquired. The
issuer continues to incur net losses due primarily to interest expenses,
except for the year 1994 when the gain from settlements of judgment
liabilities was recognized as an extraordinary item, and resulted in net
income. Management anticipates production can be increased if sufficient
capital can be generated to re-work producing wells.
-8-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The issuer had been involved in numerous legal proceedings. Those
legal proceedings have been resolved by the registrant. The following
discussion outlines the current status, to the best knowledge of present
management.
1. On September 28, 1988 the United States Securities and
Exchange Commission ("SEC") filed a complaint in United States District
Court for the District of Columbia (Civil Action No. 88-2803) naming
the issuer and its former President as defendants. The complaint charged
securities laws violations arising from an alleged attempt to manipulate the
price of the Company's stock by conducting an allegedly false and misleading
publicity campaign during 1986 about a purported company product known as
the "Soberz" pill. The pill allegedly lowered a person's blood-alcohol
level rendering a drunk person sober. The complaint also charged the
defendants with violating securities laws by failing to file timely and
accurate periodic reports as required. On October 19, 1989 the SEC obtained
by default final judgments of permanent injunction enjoining the defendants
from violating the securities laws by failing to file such reports, or
violating the anti-fraud provisions of the securities laws.
In October, 1990, after filing the Annual Report on Form 10-K for
the fiscal year ended December 31, 1989 (which report included financial and
other information covering the intervening period since reports had last
been filed), the issuer made a motion to have the injunction against itself
set aside. By order dated January 8, 1991 the U.S. District Court of the
District of Columbia denied the issuer's motion without prejudice "pending
demonstration of Unioil's ability and willingness to comply with filing
requirements in the future over a reasonable period of time." The issuer
intends to renew its motion to set aside the judgment sometime in the future
after it has complied with the filing requirements over a reasonable period
of time. Current management believes that such motion will be granted at
that time.
The legal proceedings regarding the "Soberz" pill were filed
against the issuer and its former President by the SEC in response to
certain meetings held with stockbrokers and others to promote such pill,
two press releases which made certain claims regarding the pill, and a
statement concerning the pill which was included in the issuer's Annual
Report on Form 10-K for the year ended December 31, 1985, which was filed on
or about August 6, 1986. In addition to making the claims about such pill
which resulted in the SEC action, the statement in the Form 10-K report
indicated that the issuer agreed to acquire Guardian Laboratories, Inc., the
company which supposedly had rights to the pill in the form of a patent
pending. The statement further indicated that the issuer agreed to issue
500,000 shares of its stock in consideration thereof. Successor management
of the issuer has determined from the transfer records that such stock was
in fact issued, but can find no evidence that the issuer ever received
anything in consideration of such issuance. The Board of Directors has
therefore decided to treat such stock as cancellable for lack of
consideration and has placed stop transfer orders with the transfer agent
to prevent any attempted transfer of such stock. The issuer also notified
the recipient of the action taken and instructed him to return the
certificate for cancellation. The issuer received a response which
disputed the issuer's position, but no further action has been taken by
either party in regard to the matter.
-9-
Item 2. Changes in Securities
No changes in securities occurred in the third quarter of 1996 covered
by this report.
Item 3. Defaults upon Senior Securities
All of the issuer's liabilities are classified as current because they
mature currently or are already past due. The issuer is in default with
respect to its principal outstanding liability. This liability is the
secured indebtedness to Joseph Associates of Greeley, Inc. This item,
including accrued interest, comprise approximately 95% of the issuer's total
liabilities. In its present financial condition, the issuer is not able to
pay off this liability or even pay interest which accrues thereon.
Management is therefore attempting to negotiate some restructuring of the
secured indebtedness as a means of curing such default. There is no
assurance management will be able to do this.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the third quarter of 1996
covered by this report. The last meeting of stockholders of Unioil was held
in July, 1983.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the third quarter of the year 1996.
-10-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date 10/30/96 /s/ Charles E. Ayers, Jr.
----------- --------------------------------
Charles E. Ayers, Jr., Chairman,
Chief Executive Officer and Director
Date 10/28/96 /s/ Fred C. Jones
----------- -----------------------------------
Fred C. Jones
Vice President, Secretary and Director