Joseph P. Bartlett
Direct Dial: 310.201.7481
Direct Fax: 310.201.2380
E-Mail: jbartlett@ggfirm.com
File Number: 03471-00017
Document Number: 1482593
August 11, 2005
Via Edgar
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United States Securities and Exchange
Commission
Washington, D.C. 20549-0510
Attn: John Cash
Re: Allis-Chalmers Energy Inc. Form 8-K
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Dear Mr. Cash:
This letter responds to your letter of August 8, 2005, relating to the
Form 8-K filed by Allis-Chalmers Energy, Inc. on August 5, 2005.
Allis-Chalmers intends to file restated financial statements by filing
an amendment to each of its Form 10-Qs and its Form 10-Ks for the affected
periods. Allis-Chalmers intends to file the amended Reports during the next five
business days, and specifically intends to file the amended reports as soon as
practicable after discussing with you this letter and determining whether
additional disclosures should be made in the Reports based upon such
discussions.
Allis-Chalmers believes that the restated financial statements included
in its Form S-1 Registration Statement filed on August 5, 2005, and its
Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, complied with
APB 20, paragraphs 36 and 37. Allis-Chalmers anticipates that its amended
reports will contain similar disclosures and will comply with APB 20, paragraphs
36 and 37.
Allis-Chalmers will address in its Item 9A and Item 4 disclosures for
the amended reports the issues identified in your letter of August 8, 2005. The
disclosure that would be included in the Company's Form 10-K/A-2 is attached
hereto for your review.
Allis-Chalmers acknowledges that:
o The Company is responsible for the adequacy and accuracy of
the disclosure in its filings;
o Staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any
action with respect to the filing; and
GREENBERG GLUSKER FIELDS CLAMAN
MACHTINGER & KINSELLA LLP
United States Securities and Exchange Commission
Attention: John Cash
August 11, 2005
Page 2
o The Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under
the federal securities laws of the United States.
Should you have any questions or need additional information, please do
not hesitate to contact me.
Very truly yours,
/s/ Joseph P. Bartlett
----------------------
Joseph P. Bartlett
JPB:ss
Enclosures
ITEM 9A - CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES. We maintain disclosure controls and
procedures that are designed to ensure that information required to be disclosed
in our reports under the Securities Exchange Act of 1934, as amended, are
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosures. Our internal control system is designed to provide reasonable
assurance regarding the preparation and fair presentation of published financial
statements. All internal control systems are designed based in part upon certain
assumptions about the likelihood of future events, and, no matter how well
designed, have inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation and may not prevent or detect all
misstatements.
Management including our chief executive officer and our chief financial officer
has evaluated the effectiveness of our "disclosure controls and procedures" (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the
period covered by this Report (the "Evaluation Date"). Management has concluded
that, as of the Evaluation Date, due to the deficiencies described below, the
our controls and procedures over financial reporting were not effective to
enable us to record, process, summarize, and report information required to be
included in our SEC filings within the required time period, and to ensure that
such information is accumulated and communicated to our management, including
our chief executive officer and chief financial accounting officer, to allow
timely decisions regarding required disclosure. As described below, we are
taking steps to remediate the deficiencies in our control over the financial
reporting process.
On August 4, 2005, our Board of Directors, upon the recommendation of the Audit
Committee of our Board of Directors, concluded that our previously issued
financial statements for the periods from July 1, 2003 through March 31, 2005,
were required to be restated to correct the understatement of net income per
share which resulted from a miscalculation of the number of basic and diluted
shares outstanding on a weighted average basis in accordance with SFAS No. 128,
EARNINGS PER SHARE. The deficiency resulted from errors discovered by our
independent accountants on August 1, 2005, while reviewing our financial
statements for the quarter ended June 30, 2005. The major components of the
errors were as follows:
o For all periods involved we had not applied the treasury stock
method of accounting for options and warrants as prescribed in
SFAS No. 128. Specifically, we overstated diluted shares
outstanding because we failed to reduce diluted shares outstanding
by the number of shares that could be purchased with the proceeds
to us from the exercise of dilutive warrants and options.
o In 2003 and 2004, we overstated diluted shares by not correctly
calculating the number of common shares into which our preferred
stock was convertible; by not applying the "if converted" method
of calculating diluted net earnings which requires that dividends
actually paid on preferred stock be added to net income attributed
to common shares in calculating diluted earnings per common share;
and by continuing to report the preferred shares as dilutive after
the preferred shares were converted to common stock on April 2,
2004.
o During the third quarter of 2004, we misstated the number of
common shares outstanding on a weighted average basis due to a
mathematical error in calculating the number of days certain
shares issued during the quarter were outstanding.
In addition, in March 2005, we restated our financial statements for the year
ended December 31, 2003 and for the three quarters ended September 30, 2004,
relating to our acquisition of a 55% interest in our AirComp, LLC subsidiary in
2003. We originally accounted for the formation of AirComp as a joint venture,
but in February 2005, determined that the transaction should have been accounted
for using purchase accounting pursuant to SFAS No. 141, BUSINESS COMBINATIONS
and accounting for the sale of an interest in a subsidiary in accordance with
SAB No. 51.
We have restated our financial statements as set forth in Note __ to the
Consolidated Financial Statements contained in Part __, Item __.
Public Company Accounting Oversight Board ("PCAOB") Auditing Standard No. 2
identifies a number of circumstances that, because of their likely significant
negative effect on internal control over financial reporting, are to be regarded
as at least significant deficiencies as well as strong indicators that a
material weakness exists, including the restatement of previously-issued
financial statements to reflect the correction of a misstatement. Management
evaluated the impact of the restatement of our previously-issued financial
statements on our assessment of our system of internal control and has concluded
that the restatements resulted from the lack of sufficient experienced
accounting personnel resulting in a lack of effective control over the financial
reporting process.
We have implemented a number of actions that we believe address the deficiencies
in our financial reporting process, including the following:
o The addition of experienced accounting personnel with appropriate
experience and qualifications to perform quality review procedures
and to satisfy our financial reporting obligation. During August
2004, we hired a new chief financial officer and in October of
2004 we hired a full-time general counsel. In March 2005, we hired
a certified public accountant as our financial reporting manager
and in July 2005 we hired as chief accounting officer a certified
public accountant who has significant prior experience as a chief
accounting officer of a publicly traded company.
o In the fourth quarter of 2004, we engaged an independent internal
controls consulting firm which is in the process of documenting,
analyzing, identifying and testing our internal controls and
procedures, including our controls over internal financial
reporting.
o Our audit committee dismissed our prior independent auditors in
October 2004 and engaged new independent auditors who we believe
have greater experience with publicly traded companies.
o We are in the process of implementing new accounting software to
facilitate timely and accurate reporting.
CHANGE IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
There were no changes in our internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that
occurred during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting, except as follows:
o In August 2004, we hired a new chief financial officer.
o In October 2004, we hired a full-time general counsel.
o In October 2004, we dismissed our prior independent auditors and
engaged new independent auditors who we believe have greater
experience serving publicly traded companies.
o In the fourth quarter of 2004, we engaged an independent internal
controls consulting firm which is in the process of documenting,
analyzing, identifying and testing internal control. In addition,
we are improving our financial accounting systems by implementing
a more integrated accounting software solution.
o In March 2005, we hired a certified public accountant to be our
financial reporting manager.
o In July 2005, we reassigned our chief accounting officer to
oversee our corporate systems and hired a certified public
accountant who has prior experience as a chief accounting officer
of a publicly traded company to be our chief accounting officer.