SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the fiscal year ended
December 31, 1997 Commission File No. 0-10089
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period from
to .
UNIOIL
(Name of small business Issuer in its charter)
Nevada 93-0782780
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
3817 Carson Avenue, P.O. Box 310 Evans, Colorado 80620
(Address of principal executive offices)
Issuer's telephone number, including area code: (970) 330-6300
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to section 12(g) of the Act:
Common Stock ( $.01 Par Value) 9,441,657
Title of Class Shares outstanding
as of March 31, 1998
Check whether the Issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
Issuer was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
Check if no disclosure of delinquent filers in response to Item 405
of Regulation S-B is contained in this form, and no disclosure will
be contained, to the best of the Issuer's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
The Issuer's revenues for its most recent fiscal year: $1,164,277
The aggregate market value of the voting stock held by
non-affiliates of the registrant is not determinable because of the
lack of market quotations. (See Item 5 herein).
Check whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes X No
None of the following documents is incorporated by reference into
this report: (1) Any annual report to security holders; (2) Any
proxy or information statement; (3) Any prospectus filed pursuant
to Rule 424(b) or (c) under the Securities Act of 1933.
PART I
Item 1. Description of Business
(a) Business Development.
Unioil (the "Issuer" or "Company") was incorporated under the
laws of the State of Nevada on January 16, 1981. The Issuer was
organized to engage in the acquisition of undeveloped oil and gas
leases for purposes of resale, farmout or trading, and to
participate with others in the development of drilling prospects.
The Issuer made an initial public offering of its common stock
during 1981. This offering was made pursuant to a registration
statement under the Securities Act of 1933 filed with the
Securities and Exchange Commission in Washington, D.C.
On August 17, 1984, the Issuer filed a Voluntary Petition for
Reorganization pursuant to Chapter 11 of the United States
Bankruptcy Code with the United States Bankruptcy Court for the
District of Colorado (the "Bankruptcy Court"). The Issuer
continued in the reorganization process until March 23, 1989 when
the Bankruptcy Court issued a Final Decree discharging the Issuer.
Even though the Issuer's Plan of Reorganization had been approved
and confirmed by the Bankruptcy Court in 1985, the Issuer was not
discharged from bankruptcy until 1989 due to continuing legal
proceedings involving the Issuer over which the Bankruptcy Court
needed to retain jurisdiction pending resolution (see "Legal
Proceedings").
The Plan of Reorganization approved by the Bankruptcy Court
had been funded by a secured loan from Joseph Associates, Inc.
("JAI"). All of the Issuer's assets, including its cash and
accounts receivable, were pledged to JAI to secure the indebtedness
owed to it. Because of the Issuer's inability to repay this
indebtedness on schedule, during 1990 JAI, as the mortgagee under
the Mortgage, Security Agreement, Assignment and financing
statements securing these loans, notified the first purchasers of
oil and gas produced from properties in which the Issuer had an
interest to direct all payments of proceeds attributable to the
Issuer's interests directly to JAI because the Issuer had failed to
make payments on the loan as required.
JAI subsequently assigned its position as a secured party with
respect to the Issuer's loan to Joseph Associates of Greeley, Inc.
("JAGI"), an entity controlled by the persons to whom JAI was
indebted. JAGI is now the direct recipient of all production
payments attributable to the Issuer's interests in oil and gas
properties.
(b) Business of Issuer.
Beginning in January, 1982, the Issuer engaged in various
aspects of the oil and gas business primarily involving the
acquisition of interests in oil and gas leases and arrangements to
provide for or participate in the development and operation of such
interests. Prior to its bankruptcy, the Company participated with
other firms and investors in the drilling of numerous oil and gas
wells. The Company sometimes acted as the operator of the wells in
which it participated but all drilling and related work was done
through separate contractors.
The Company's current holdings are located in Colorado and
Wyoming. Soon after filing for bankruptcy protection in August,
1984, all acquisition and drilling activity of the Issuer ceased.
The Issuer participated in the drilling of only one well in 1985,
and has not participated in the drilling of any wells since that
time. During the pendency of the bankruptcy and since its
discharge, the Issuer's business activity has been limited to
continued operation of existing wells drilled on properties it
acquired. In some instances, the Company has re-worked existing
wells to increase production.
However, during 1996 the Company did enter into two agreements
to resume drilling activity in 1997 with respect to the leasehold
interests of the Company and provide financing for such drilling.
In November, 1996 the Company and JAGI entered into an agreement
with Prima Oil & Gas Company ("Prima") pursuant to which the
Company contributed 26 potential drillsites and Prima contributed
another 26 potential drillsites into a drillsite pool. Prima will
act as operator and finance the drilling of the wells, for which it
will be entitled to 100% of the working interest until payout,
after which the working interest will be divided 72.5% to Prima and
27.5% to the Company and JAGI. In addition, 8 potential
recompletion well sites were contributed to this pool, on which
Prima will also act as operator, and at its discretion and sole
cost, recomplete in return for a 72.5% working interest after
recompletion. Upon recompletion, the Company will immediately be
entitled to its working interest share (27.5%) of all production
payments, without waiting for payout. In December, 1996, the
Company entered into an agreement with Duke Energy Financial
Services, Inc. ("Duke Energy") to provide financing for the
drilling and completion costs of wells. Under this agreement, Duke
Energy will provide financing on a reimbursement basis for up to
95% of the Company's working interest costs of drilling and
completing 8 wells which the Company, as operator, considers
capable of producing oil and/or gas in commercial quantities. Duke
Energy will be entitled to repayment of the amounts advanced plus
interest at 1% over prime, through a 95% allocation of the
production payments attributable to the Company's interest in these
wells. The Unioil/Prima agreement has thus far resulted in the
drilling of 21 new wells and the recompletion of 4 wells. The
Unioil/Duke program began in May, 1997, and has now been completed.
This program resulted in the drilling and completion of 8 new oil
and gas wells.
As an operator of and interest holder in a number of producing
oil and gas wells, the Issuer's products consist of unrefined
petroleum products such as crude oil, natural gas and condensates
therefrom. The Issuer is a relatively small producer and its
position in the industry is insignificant. The oil and gas
industry is very competitive and is dominated by a number of large
producers, refiners and retailers. Such companies have
substantially greater resources and expertise and significant
competitive advantages over the Issuer. The Issuer's ability to
market its products, and the prices at which it can market them,
are subject to numerous factors and conditions existing in the
industry over which the Issuer has no control. Crude oil prices are
determined on worldwide markets and are constantly fluctuating
based on a number of political and economic factors. The Issuer
can only sell its oil to large refineries, oil companies and other
users at whatever the prevailing price in such markets is at the
time. Also, natural gas is generally sold to a gas processing
company that has pipelines and other distribution facilities
sufficiently nearby to connect to the wells. If no such facilities
exist, a well may be shut-in even though capable of production.
However, none of the gas producing wells in which the Issuer has an
interest is presently shut-in. Presently the Issuer does have gas
and oil contracts in place for all the output from the wells in
which the Issuer has an interest.
Item 2. Properties
(a) The Company's principal business offices are located at
3817 Carson Avenue, P.O. Box 310, Evans, Colorado 80620. The
Company currently leases these offices on a month to month basis,
with monthly payments of $1,000. The building contains about 6,300
square feet of improved space of which about 2,500 square feet is
presently utilized by the Company for its offices. The Company's
other property and equipment (other than oil and gas properties) is
comprised principally of equipment used in the field in connection
with oil and gas exploration and production activities.
Reserves and Other Information
Information regarding oil and gas reserves and the present
value of estimated future net revenues is set forth as supplemental
information in the financial statements attached hereto.
Quantities of estimated net reserves of crude oil and natural
gas for the Company's properties and for its interest in those
properties as of January 1, 1998, are presented in summary form
below:
Crude Oil Natural Gas
Proved Developed/Prod. Reserves 281,168 2,651,104
Proved Developed/Nonprod. Reserves 31,254 318,173
Proved Undeveloped Reserves 1,359,979 20,550,128
Total Reserves 1,672,401 23,519,405
Proved undeveloped reserves will only be recognized through
substantial drilling in future years. No assurance is given that
any such development will take place.
Natural gas volumes are expressed at standard conditions of
temperature and pressure applicable in the area where the reserves
are located. Condensate reserves estimated are those obtained from
normal separator recovery. Crude oil and natural gas liquids are
stated as standard barrels of 42 U.S. gallons per barrel.
Value of net proved reserves is expressed in terms of
estimated future net revenue and present value of future net
revenue. Future net revenue is calculated by deducting estimated
operating expenses, future development costs, and severance, ad
valorem, and windfall profit taxes from the future gross revenue.
Present value of future net revenue is calculated by discounting
the future net revenue at the arbitrary rate of 10 percent per year
compounded monthly over the expected period of realization. Present
value, as expressed herein, should not be construed as fair market
value since no consideration has been given to many factors which
influence the prices at which petroleum properties are traded, such
as taxes on operating profits, allowance for return on the
investment, and normal risks incident to the oil business.
Prices for crude oil, natural gas liquids, and natural gas
effective in December, 1997 reflect the posted prices in the Rocky
Mountain Region on December 31, 1997. Current average operating
costs are used in estimating future costs required to operate the
properties. Estimated future net revenue and net present value of
the Company's revenues from estimated production of proved
reserves, are as follows:
10% Disc.
Future Net Future Net
Revenue Revenue
Proved Developed/Prod. Reserves 7,156,534 4,099,595
Proved Developed/Nonprod. Reserves 410,988 290,647
Proved Undeveloped Reserves 14,417,945 3,620,597
Total Reserves 21,985,467 8,010,839
Reserves Reported to Other Agencies
The Issuer has filed its reserve report with the Department of
Energy for their annual oil and gas survey and has not filed or
reported reserve information to any other federal authority or
agency since the beginning of the last fiscal year.
Drilling Activity
The Company did not participate in any drilling activity from
1985 through 1996. However, during 1996 the Company did enter into
two agreements to resume drilling activity in 1997 with respect to
the leasehold interests of the Company and provide financing for
such drilling. In November, 1996 the Company and JAGI entered into
an agreement with Prima Oil & Gas Company ("Prima") pursuant to
which the Company contributed 26 potential drillsites and Prima
contributed another 26 potential drillsites into a drillsite pool.
Prima will act as operator and finance the drilling of the wells,
for which it will be entitled to 100% of the working interest until
payout, after which the working interest will be divided 72.5% to
Prima and 27.5% to the Company and JAGI. In addition, 8 potential
recompletion well sites were contributed to this pool, on which
Prima will also act as operator, and at its discretion and sole
cost, recomplete in return for a 72.5% working interest after
recompletion. Upon recompletion, the Company will immediately be
entitled to its working interest share (27.5%) of all production
payments, without waiting for payout. In December, 1996, the
Company entered into an agreement with Duke Energy Financial
Services, Inc. ("Duke Energy") to provide financing for the
drilling and completion costs of wells. Under this agreement, Duke
Energy will provide financing on a reimbursement basis for up to
95% of the Company's working interest costs of drilling and
completing 8 wells which the Company, as operator, considers
capable of producing oil and/or gas in commercial quantities. Duke
Energy will be entitled to repayment of the amounts advanced plus
interest at 1% over prime, through a 95% allocation of the
production payments attributable to the Company's interest in these
wells.
Productive Wells and Acreage
The total gross and net wells, expressed separately for oil
and gas, and the total gross and net developed acres as of January
1, 1998 are as follows:
Geographic Area Productive Wells Developed Acres
Gross Net Gross Net
Oil Gas Oil Gas Oil Gas Oil Gas
Colorado 71 0 48.5 0 2,840 0 1,940 0
Wyoming 6 0 4.2 0 240 0 240 0
Wells that produce both oil and gas are treated as oil wells
herein. Of the 71 gross wells in Colorado, 66 are producing oil
and gas and five are oil wells only.
Undeveloped Acreage
At December 31, 1997, the Company held interests in 8,210
gross (7,386.84 net) undeveloped acres in the United States, as
summarized below:
Geographic Area Gross Acres Net Acres
Colorado 7,370 6,703.34
Wyoming 840 683.5
All the acreage shown is held by production from the Issuer's
presently producing wells.
Production
The following table sets forth, by geographic area, for the
fiscal years 1997, 1996, and 1995: 1) the Issuer's portion of the
net quantities of oil in barrels, and gas in thousand cubic feet
(MCF), produced from properties in which the Issuer had an
interest; 2) the average sales price per barrel of oil and MCF of
gas shown separately; and 3 ) the average lifting cost per unit of
production of oil and gas shown together on an equivalent basis.
The unit of production for purposes of averaging costs is barrels.
MCF of gas is converted to barrels at the rate of 6 to 1.
1997 1996 1995
Oil Gas Oil Gas Oil Gas
1) Net Quantities
Wyoming 11,663 5,546 10,162 1,713 6,991 0
Colorado 37,607 383,572 8,325 44,003 9,358 35,527
2) Average
Sales Price:
Wyoming $18.12 $1.89 $20.27 $3.74 $15.05 $0
Colorado $17.64 $2.12 $20.28 $1.76 $16.73 $1.35
3) Average 1997 1996 1995
Lifting Cost: Barrels Barrels Barrels
Wyoming $7.44 $10.90 $12.49
Colorado $5.69 $22.94 $24.00
Present Activities
The Unioil/Prima agreement has thus far resulted in the
drilling of 21 new wells and the recompletion of 4 wells. The
Unioil/Duke program began in May, 1997, and has now been completed.
This program resulted in the drilling and completion of 8 new oil
and gas wells.
(b) Investment Policies.
The Issuer does not have any policy with respect to
investments in real estate or interests in real estate, real estate
mortgages, securities of or interests in persons primarily engaged
in real estate activities, except for its investments in oil and
gas producing properties and undeveloped acreage which is a
necessary incident to its oil and gas producing business. With
respect to such properties, the Issuer's general policy is to hold
the properties for present production as well as possible future
exploration, development and production.
(c) Description of Real Estate Operating Data.
The Issuer's real property interests consist of oil and gas
leasehold interests in a number of producing oil and gas wells and
adjacent acreage. Detailed operating data regarding such
properties, which account for all of the Issuer's operations, is
contained in the preceding section of this report as well as in the
financial statements and the supplemental information regarding oil
and gas producing activities included with such statements.
Item 3. Legal Proceedings.
The following discussion outlines the current status of the
legal proceedings involving the Issuer which are still pending or
were pending at any time during the fiscal year covered by this
report.
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 in the
future after it has complied with the filing requirements over a
reasonable period of time. 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 had 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.
2. As part of the Corporation's First Amended Plan of
Reorganization approved by the U.S. Bankruptcy Court for the
District of Colorado in September, 1985, Joseph Associates, Inc.
("JAI") was granted a first mortgage and lien against all of the
assets of the Corporation except properties in Yuma County,
Colorado, to secure loans which eventually totalled more than $5
million. By letter dated May 15, 1990, JAI as the mortgagee under
the Mortgage, Security Agreement, Assignment and financing
statements securing those loans, notified the first purchasers of
oil and gas from the Corporation that they were to direct all
payments of proceeds attributable to the Corporation's interests to
JAI because the Corporation had failed to make payments on those
loans. Thereafter, such proceeds were paid to the order of JAI.
By assignment dated July 1, 1990, JAI transferred all of its
right, title and interest in and to the Mortgage, Security
Agreement, Assignment and Financing Statement and the collateral
securing that Mortgage and the Promissory Note to Joseph Associates
of Greeley, Inc. ("JAGI"). All payments of oil and gas proceeds
which were previously sent to JAI have been and are being sent to
JAGI.
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
extinquish the claims of other creditors, as a means of inducing
such creditors to settle their claims on a reasonable basis or have
them extinquished. Management believes that such action directly
resulted in settlement during 1994 of all the remaining judgments
against the Issuer. The action was formally dismissed without
prejudice on February 10, 1995, as a result of a settlement between
the Company and the taxing authorities of Laramie County, Wyoming
resolving outstanding tax liens and accrued interest in excess of
$500,000.
JAGI has, as of the date hereof, taken no further action to
foreclose on its Mortgage or to assert any rights under that
Mortgage.
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 fourth quarter
of the fiscal year covered by this report. The last meeting of
stockholders of the Company was held in July, 1983.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
(a) Market information.
At the time of the Issuer's bankruptcy filing in August of
1984, the Issuer's common stock was traded in the over-the-counter
market, was quoted on NASDAQ and was also listed on the Boston
Stock Exchange. Following the bankruptcy filing, trading activity
gradually declined to the point where quotation or listing of the
stock was discontinued. During the past two years, no systematic
quotations of the Issuer's stock have been available, to the best
of present management's knowledge.
(b) Holders.
The approximate number of record holders of the Issuers common
stock as of March 31, 1998 is 2,103.
(c) Dividends.
The Issuer has not yet paid any cash dividends to date and
does not anticipate or contemplate paying dividends in the
foreseeable future. It is the present intention of management to
utilize all available funds for the development of the Issuer's
business. There are no restrictions that limit the ability to pay
dividends on common equity or that are likely to do so in the
future, other than the restrictions imposed by law. Under Nevada
corporate law, no dividends or other distributions may be made
which would render the Issuer insolvent or reduce assets to less
than the sum of its liabilities plus the amount needed to satisfy
outstanding liquidation preferences.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources. At December 31, 1997, the
Issuer was insolvent; liabilities greatly exceed assets, and
revenues from operations were insufficient to discharge liabilities
or even pay interest accruing thereon. In such financial
condition, the Issuer cannot raise additional funds to meet such
commitments. The Issuer has been able to continue operations only
because Joseph Associates of Greeley, Inc. ("JAGI"), whose secured
position has priority over all other creditors of the Issuer, 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.
The principal remaining indebtedness of the Company is the
secured debt owed to JAGI. With the interest that has been accrued
each year, this debt is now in excess of $13 million. Management
of the Company and JAGI intend to work out some restructuring of
this debt; however, at December 31, 1997 and as of the date hereof,
the debt has not been restructured and remains on the books. There
is no assurance the Company will be able to work out an affordable
restructuring of this debt. The Company was able to fund
settlements of its judgment liabilities with a portion of the
proceeds available to the Company from a $350,000 loan plus an
additional $350,000 line of credit it obtained from a local bank in
1994. The Company used approximately $287,500 of these proceeds to
make cash payments in settlement of outstanding judgment
liabilities.
Results of Operations. Due to its bankruptcy and adverse
financial condition the Issuer did not engage in drilling any new
wells or acquiring any additional properties from 1985 through
1996. Operations of the Issuer were limited to continued operation
of wells previously drilled on properties already acquired.
However, during 1996 the Company did enter into two agreements
to resume drilling activity in 1997 with respect to the leasehold
interests of the Company and provide financing for such drilling.
One of these agreements has thus far resulted in the drilling of 21
new wells and the recompletion of 4 wells. The other program began
in May, 1997, and has now been completed. This program resulted in
the drilling and completion of 8 new oil and gas wells.
The Issuer has continued to incur net losses due primarily to
interest expenses. After netting interest income and expense,
which includes an annual accrual of $579,096 of interest expense on
the secured debt owed to JAGI, the Company's net loss was
$(400,408) in 1997 compared to $(435,302) in 1996.
However, the Company's actual results from operations have
improved significantly during the last fiscal year compared to the
preceding fiscal year. The Company had operating income of
$260,105 in 1997, compared to an operating loss of $(5,350) in
1996. This resulted from an increase in total revenues to
$1,164,277 in 1997, which almost doubled compared to total revenues
of $653,878 in 1996. The increase is primarily the result of the
resumption of drilling activity in 1997. With the Company having
been able to enter into agreements providing for drilling activity
to resume with respect to the Company's leasehold interests,
management is hopeful the Company's results of operations will
continue to improve; however, there is absolutely no assurance of
this.
Item 7. Financial Statements and Supplemental Data.
See attached Financial Statements and Schedules.
Item 8. Disagreements on Accounting and Financial Disclosure.
There are not and have not been any disagreements between the
Issuer and any of the accountants on any matter of accounting
principles or practices or financial statement disclosure.
PART III
Item 9. Directors and Executive Officers of the Issuer.
(a) Identification of Directors.
The current directors of the Issuer, who will serve until the
next annual meeting or until their successors are elected or
appointed and qualified, are set forth in the following table:
Term Served Positions
Name of Director Age As Director With Company
Charles E. Ayers, Jr. 53 July, 1990 Chairman & CEO
Fred C. Jones 60 May, 1991 Vice President/
Secretary & Director
Richard C. Zelnar 50 December, 1993 Director
(b) Identification of Executive Officers.
None other than the persons previously identified.
(c) Significant Employees.
None other than the persons previously identified.
(d) Family Relationships.
None.
(e) Business Experience.
(1) Background.
Charles E. Ayers, Jr. was admitted to the bar in 1974. He
attended Virginia Polytechnic Institute and State University and
Virginia Commonwealth University where he received a B.S. in
accounting in 1971. Mr. Ayers received his Juris Doctorate from
the University of Richmond in 1974. He was counsel to the Senate
Finance and Rules Committees, 1974 Session, of the Virginia
Legislature, member of the Richmond and American Bar Associations;
Virginia State Bar and Federal Bar; Virginia Trial Lawyers
Association; and was an officer in the United States Army from 1966
to 1969 serving one tour of duty in Vietnam. In 1982 he founded
the law firm which is now known as Ayers & Stolte, P.C.
Fred C. Jones is a graduate of Kemper College and has attended
both the University of Washington and Western Kentucky University
in courses related to business and management. Since joining the
company in January, 1985, he has been Administrative Land Manager
and since 1986, Operations Manager. Since the election of the
company's new Board of Directors in July, 1990, he has been Vice
President and Director of Operations and in May 1991, he was
elected to serve as Secretary and on the Board of Directors. From
1979 to 1984 he was an independent landman and consultant for major
and independent oil and gas, mining and geothermal companies. From
1964 to 1978 he served in management capacities for several
wholesale, retail and marketing companies, including four years as
President and General Manager. From 1959 to 1964 he was District
Manager of Husky Oil Company for marketing and land management.
Richard C. Zelnar graduated with a B.A. Degree in 1973 from
Florida International University where he also completed one and
one half years of graduate work in Business Administration. He is
presently President and Chief Executive Officer of Consolidated
Aviation Services, Inc. and Consolidated Capital Planning, Inc.
From 1968 to 1976, he worked for Knight Ridder Newspapers, Inc. in
various staff management positions in marketing and economic
analysis. Mr. Zelnar has invested several million dollar in oil
and gas exploration and development drilling operations in the
Anadarko and Appalachian basins.
(2) Directorships.
None of the Issuer's directors nor any person nominated or
chosen to become a director holds any directorships in any other
company with a class of securities registered pursuant to Section
12 of the Exchange Act or subject to the requirements of Section
15(d) of such Act or any company registered as an investment
company under the Investment Company Act of 1940.
(f) Involvement in Certain Legal Proceedings.
As of the date of filing this report, no present officer or
director of the Issuer; 1) has had any petition filed, within the
past five years, in Federal Bankruptcy or state insolvency
proceedings on such person's behalf or on behalf of any entity of
which such person was an officer or general partner within two
years of filing; or 2) has been convicted in a criminal proceeding
within the past five years or is currently a named subject of a
pending criminal proceeding; or 3) has been the subject, within the
past five years, of any order, judgment, decree or finding (not
subsequently reversed, suspended or vacated) of any court or
regulatory authority involving violation of securities or
commodities laws, or barring, suspending, enjoining or limiting any
activity relating to securities, commodities or other business
practice.
Compliance with Section 16(a) of the Exchange Act
The Issuer is not aware of any transactions in its outstanding
securities by or on behalf of any director, executive officer or
ten percent holder, which would require the filing of any report
pursuant to Section 16(a) during the fiscal year ended December 31,
1997, that was not filed with the Issuer.
Item 10. Executive Compensation.
(a) Cash Compensation.
The Issuer's Chief Executive Officer is Charles E. Ayers, Jr.
Mr. Ayers has not been compensated for management or director
services to the Company to date. Mr. Ayers is an attorney in the
law firm of Ayers & Stolte, P.C., and this firm acts as general
counsel to the Issuer and bills for such services at the firm's
usual billing rates. The following table sets forth the amounts
paid as legal fees and costs to such law firm for services rendered
by Mr. Ayers firm during the fiscal years ended December 31, 1997,
1996 and 1995. (See "Certain Relationships and Related
Transactions").
Year Total Cash Compensation
1997 $ 3,325
1996 $ 10,000
1995 $ 12,500
Of the Issuer's other officers or directors, only Fred Jones
and Jamie Hood were employed by the Issuer and received any salary
or wage for services rendered during 1996, 1995 and 1994. None of
these persons individually received annual compensation in excess
of $100,000 in any of these years.
There are presently no on-going plans or arrangements, such as
pension plans or deferred compensation plans, pursuant to which
compensation is paid or proposed to be paid in the future, to any
of the officers and directors of the Issuer, other than standard,
non discriminatory medical expense reimbursement plans for
employees.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
(a) Security Ownership of Certain Beneficial Owners.
The following table sets forth the names, addresses and
security ownership of all persons known to the Issuer to be the
beneficial owner of more than 5% of the Issuer's voting stock.
Name of Positions With Amount and Nature Percent
Owner Company of Ownership Owned
Charles E. Ayers, Jr. Director & 3,000,000 shares 31.8%
710 N. Hamilton St. Stockholder
Richmond, VA 23230
The foregoing amounts reflect all shares each person would be
deemed a beneficial owner of, regardless of the form of ownership.
666,667 of the shares shown for Mr. Ayers are owned of record by
immediate family members.
(b) Security Ownership of Management.
The following table indicates the stock ownership of the
Issuer's present directors as well as all present officers and
directors as a group:
Title of Amount and Nature of Percent
Name Class Beneficial Ownership Owned
Charles E. Ayers, Jr. Common 3,000,000 shares 31.8%
Fred C. Jones Common -0- shares 0%
Richard C. Zelnar Common -0- shares 0%
Jamie R. Hood Common -0- shares 0%
All officers and 3,000,000 shares 31.8%
directors as a group
(4 people)
Item 12. Certain Relationships and Related Transactions.
Except as disclosed in this item, in notes to the financial
statements or elsewhere in this report, the Issuer is not aware of
any indebtedness or other transaction in which the amount involved
exceeds $60,000 between the Issuer and any officer, director,
nominee for director, or 5% or greater beneficial owner of the
Issuer or an immediate family member of such person; nor is the
Issuer aware of any relationship in which a director or nominee for
director of the Issuer was also an officer, director, nominee for
director, greater than 10% equity owner, partner, or member of any
firm or other entity which received from or paid the Issuer, for
property or services, amounts exceeding 5% of the gross annual
revenues or total assets of the Issuer or such other firm or
entity.
As previously mentioned, the Issuer's plan of reorganization
in bankruptcy was funded by a secured loan from Joseph Associates,
Inc. The secured interest has been assigned to Joseph Associates
of Greeley, Inc. These entities are affiliated with the Issuer
through common controlling ownership. During 1997, $579,096 of
interest was accrued on this debt, bringing the total accrued
interest at December 31, 1997 to $8,675,338. 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.
Also as previously mentioned, the Issuer was able to settle
the remaining outstanding judgments against it during 1994 by
obtaining $700,000 in loans and lines of credit, and using the cash
available to it from such loans and lines of credit to make
settlement offers that included substantial payments of cash, which
the remaining judgment creditors accepted. The Issuer obtained a
$350,000 loan by pledging its Colorado properties to secure such
obligation. As part of that arrangement, JAGI agreed to
subordinate its secured interest in such properties. In order to
obtain the other $350,000 line of credit, the bank required
$350,000 in Certificates of Deposit as collateral, as well as the
personal guarantee of Charles E. Ayers, Jr. the current Chief
Executive Officer and Chairman of the Board of Directors of the
Issuer. These Certificates of Deposit funds were provided by an
affiliate, JAGI Capital Group, Inc. (the "Capital Group"), an
entity of which a member of management, Richard C. Zelnar, is an
owner. As part of these transactions, the Capital Group entered
into an agreement with the Company pursuant to which the Company
paid $35,000 to the Capital Group at closing, and will pay interest
in an amount equal to the difference between the yield on the
Certificates of Deposit and an 11% rate of return the first year,
and 14% the second year. Also, the Company agreed to give the
Capital Group a one quarter of one percent overriding royalty
interest in all wells it drills on undeveloped acreage, and
increase the interest to one half of one percent if the loan is
extended for a second year. In addition, the Company agreed to
pledge its Wyoming properties to secure this obligation. In the
event the Company defaulted under this agreement, the Capital Group
had the right to receive the income from the Wyoming properties
until the Certificates of Deposit are released by the bank. During
1996, the Capital Group was paid off.
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements examined and reported upon by
Pritchett, Siler & Hardy, Independent Certified Public Accountants,
containing a Balance Sheet at December 31, 1997 and Statements of
Operations, Shareholders' Equity (Deficit) and Cash flows for the
two fiscal years ended December 31, 1997.
2. Financial Statement Schedules
(See index to Financial Statements)
3. Exhibits. None
(b) No reports on Form 8-K have been filed during the last
quarter of the fiscal year ended December 31, 1997.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Issuer has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto
duly authorized.
UNIOIL
Date: April 14, 1998 /s/ Charles E. Ayers, Jr.
Charles E. Ayers, Jr., Chairman
(Chief Executive Officer)
Date: April 14, 1998 /s/ Fred C. Jones
Fred C. Jones, Vice President/Secretary
(Chief Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Issuer and in the capacities and on the dates
indicated.
Date: April 14, 1998 /s/ Charles E. Ayers, Jr.
Charles E. Ayers, Jr., Director
Date: April 14, 1998 /s/ Fred C. Jones
Fred C. Jones, Director
<PAGE>
UNIOIL
FINANCIAL STATEMENTS
DECEMBER 31, 1997
PRITCHETT, SILER & HARDY, P.C.
CERTIFIED PUBLIC ACCOUNTANT
<PAGE>
UNIOIL
CONTENTS
PAGE
- Independent Auditors' Report 1
- Balance Sheet, December 31, 1997 2 - 3
- Statements of Operations, for the years ended
December 31, 1997 and 1996 4
- Statement of Stockholders' Deficit, from
December 31, 1995 through December 31,
1997 5
- Statements of Cash Flows, for the years ended
December 31, 1997 and 1996 6 - 7
- Notes to Financial Statements 8 - 15
- Supplemental Information - Unaudited 16 - 21
<PAGE>
PRITCHETT, SILER & HARDY, P.C.
430 East 400 South
Salt Lake City, Utah 84111
(801) 328-2727
INDEPENDENT AUDITORS' REPORT
Board of Directors
UNIOIL
Evans, Colorado
We have audited the accompanying balance sheet of Unioil at December 31,
1997 and the related statements of operations, stockholders' deficit and
cash flows for the years ended December 31, 1997 and 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements audited by us present fairly, in
all material respects, the financial position of Unioil as of December 31,
1997 and the results of its operations and its cash flows for the years
ended December 31, 1997 and 1996, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has suffered losses from operations, has
a net capital deficiency, has unresolved contingencies and has
uncertainties related to the realization of assets, raising substantial
doubt about its ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 11. The financial
statements do not include any adjustments that might result from the
outcome of these uncertainties.
/s/ Pritchett, Siler & Hardy, P.C.
March 3, 1998
<PAGE>
UNIOIL
BALANCE SHEET
ASSETS
December 31,
1997
____________
CURRENT ASSETS:
Cash $ 130,830
Joint interest and trade accounts receivable,
net of allowance for doubtful accounts of
$266,126 at 1997 160,572
Other current assets 4,058
____________
Total Current Assets 295,460
PROPERTY AND EQUIPMENT, net 4,243
INVESTMENT IN OIL AND GAS PRODUCING
PROPERTIES, full cost method, net of depletion 5,226,259
OTHER ASSETS 2,152
____________
TOTAL ASSETS $ 5,528,114
____________
The accompanying notes are an integral part of this financial statement.
-2-
<PAGE>
UNIOIL
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' DEFICIT
December 31,
1997
____________
CURRENT LIABILITIES:
Note payable $ 1,301,185
Accounts payable 89,598
Joint interest accounts payable 2,952
Line of credit 350,000
Notes payable - related party 5,791,000
Interest payable - related parties 8,675,338
Other current liabilities 279,222
____________
Total Current Liabilities 16,489,295
CONTINGENCIES [See Notes 8 and 10] -
____________
Total Liabilities 16,489,295
____________
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value,
100,000,000 shares authorized,
9,441,657 shares issued and
outstanding at 1997 94,417
Capital in excess of par value 4,062,519
Retained deficit (15,118,117)
____________
Total Stockholders' Deficit (10,961,181)
____________
TOTAL LIABILITIES AND STOCK-
HOLDERS' DEFICIT $ 5,528,114
____________
The accompanying notes are an integral part of this financial statement
-3-
<PAGE>
UNIOIL
STATEMENTS OF OPERATIONS
For The Years Ended
December 31
______________________
1997 1996
___________ _________
REVENUE:
Oil and gas sales $ 1,132,848 $ 621,174
Income from serving as operator 31,429 32,704
___________ __________
Total Revenue 1,164,277 653,878
___________ __________
EXPENSES:
Production costs and related taxes 284,514 271,304
General and administrative 236,479 208,302
Depreciation, depletion and amortization 383,179 179,622
___________ _________
Total Expenses 904,172 659,228
___________ _________
OPERATING INCOME (LOSS) 260,105 (5,350)
___________ _________
OTHER INCOME (EXPENSE):
Interest income and other 28,417 217,490
Interest expense - related party (579,096) (579,096)
Interest expense - other (115,067) (70,846)
Gain on disposal of asset 5,233 2,500
___________ _________
(660,513) (429,952)
___________ _________
LOSS FROM OPERATIONS BEFORE INCOME
TAXES AND EXTRAORDINARY ITEMS (400,408) (435,302)
CURRENT TAX EXPENSE - -
DEFERRED TAX EXPENSE - -
___________ _________
LOSS FROM OPERATIONS BEFORE
EXTRAORDINARY ITEMS: (400,408) (435,302)
EXTRAORDINARY ITEMS:
Gain on discharge of debt obligations
(No tax effect) - 10,972
___________ __________
NET INCOME (LOSS) $(400,408) $(424,330)
___________ __________
INCOME (LOSS) PER SHARE:
Loss before extraordinary item $ (.04) $ (.05)
Extraordinary items - -
___________ __________
Income (Loss) Per Share $ (.04) $ (.05)
___________ __________
The accompanying notes are an integral part of these financial statements
-4-
<PAGE>
UNIOIL
STATEMENT OF STOCKHOLDERS' DEFICIT
FROM DECEMBER 31, 1995 THROUGH
DECEMBER 31, 1997
Common Stock Capital in
__________________ Excess of Retained
Shares Amount Par Value Deficit Total
_________ _______ ________ ___________ __________
BALANCE,
December 31, 1995 9,441,657 $94,417 $4,062,519 $(14,293,379) $(10,136,443)
Net loss for the
year ended
December 31, 1996 - - - (424,330) (424,330)
________ _______ _________ ___________ _________
BALANCE,
December 31, 1996 9,441,657 $94,417 $4,062,519 $(14,717,709) $(10,560,773)
Net loss for the
year ended
December 31, 1997 - - - (400,408) (400,408)
_________ ______ ________ _________ _________
BALANCE,
December 31, 1997 9,441,657 $94,417 $4,062,519 $(15,118,117) $(10,961,181)
________ ______ _________ _________ __________
The accompanying notes are an integral part of these financial statements
-5-
<PAGE>
UNIOIL
STATEMENTS OF CASH FLOWS
Net Increase (Decrease) in Cash
For The Years Ended
December 31
_______________________
1997 1996
___________ __________
Cash Flows From Operating Activities:
Net income (loss) $ (400,408) $ (424,330)
__________ __________
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
(Gain) loss on disposal of property (5,233) (2,500)
Gain on discharge of debt - (10,972)
Depreciation, depletion and amortization 383,179 130,072
Deferred loan costs amortization - 49,550
Bad debt expense 39,893 11,408
Changes in assets and liabilities:
(Increase) decrease in joint interest
and trade receivables (75,986) (45,500)
(Increase) decrease in other current assets (496) 1,065
Increase (decrease) in accounts payable (13,673) (199)
Increase (decrease) in joint interest
accounts payable (2,365) (8,994)
Increase in interest payable 579,096 579,096
Increase (decrease) in other current
liabilities 81,810 3,035
___________ ___________
Total Adjustments 986,225 706,061
___________ ___________
Net Cash Provided by Operating
Activities 585,817 281,731
___________ ___________
Cash Flows From Investing Activities:
Purchase of property and equipment (2,075) (3,360)
Proceeds from sale of property and equipment 5,233 2,500
Additions to oil and gas full cost pool (1,881,216) (320)
Dispositions of oil and gas property 3,000 -
___________ ___________
Net Cash Provided (Used) by
Investing Activities (1,875,058) (1,180)
___________ ___________
Cash Flows From Financing Activities:
Proceeds from line of credit - 126,700
Payments for notes payable (421,090) (350,000)
Proceeds from notes payable 1,722,275 -
___________ ___________
Net Cash Provided (Used) by
Financing Activities 1,301,185 (223,300)
___________ ___________
[Continued]
-6-
<PAGE>
UNIOIL
STATEMENTS OF CASH FLOWS [Continued]
Net Increase (Decrease) in Cash
For The Years Ended
December 31
_______________________
1997 1996
___________ ___________
Net Increase (Decrease) in Cash 11,944 57,251
Cash at Beginning of Year 118,886 61,635
___________ ___________
Cash at End of Year $ 130,830 $ 118,886
___________ ___________
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period:
Interest $ 34,395 $ 79,660
___________ ___________
Income taxes $ - $ -
___________ ___________
Supplemental Schedule of Noncash Investing and Financing Activities:
For the Year Ended December 31, 1997:
The Company disposed of old fully depreciated equipment in the amount
of $6,044.
A creditor of the Company directly received oil and gas revenues in
the amount of $501,762 as payment of principal ($421,090) and
interest ($80,672) on the Company's debt.
For the Year Ended December 31, 1996:
The Company disposed of old fully depreciated equipment in the amount
of $7,675.
The accompanying notes are an integral part of these financial statements
-7-
<PAGE>
UNIOIL
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - The Company is engaged in oil and gas exploration,
development and production activities on its own behalf and as an operator
for others. The Company is incorporated under the laws of the State of
Nevada. The Company completed a sale of its common stock to the public in
December, 1981. During 1984, the Company filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code. In connection
with the reorganization process, control of the Company changed hands and
new management was installed during 1985. The Company emerged from the
reorganization during 1989. During 1990, control of the Company and
management changed again. During 1997 the Company commenced new drilling
activities and completed eight new wells.
Property and Equipment - Property and equipment are recorded at cost which
is depreciated over the estimated useful lives of the related assets.
Depreciation is computed using the straight-line method for financial
reporting purposes and with accelerated methods for income tax purposes.
The useful lives of property and equipment for purposes of financial
reporting range from four to ten years.
Oil and Gas Properties - Oil and gas properties are accounted for on the
full cost method, whereby all costs associated with acquisition,
exploration and development of oil and gas properties are capitalized on a
country-by-country, cost center basis. All oil and gas revenues are
derived from reserves located in northern Colorado and southern Wyoming.
Amortization of such costs is determined by the ratio of current period
production to estimated proved reserves. Estimated proved reserves are
based upon reports from petroleum engineers. The net carrying value of
oil and gas properties is limited to the lower of amortized costs or the
cost center ceiling defined as the sum of the present value [10% discount
rate] of estimated, unescalated future net cash flows from proved reserves,
plus the lower of cost or estimated fair value of unproved properties,
giving effect to income taxes.
Income (Loss) Per Share - Effective for the year ended December 31, 1997
the Company adopted Statement of Financial Accounting Standards (SFAS) No.
128 "Earnings Per Share," which requires the Company to present basic
earnings per share and dilutive earning per share when the effect is
dilutive. There was no effect on the financial statements for the change
in accounting principle. [See Note 13]
Cash Flow Statement - For purposes of the statements of cash flows, the
Company considers all highly liquid debt investments purchased with a
maturity of three months or less to be cash equivalents.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" which requires the liability approach for the effect of income taxes.
Deferred Loan Costs - Expenses in the amount of $108,109 associated with
obtaining a line of credit and a note payable were incurred during 1994.
These costs were deferred and amortized using the straight-line method
over the life of the loans. [See Note 6]
Revenue Recognition - The Company's revenue comes primarily from the sale
of oil and gas. Revenue from oil and gas sales is recognized when the
product is transferred to the purchaser.
-8-
<PAGE>
UNIOIL
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less
accumulated depreciation as of December 31:
1997 1996
___________ ___________
Shop tools and equipment $ 21,112 $ 21,112
Furniture and fixtures 24,440 23,244
Transportation equipment 4,003 4,003
Leasehold improvements - 5,165
___________ ___________
49,555 53,524
Less: accumulated depreciation (45,312) (50,388)
___________ ___________
Total $ 4,243 $ 3,136
___________ ___________
All property and equipment of the Company is collateral for the related
party note payable to Joseph Associates of Greeley, Inc. [See Note 8].
Depreciation expense for the years ended December 31, 1997 and 1996
amounted to $969 and $768, respectively.
NOTE 3 - OIL AND GAS ACTIVITIES
During the past several years the Company's activities have primarily
consisted of operating existing wells and monitoring the status of its
leases. During 1996 and into 1997 the Company has been negotiating and
working towards a drilling program to complete and bring new wells into
production. In this connection the company has entered into agreements
with Prima Oil and Gas Company and also with Duke Energy Financial
Services, Inc. Depletion expense on oil and gas properties was $382,210
and $129,305 for 1997 and 1996.
Prima Oil and Gas Company - During November, 1996 the Company entered into
an agreement with Prima Oil and Gas ["Prima"] wherein the Company and Prima
both agreed to contribute certain properties into a drilling pool of
properties to be drilled by Prima. The Company and Prima each transferred
equivalent numbers and types of properties into the pool. Prima is paying
all the costs of drilling, completing, equipping, and operating the wells
until payout occurs. Accordingly, Prima shall receive 100% of the Net
Revenue Working Interest until such time as Prima recovers all of its
actual costs of drilling, completing, equipping and operating the wells.
Unioil will receive an after payout working interest of 27.5%. There was
no change to the Company's capitalized costs in its full cost pool as a
result of this transaction.
Duke Energy Financial Services, Inc. - During 1997 the Company entered
into a borrowing arrangement with Duke Energy Financial Services, Inc.
(formerly known as PanEnergy Financial Services, Ind.) ["Duke"] wherein
Duke advanced $1,722,275 for the drilling and completion of eight wells
for the Company. The Company also entered into an amended Gas Purchasing
and Processing Agreement with an affiliate of Duke (formerly PanEnergy
Field Services, Inc.). Pursuant to the gas purchasing agreement, Duke
purchases substantially all of the Company's gas produced in Colorado at
prices which management believes are
-9-
<PAGE>
UNIOIL
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - OIL AND GAS ACTIVITIES (continued)
competitive in the industry. The agreements provide for Duke to directly
receive (or retain) 95% of the production proceeds from the eight newly
completed wells as payment of principal and interest. In addition to
receiving the production proceeds Duke has also received a security
interest in the subject wells and underlying leases. The Company receives
5% from each well and also receives $4,500 per well for lease operating
expenses.
NOTE 4 - LINE OF CREDIT
During November of 1994, the Company obtained a $350,000 line of credit
from a bank. As of December 31, 1997 the Company had total borrowings of
$350,000 against the line of credit, which is currently bearing interest
at 9.75%, maturing in June of 1998 and is collateralized by a first lien
on the Company's Colorado oil and gas properties.
NOTE 5 - NOTES PAYABLE - RELATED PARTY
The following is a summary of notes payable as of December 31 to related
parties:
1997
____________
Note payable to related corporation, currently
in default, interest accruing at 19% per annum
through December, 1991, 10% thereafter, secured
by substantially all the Company's assets,
including interests in oil and gas wells
[See Note 8]. $5,791,000
____________
NOTE 6 - NOTES PAYABLE
During 1997 the Company borrowed $1,722,275 from Duke Energy ["Duke"] to
drill eight new wells. The loan is secured by the production from the
wells. [See Note 3] Duke, who is also the purchaser of all the Company's
natural gas in Colorado, directly takes the revenue from the wells to
service the principal and interest on the loan. At December 31, 1997 the
unpaid balance of the loan was $1,301,185. The promissory note underlying
the agreements provides for the following payment schedule: (a) 45% of the
base amount is due on April 1, 1998, (b) a cumulative 50% is due on April
1, 1999, (c) a cumulative 60% is due on April 1, 2000, (d) a cumulative
90% is due on April 1, 2001, and (e) all remaining principal and interest
is due on April 1, 2002.
During November 1996 the Company paid in full along with interest a note
payable to a bank. The note payable amounted to $350,000 and was
collateralized by a CD in the amount of $350,000 held in the name of JAGI
Capital Group, Inc., a related party, the personal guarantee of an
officer, director and shareholder of the Company and by a second lien on
all of the Company's Colorado oil and gas properties and a first lien on
the Wyoming oil and gas properties. Interest was also being paid to the
JAGI Capital Group at 8.13%, the difference between 14% and the current
yield on the CD's. The balance on the note at December 31, 1995 was
$350,000. The Company deferred the expense of $108,109 in costs associated
with the obtaining of this note payable and a related line of credit.
Amortization expense for the deferred loan costs was $0 and $49,550 in
1997 and 1996, respectively.
-10-
<PAGE>
UNIOIL
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 Accounting for Income Taxes [FASB
109]. FASB 109 requires the Company to provide a net deferred tax asset
or liability equal to the expected future tax benefit or expense of
temporary reporting differences between book and tax accounting and any
available operating loss or tax credit carryforwards. At December 31,
1997 and 1996, respectively, the total of all deferred tax assets was
$6,773,208 and $6,354,609 and the total of the deferred tax liabilities
was $1,751,783 and $1,315,306. The amount of and ultimate realization of
the benefits from the deferred tax assets for income tax purposes is
dependent, in part, upon the tax laws in effect, the Company's future
earnings, and other future events, the effects of which cannot be
determined. Because of the uncertainty surrounding the realization of the
deferred tax assets, the Company has established a valuation allowance of
$5,021,426 and $5,039,303 as of December 31, 1997 and 1996, which has been
offset against the deferred tax assets. The net change in the valuation
allowance during the year ended December 31, 1997, was $17,877.
The Company has available at December 31, 1997, unused tax operating loss
carryforwards of approximately $17,616,189, which may be applied against
future taxable income and expire in various years beginning in 1999
through 2012.
The components of income tax expense from continuing operations for the
years ended December 31, 1997 and 1996 consist of the following:
Year Ended December 31,
_________________________
1997 1996
__________ __________
Current income tax expense:
Federal $ - $ -
State - -
__________ __________
Net current tax expense - -
__________ __________
Deferred tax expense (benefit) arising from:
Excess of tax over financial accounting
depreciation $ (7,662) $ 775
Excess of tax over financial accounting
depletion 444,139 (41,767)
Contribution carryover (21) (99)
Reserve for bad debts (14,870) (4,296)
Capital loss carryforward 154,073 -
Net operating loss carryforwards (557,781) (113,084)
Valuation allowance (17,878) 158,471
__________ __________
Net deferred tax expense $ - $ -
__________ __________
Deferred income tax expense results primarily from the reversal of
temporary timing differences between tax and financial statement income.
There is no portion of current or deferred tax expense that is required to
be allocated to the extraordinary item.
-11-
<PAGE>
UNIOIL
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES [Continued]
A reconciliation of income tax expense at the federal statutory rate to
income tax expense at the Company's effective rate is as follows:
Year Ended December 31,
_________________________
1997 1996
__________ __________
Computed tax at the expected federal
statutory rate 34.00% 34.00%
Capital loss carryforward (38.48) -
Other (8.73) (.01)
State income taxes, net of federal income
tax benefits 3.36 3.36
Valuation allowance 9.85 (37.35)
__________ __________
Effective income tax rates 0.00% 0.00%
__________ __________
The temporary differences gave rise to the following deferred tax asset
(liability) at December 31, 1997 and 1996:
Year Ended December 31,
__________________________
1997 1996
____________ _____________
Excess of tax over book accounting depreciation $ (191,225) $ (198,887)
Excess of tax over book accounting depletion (1,560,558) (1,116,419)
Contribution carryforward 319 299
Reserve for bad debt 99,425 84,555
Capital loss carryover - 154,073
NOL carryforwards 6,581,408 6,023,627
Investment tax credit carryforward 92,056 92,056
The deferred taxes are reflected in the consolidated balance sheet as
follows:
Year Ended December 31,
_________________________
1997 1996
____________ ____________
Short term asset (liability) $ - $ -
Long term asset (liability) $ - $ -
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company has agreed to indemnify its officers and directors against
liability to the extent permissible by law.
The Company serves as operator for various wells and, in that capacity,
receives the sales proceeds from oil and gas purchasers, and pays the
underlying production expenses on behalf of all well interest owners.
The Company has also served as operator on occasional drilling projects
wherein it advanced or collected monies for the drilling of wells.
Pursuant to these receiving and paying activities, at any one time the
Company may owe money to, or have receivables from, the various joint
interest owners. In the past, joint interest owners have included
partnerships and private companies that were affiliated by virtue of
their common control through a former officer of the Company.
-12-
<PAGE>
UNIOIL
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - RELATED PARTY TRANSACTIONS [Continued]
An officer and director of the Company is affiliated with a law firm which
provides legal representation, consultation and other services to the
Company. During 1997, $0 in fees and $3,326 in out of pocket costs were
incurred by the Company to this law firm. During 1996, $10,000 in fees
and $0 in out of pocket costs were incurred by the Company to this law
firm.
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. Under the loan agreement, initial interest of
$156,889 and an origination fee of $150,000 were paid to JA. The loan is
secured by basically all of the assets of the Company, including interests
in oil and gas wells. The loan bears interest at the greater of (1) 19%
per annum or (2) 6% over the prime rate of 90-day commercial loans as
published by Irving Trust Company of New York (subject to the maximum rate
of interest allowed by law). 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 May,
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, since December 31, 1989, all monies received from
oil and gas purchasers is deposited into a checking account controlled by
JA and transferred as needed to accounts owned by the Company to cover
operating expenditures. The same procedure is still in effect at December
31, 1997 except that the rights of JA have transferred from a former
officer of the Company to interests held by certain current officers,
directors and shareholders. Also, interest is being accrued by the
Company at the rate(s) specified above through December, 1991 and at 10%
per annum thereafter. Accrued interest payable on the loan amounts to
$8,675,338 at December 31, 1997 and $8,096,242 at December 31, 1996.
Interest expense accrued on the loan was $579,096 and $579,096 for each of
the years ended December 31, 1997 and 1996. No Interest was paid to JA
for the years ended December 31, 1997 and 1996. Interest continues to be
accrued on the note, but note holders have indicated that they will not
pursue collection of the note in the near future and may be willing to
consider some restructuring of the debt in an attempt to improve the
financial condition of the Company [See Note 11].
At December 31, 1997 and 1996 the Company had a non-interest bearing
accounts payable to JA in the amount of $156,266. The amount originated
from various advances and payments between the two companies in prior
years.
NOTE 9 - CONCENTRATION OF CREDIT RISKS
The Company's operations are located in Northern Colorado and Southern
Wyoming. The Company sells substantially all of its oil production to a
small number of purchasers in the area because it is able to negotiate
more favorable terms with fewer purchasers. Management believes that its
oil is a commodity that is readily marketable and that the marketing
method it follows is typical of similar companies in the industry.
-13-
<PAGE>
UNIOIL
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - CONTINGENCIES AND LITIGATION
Litigation - The Company may become or is subject to investigation, claim
or lawsuits ensuing out of the conduct of its business, including those
related to environmental, safety and health, commercial transactions etc.
The Company is currently not aware of any such items which it believes
could have a material adverse affect on its financial position.
SEC Complaint - On September 28, 1988, the United States Securities and
Exchange Commission [SEC] filed a complaint against the Company and its
former president for allegedly manipulating its common stock price and for
misleading promotions with regards to a proposed product. 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
denied with permission to renew the motion upon substantial compliance.
Management believes that the judgment will ultimately be dismissed as they
demonstrate their ability to file currently required SEC filings.
NOTE 11 - GOING CONCERN
The Company has incurred significant losses during the past several years,
has current liabilities in excess of current assets of $16,193,835 at
December 31, 1997, and has a net stockholders' deficit of $10,961,181 at
December 31, 1997. These items raise substantial doubt about the ability
of the Company to continue as a going concern.
Management's plans in regards to these matters are as follows:
Management has borrowed money and entered into other agreements to
commence a drilling program. Management is hopeful that new wells and
improved revenue streams will assist the Company in restructuring its
operations.
Further, Management is still considering the possible conversion of all or
part of $5,791,000 of notes payable and related accrued interest of
approximately $8,675,338 to stockholders equity in exchange for the
issuance of common stock.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The financial statements do not
include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities
that might be necessary should the Company be unable to obtain additional
financing, establish profitable operations or realize its plans.
NOTE 12 - EXTRAORDINARY AND UNUSUAL ITEMS
Extraordinary Item - During 1996 the Company obtained a forgiveness of
debt from a vendor in the amount of $10,972. There were no extraordinary
items during 1997.
-14-
<PAGE>
UNIOIL
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - EXTRAORDINARY AND UNUSUAL ITEMS [Continued]
Unusual Items - The Company has been an interest owner in a well which
was operated by another party. The Company had agreed not to participate
in the development of the well and was consequently not receiving any
revenues until the well reached payout. The Company determined the payout
on the well had resulted earlier than first indicated by the operator and
the Company received a settlement of $177,858 during 1996 which has been
recorded on the statement of operations under the caption "Interest income
and other". The Company also recorded $23,604 from the settlement during
1997.
NOTE 13 - INCOME (LOSS) PER SHARE
The following data show the amounts used in computing loss per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock for the years ended December 31, 1997 and 1996:
For the years Ended December 31,
________________________________
1997 1996
______________ ______________
Loss from continuing operations
applicable to common stock $ (400,408) $ (424,330)
Less: preferred dividends - -
______________ ______________
Loss available to common
stockholders used in
Loss per share $ (400,408) $ (424,330)
______________ ______________
Weighted average number of
common shares used in
earnings per share
outstanding during
the period 9,441,657 9,441,657
______________ ______________
Dilutive earnings per share was not presented as the Company has no
options, warrants or other dilutive securities outstanding at December 31,
1997.
-15-
<PAGE>
UNIOIL
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES
Oil and Gas Reserves - Users of this information should be aware that the
process of estimating oil and gas reserves is very complex, requiring
significant subjective decisions in the evaluation of available geological,
engineering, and economic data for each reservoir. The data for a given
reservoir may change substantially over time as a result of, among other
things, additional development activity, production history and viability
of production under varying economic conditions; consequently, material
revisions to existing reserve estimates may occur in the future. Although
every reasonable effort is made to ensure that the reserve estimates
reported represent the most accurate assessment possible, the significance
of the subjective decisions required, and variances in available data for
various reservoirs make these estimates generally less precise than other
estimates presented in connection with financial statement disclosure.
Proved reserves are estimated quantities of natural gas, crude oil and
condensate, and natural gas liquids which geological and engineering data
demonstrate, with reasonable certainty, to be recoverable in future years
from known reservoirs under existing economic and operating conditions.
Proved developed reserves are proved reserves that can be expected to be
recovered through existing wells with existing equipment and operating
methods.
The following tables set forth the Company's net reserves and the changes
in the net proved reserves, all of which are located within the United
States, as estimated by management and independent petroleum engineers,
Resource Services International, Inc. The Company does not have proved
reserves applicable to long-term supply agreements with foreign
governments.
-16-
<PAGE>
UNIOIL
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Changes in Net Proved Reserves
1997 1996
________________ _______________
Oil Gas Oil Gas
(MBBLS) (MMCF) (MBBLS) (MMCF)
_______ _______ _______ _______
Estimated quantity at beginning
of period 1,836 26,486 2,217 28,466
Revisions of previous estimates (128) (2,723) (363) (1,934)
Discoveries and extensions - - - -
Purchase of reserves in place - - - -
Production (36) (244) (18) (46)
Sale/disposal of reserves in place - - - -
_______ _______ _______ _______
Estimated quantity at end of
period 1,672 23,519 1,836 26,486
_______ _______ _______ _______
Proved developed reserves:
Beginning of period 147 523 90 483
End of period 312 2,969 147 523
_______ _______ _______ _______
Company's proportional interest
in reserves of investees accounted
for by the equity method - end
of year - - - -
_______ _______ _______ _______
-17-
<PAGE>
UNIOIL
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Costs Incurred in Oil and Gas Property Acquisition,
Exploration and Development Activities
December 31,
____________________
1997 1996
_________ ________
[In Thousands of Dollars]
Acquisition of properties:
Undevelopment leases $ 17 $ -
Proved producing leases 10 -
Exploration costs - -
Development costs 1,854 -
________ ________
Total Additions to Oil and Gas
Properties $ 1,881 $ -
________ ________
Company's share of equity method
investees' costs of property
acquisition, exploration and
development costs $ - $ -
________ ________
Capitalized Costs Relating to Oil and Gas Producing Activities
Capitalized costs as of the end of the
period: [In thousands of dollars]
Proved properties $ 11,014 $ 9,152
Unproved properties 310 294
________ ________
Total Capitalized Costs 11,324 9,446
Less accumulated depreciation and
depletion (6,098) (5,716)
________ ________
Net Capitalized Costs $ 5,226 $ 3,730
________ ________
Company's share of equity method
investees' net capitalized costs $ - $ -
________ ________
-18-
<PAGE>
UNIOIL
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Results of Operations for Producing Activities
December 31,
___________________
1997 1996
________ ________
[In Thousands of Dollars]
Oil and gas sales $ 1,133 $ 621
Production costs (285) (271)
Exploration costs - -
Depreciation and depletion (382) (7)
________ ________
Income (loss) from operations 466 343
Income tax benefit (expense) (158) (117)
________ ________
Results of Operations from Producing
Activities [Excluding Corporate Overhead
and Interest Costs] 308 226
________ ________
Company's share of equity method investees'
results of operations for producing activities - -
________ ________
Standard Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
The information that follows has been developed pursuant to procedures
prescribed by SFAS No. 69, and utilizes reserve and production data
estimated by management and independent petroleum engineers. The
information may be useful for certain comparison purposes, but should not
be solely relied upon in evaluating the Company or its performance.
Moreover, the projections should not be construed as realistic estimates
of future cash flows, nor should the standardized measure be viewed as
representing current value.
The future cash flows are based on sales, prices, costs, and statutory
income tax rates in existence at the dates of the projections. Material
revisions to reserve estimates may occur in the future, development and
production of the oil and gas reserves may not occur in the periods
assumed, and actual prices realized and actual costs incurred are expected
to vary significantly from those used. Management does not rely upon the
information that follows in making investment and operating decisions;
rather, those decisions are based upon a wide range of factors, including
estimates of probable reserves as well as proved reserves, and different
price and cost assumptions than those reflected herein.
-19-
<PAGE>
UNIOIL
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Standard Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
The following tables set forth the standardized measure of discounted
future net cash flows from projected production of the Company's proved
oil and gas reserves:
December 31,
____________________
1997 1996
_________ ________
[In Thousands of Dollars]
Future reserves $ 77,959 $135,335
Future production and development
costs 55,973 (76,322)
Future income tax expenses (7,292) (19,993)
________ ________
Future net cash flows 14,693 39,020
Discount to present value at 10 percent (9,561 (22,460)
________ ________
Standardized measure of discounted
future net cash flows $ 5,132 $ 16,560
________ ________
Company's share of equity method
investees' standardized measure of
discounted future net cash flows $ - $ -
________ ________
-20-
<PAGE>
UNIOIL
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Standard Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
The following table sets forth the changes in standardized measure of
discounted future net cash flows:
December 31,
____________________
1997 1996
_________ ________
[In Thousands of Dollars]
Balance at beginning of period $ 16,560 $ 6,066
Sales of oil and gas net of production
costs (848) (350)
Revisions to reserves proved in prior
years:
Changes in prices and costs (48,307) 74,662
Changes in quantity estimates and
timing of production 25,026 (75,049)
Additions to proved reserves:
Acquisition of reserves in place - -
Current year discoveries, extensions
and improved recoveries - -
Estimated future development and
production costs related to current
year acquisitions, discoveries,
extensions and improved recoveries - -
Net change in income taxes 12,701 11,231
Sales of reserves in place - -
Accretion of discount - -
Other - change in ten percent
discount - -
________ ________
Balance at End of Period $ 5,132 $ 16,560
________ ________
-21-
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 131
<SECURITIES> 0
<RECEIVABLES> 427
<ALLOWANCES> 266
<INVENTORY> 0
<CURRENT-ASSETS> 295
<PP&E> 50
<DEPRECIATION> 45
<TOTAL-ASSETS> 5,528
<CURRENT-LIABILITIES> 16,489
<BONDS> 0
0
0
<COMMON> 94
<OTHER-SE> (11,055)
<TOTAL-LIABILITY-AND-EQUITY> 5,528
<SALES> 1,164
<TOTAL-REVENUES> 1,164
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 904
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 694
<INCOME-PRETAX> (400)
<INCOME-TAX> 0
<INCOME-CONTINUING> (400)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (400)
<EPS-PRIMARY> (.04)
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