<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period from APRIL 1, 1995 TO JUNE 30, 1995
Commission File No. 0-3978
UNICO AMERICAN CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 95-2583928
(State or other jurisdiction of (I.R.S. Employee
incorporation or organization) Identification No.)
23251 MULHOLLAND DRIVE WOODLAND HILLS, CALIFORNIA 91364
(Address of Principal Executive Offices) (Zip Code)
(818) 591-9800
Registrant's telephone number
Securities registered pursuant to Section 12(b) of the Act:
NONE
(Title of each class)
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
NO CHANGE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (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
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
5,957,645
Number of shares of common stock outstanding as of July 31, 1995
1 of 9
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PART 1
FINANCIAL STATEMENTS FINANCIAL INFORMATION
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, March 31,
1995 1995
----------- -----------
<S> <C> <C>
ASSETS
Investments
Fixed maturities, available-for-sale at market value
(amortized cost $62,516,629 at June 30, 1995,
and $60,707,261 at March 31, 1995) $63,346,520 $60,438,930
Short-term investments, at cost 3,733,600 3,382,301
----------- -----------
Total Investments 67,080,120 63,821,231
Cash 125,775 173,232
Accrued investment income 1,256,202 1,368,773
Accounts and notes receivable, net 8,437,915 8,061,352
Reinsurance recoverable
Paid losses & loss adjustment expenses 155,624 56,173
Unpaid losses & loss adjustment expenses 5,283,218 4,737,448
Prepaid reinsurance premiums 2,194,361 2,784,432
Deferred policy acquisition costs 4,110,942 4,113,936
Property and equipment (net of accumulated depreciation) 319,221 335,495
Deferred income taxes 1,306,484 1,610,075
Other assets 530,929 394,554
----------- -----------
Total Assets $90,800,791 $87,456,701
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses $34,274,697 $32,370,752
Unearned premiums 19,055,023 19,569,975
Advance premiums 1,639,708 1,652,377
Funds held as security for performance 793,993 750,824
Accrued expenses and other liabilities 2,508,285 2,174,560
Income taxes payable 519,125 315,385
Note payable - Bank 3,810,001 3,975,001
Note payable - Related Party -- 500,000
Dividend payable 417,035 --
----------- -----------
Total Liabilities $63,017,867 $61,308,874
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, no par - authorized 10,000,000 shares,
issued and outstanding shares 5,957,645 at June 30, 1995,
and 5,957,645 at March 31, 1995 2,834,801 2,834,801
Net unrealized investment gains (losses) 547,728 (177,098)
Retained earnings 24,400,395 23,490,124
----------- -----------
Total Stockholders' Equity 27,782,924 26,147,827
----------- -----------
Total Liabilities and Stockholders' Equity $90,800,791 $87,456,701
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
2 of 9
<PAGE>
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
--------------------------
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994
----------- -----------
<S> <C> <C>
REVENUES
- --------
Insurance Company Revenues
Premium earned $9,513,175 $9,313,486
Less: Premium ceded 2,000,824 2,253,919
----------- -----------
Net premium earned 7,512,351 7,059,567
Investment income 893,846 751,516
Net realized investment gains - 7,552
Other income 713 655
----------- -----------
Total insurance company revenue 8,406,910 7,819,290
Other Revenues from Insurance Operations
Gross commissions and fees 1,407,633 1,404,298
Investment income 38,035 30,640
Finance charges and late fees earned 311,865 313,552
Other income 5,149 3,520
----------- -----------
Total Revenues 10,169,592 9,571,300
----------- -----------
COSTS and EXPENSES
- ------------------
Losses and loss adjustment expenses 4,122,774 4,539,728
Policy acquisition costs 2,085,647 1,981,021
Salaries and employee benefits 924,321 878,717
Commissions to agents/brokers 325,890 343,232
Other operating expenses 883,111 834,905
----------- -----------
Total Costs and Expenses 8,341,743 8,577,603
----------- -----------
Income Before Taxes 1,827,849 993,697
Income Tax Provision 500,543 247,034
----------- -----------
Net Income 1,327,306 746,663
Retained Earnings at beginning of quarter 23,490,124 20,115,131
Dividend declared (417,035) (416,972)
----------- -----------
Retained Earnings at end of quarter $24,400,395 $20,444,822
----------- -----------
----------- -----------
PER SHARE DATA
- --------------
Weighted average common shares outstanding: 6,092,477 6,088,042
Earnings Per Share: $0.22 $0.12
</TABLE>
See notes to consolidated financial statements.
3 of 9
<PAGE>
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
--------------------------
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994
----------- -----------
<S> <C> <C>
Net Income $1,327,306 $746,663
Charges (credits) to reconcile net income to net cash from operations
Depreciation & amortization 25,659 27,784
Bond amortization, net 156,569 179,573
Accrued investment income 112,571 (26,045)
Accounts receivable (376,563) (1,044,967)
Deferred policy acquisition costs 2,994 (282,946)
Reinsurance recoverable (645,221) (13,439)
Other assets (136,376) (60,234)
Reserve for unpaid loss & loss adjustment expenses 1,903,945 1,670,083
Prepaid reinsurance premiums 590,071 (7,797)
Unearned premium reserve (514,952) 1,086,489
Net realized (gains) on sales of fixed maturities -- (131,199)
Net realized loss on sales of equity securities -- 123,647
Funds held as security & advanced premiums 30,500 (32,908)
Income taxes - current/deferred 133,935 70,927
Accrued expenses and other liabilities 333,728 91,704
----------- -----------
Net cash provided from operations 2,944,166 2,397,335
----------- -----------
Investing Activities
Purchase of fixed maturity investments (6,010,939) (3,110,260)
Proceeds from maturity of fixed maturity investments 4,045,000 4,624,470
Purchase of equity securities at cost -- (5,933)
Proceeds from sale of equity securities -- 1,051,216
Increase in short-term investments (351,299) (4,866,695)
Purchases of property & equipment (9,385) (38,459)
----------- -----------
Net cash (used) by investing activities (2,326,623) (2,345,661)
----------- -----------
Financing Activities
Proceeds from issuance of common stock -- 17,500
Repayment of note payable - Related party (500,000) --
Repayment of note payable - Bank (165,000) (100,000)
----------- -----------
Net cash (used) by financing activities (665,000) (82,500)
----------- -----------
Net (decrease) in cash (47,457) (30,826)
Cash at beginning of quarter 173,232 205,612
----------- -----------
Cash at end of quarter $125,775 $174,786
----------- -----------
----------- -----------
Supplemental cash flow information
Cash paid during the quarter for:
Interest $102,697 $84,288
Income taxes 44,615 --
</TABLE>
See notes to consolidated financial statements.
4 of 9
<PAGE>
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Unico American Corporation is an insurance holding company. Unico American
and its subsidiaries, all of which are wholly owned (the "Company"), provides
primarily in California, property, casualty, health and life insurance, and
related premium financing.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Unico American
Corporation and its subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation.
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles (GAAP) which differ in some respects
from those followed in reports to insurance regulatory authorities.
INVESTMENTS
Although all of the Company's fixed maturity investments are classified as
available-for-sale and are stated at market value, the Company's investment
guidelines place primary emphasis on buying and holding high quality
investments. The unrealized gains or losses are reported as a separate
component of stockholders' equity, net of any deferred tax effect. Short-term
investments are carried at cost which approximates market value. When a
decline in the value of a fixed maturity security is considered other than
temporary, a loss is recognized in the consolidated statement of operations.
Realized gains and losses are included in the consolidated statements of
operations based upon the specific identification method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is computed using accelerated depreciation methods over the
estimated useful lives of the related assets.
INCOME TAXES
The provision for income taxes is computed on the basis of income as reported
for financial reporting purposes under generally accepted accounting
principles. Deferred income taxes arise principally from certain assets and
liabilities which are recognized for income tax purposes in different periods
than for financial statements.
NOTE 2 - RESTRICTED FUNDS
As required by law, the Company segregates from its operating accounts
premiums collected from insureds into separate trust accounts. As of June
30, 1995 these trust funds represent $2,965,176 of the Company's cash and
short term investments. In addition, $725,000 of the Company's investments
represent statutory deposits of Crusader which are assigned to and held by
the California State Treasurer and the Insurance Commissioner of the State of
Nevada. These deposits are required for Crusader to write certain lines of
business in California and for its admission in states other than California.
NOTE 3 - FUNDS HELD AS SECURITY
Funds held as security for performance represent funds received in order to
guarantee the contractual obligations entered into with customers.
5 of 9
<PAGE>
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 4 - STATUTORY CAPITAL AND SURPLUS
As of June 30, 1995, Crusader's statutory capital and surplus was deemed
sufficient to support its present insurance premium writings.
NOTE 5 - INCENTIVE STOCK OPTION PLAN
The Company's 1985 stock option plan provides for the grant of "incentive
stock options" to officers and key employees. The plan covers an aggregate of
1,500,000 shares of the Company's common stock (subject to adjustment in the
case of stock splits, reverse stock splits, stock dividends, etc.). As of
June 30, 1995, 680,000 options were outstanding, of which 504,670 were
currently exercisable. There are no additional options available for future
grant under the 1985 plan.
NOTE 6 - CLAIMS AND LITIGATION
The Company, by virtue of the nature of the business conducted by it, becomes
involved in numerous legal proceedings in which it may be named as either
plaintiff or defendant. The Company is required to resort to legal
proceedings from time-to-time in order to enforce collection of premiums and
other commissions or fees for the services rendered to customers or to their
agents. These routine items of litigation do not materially affect the
Company and are handled on a routine basis by the Company through its general
counsel.
Likewise, the Company is sometimes named as a cross-defendant in litigation
which is principally directed against that insurer who has issued a policy of
insurance directly or indirectly through the Company. Incidental actions are
sometimes brought by customers or other agents which relate to disputes
concerning the issuance or non-issuance of individual policies. These items
are also handled on a routine basis by the Company's general counsel and they
do not materially affect the operations of the Company. Management is
confident that the ultimate outcome of pending litigation should not have an
adverse effect on the Company's consolidated operation or financial
position.
NOTE 7 - LEASE COMMITMENTS AND CONTINGENCIES
The Company presently occupies a 46,000 square foot building located at 23251
Mulholland Drive, Woodland Hills, California, under a master lease expiring
March 31, 2007. The lease provides for an annual gross rental of $1,025,952.
Erwin Cheldin, the Company's president, chairman and principal stockholder,
is the owner of the building. The terms of the lease at inception and at the
time the lease extension was executed were at least as favorable to the
Company as could have been obtained from unaffiliated third parties.
The Company utilizes for its own operation 100% of the space it leases.
NOTE 8
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all necessary adjustments, which consist of
normal recurring adjustments, to present fairly the results of operations for
the three months ended June 30, 1995, and June 30, 1994.
NOTE 9
The results of operations for the three months ended June 30, 1995, should
not be considered as necessarily indicative of the results to be expected for
the full year.
6 of 9
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
(a) LIQUIDITY AND CAPITAL RESOURCES:
Due to the nature of the Company's business (insurance and insurance
services) and whereas Company growth does not normally require material
reinvestment of profits into property or equipment, the cash flow generated
from operations usually results in improved liquidity for the Company.
Crusader generates a significant amount of cash as a result of its holdings
of unearned premium reserves, reserves for loss payments and its capital and
surplus. Crusader's loss and loss adjustment expense payments are the most
significant cash flow requirement of the Company. These payments are
continually monitored and projected to ensure that the Company has the
liquidity to cover these payments without the need to liquidate its
investments. As of June 30, 1995, the Company had cash and cash investments
of $66,376,004 of which $63,142,121 were investments of Crusader.
As of the quarter ended June 30, 1995, the Company had invested $62,516,629
(at amortized cost) or 94% of its invested assets in fixed maturity
obligations. Although all of the Company's fixed maturity investments are
classified as available-for-sale, the Company's investment guidelines place
primary emphasis on buying and holding high quality investments. The balance
of the Company's investments are in high quality short-term investments
which include bank money market accounts, certificates of deposit, commercial
paper and a short-term treasury money market fund.
The Company's investments in fixed maturity obligations of $62,516,629
include $39,528,799 (63%) of tax exempt, pre-refunded state and municipal
bonds. The tax exempt interest income earned during the quarter ended June
30, 1995, was $494,455.
The Company's investment policy limits investments in any one company to no
more than $1,000,000. This limitation excludes bond premiums paid in excess
of par value and U.S. Government or U.S. Government guaranteed issues. All
Unico investments are high grade investment quality.
There are no material commitments for capital expenditures as of the date of
this report.
The Company's premium finance subsidiary, American Acceptance Corporation
("AAC"), has a bank credit line of $6,000,000 with a variable rate of
interest based on fluctuations in the London Inter Bank Offered Rate
("LIBOR"). This credit line is only used to provide AAC with funds to
finance insurance premiums.
On June 15, 1995, the Company repaid from its cash flow the $500,000 of
related party debt which was borrowed by Unico in June of 1992 to increase
Crusader's surplus following the Los Angeles riot.
On May 16, 1995, the Board of Directors declared a dividend of $0.07 (seven
cents) per common share payable on August 14, 1995, to shareholders of record
at the close of business on July 31, 1995.
The Company believes that its cash and short-term investments at the quarter
end, net of trust restriction of $2,965,176 and statutory deposits of
$725,000 and dividend restriction between Crusader and Unico plus the cash to
be generated from operations, should be sufficient to meet its operating
requirements (excluding funds to finance insurance premiums discussed above)
during the next twelve months, without the necessity of borrowing additional
funds.
7 of 9
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (continued)
(b) RESULTS OF OPERATION:
All comparisons made in this discussion are comparing the quarter ended June
30, 1995, to the quarter ended June 30, 1994, unless otherwise indicated.
Net income for the quarter ended June 30, 1995, was $1,327,306 compared to
$746,663 for the quarter ended June 30, 1994. Total revenues for the Company
increased $598,292 to $10,169,592, a 6% increase.
INSURANCE COMPANY OPERATION
Insurance company underwriting income (net earned premium less losses and
loss adjustment expenses and policy acquisition costs) was $1,303,930
compared to underwriting income of $538,818 in the quarter ended June 30,
1994.
PREMIUM EARNED increased $199,689 (2%). This increase was primarily
attributable to two factors. The first factor was the growth in Crusader's
Commercial Package business both in and out of California. The Commercial
Package premium earned increased $1,517,827 (22%) to $8,491,520 and is
Crusader's primary line of business, representing approximately 89% of its
earned premium for the quarter. The second factor was a decrease in
Crusader's Other Liability line of business. Crusader is intentionally
reducing its Other Liability line in an effort to improve the utilization of
its surplus. Other Liability earned premium decreased $1,226,042 (57%) to
$938,642.
Ceded premium decreased from 24% of premium earned to 21% primarily as a
result of the reduction in Other Liability premium (which cedes a higher
percentage of premium than Crusader's other lines) and an increase in loss
retention from $100,000 to $150,000 on April 1, 1995. Net premium earned
increased $452,784 (6%) to $7,512,351.
LOSSES AND LOSS ADJUSTMENT EXPENSES for the quarter ended June 30, 1995, were
55% of net premium earned compared to 64% for the quarter ended June 30,
1994. The decrease in the loss ratio for the quarter ended June 30, 1995,
was primarily due to the favorable development of prior period losses.
POLICY ACQUISITION COSTS consist of commissions, premium taxes, inspection
fees, and certain other underwriting costs which are directly or indirectly
related to the production of Crusader insurance policies. These costs
include both Crusader expenses and allocated expenses of other Unico
subsidiaries. The company's reinsurer pays the company a ceding commission
which is primarily a reimbursement of the acquisition cost related to the
ceded premium.
Policy acquisition costs, net of ceding commission, are deferred and
amortized as the related premiums are earned. These costs increased by
$104,626 (5%) due to the related increase in Crusader's premium earned.
INVESTMENT INCOME, excluding realized investment gains, increased by $149,725
(19%) to $931,881. This increase was primarily due to an 18% increase in
invested assets (at amortized cost).
There were no significant changes in other revenue or expense items.
The effect of inflation on net income of the Company during the quarters
ended June 30, 1995, and 1994 was not significant.
There were no material items or significant elements included in the results
of operations which arose from or were not necessarily representative of the
Company's ongoing business.
8 of 9
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
None
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 there unto authorized.
UNICO AMERICAN CORPORATION
Date: August 10, 1995 By: /s/ Erwin Cheldin
-----------------------------------------
Erwin Cheldin
Chairman of the Board, President and Chief
Executive Officer, (Principal Executive Officer)
Date: August 10, 1995 By: /s/ Lester A. Aaron
-----------------------------------------
Lester A. Aaron
Treasurer, Chief Financial Officer and Director
(Principal Accounting and Principal
Financial Officer)
9 of 9
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EXHIBIT INDEX
TO
UNICO AMERICAN CORPORATION QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1995
No. Item
- --- ----
27 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<DEBT-HELD-FOR-SALE> 63,346,520
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 67,080,120
<CASH> 125,775
<RECOVER-REINSURE> 155,624
<DEFERRED-ACQUISITION> 4,110,942
<TOTAL-ASSETS> 90,800,791
<POLICY-LOSSES> 34,274,697
<UNEARNED-PREMIUMS> 19,055,023
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 2,433,701
<NOTES-PAYABLE> 3,810,001
<COMMON> 2,834,801
0
0
<OTHER-SE> 24,948,123
<TOTAL-LIABILITY-AND-EQUITY> 90,800,791
7,512,351
<INVESTMENT-INCOME> 931,881
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 1,725,360
<BENEFITS> 4,122,774
<UNDERWRITING-AMORTIZATION> 2,085,647
<UNDERWRITING-OTHER> 2,133,322
<INCOME-PRETAX> 1,827,849
<INCOME-TAX> 500,543
<INCOME-CONTINUING> 1,327,306
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,327,306
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
