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 January 1, 1998 to March 31, 1998
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
6,162,096
Number of shares of common stock outstanding as of May 11, 1998
1
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
UNICO AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
ASSETS
<S> <C> <C>
Investments
Available for sale:
Fixed maturities, at market value (amortized cost: March 31,
1998 $91,766,736; December 31, 1997 $86,106,571 $ 93,529,795 $ 87,965,590
Equity securities at market (cost: March 31, 1998
$230,460; December 31, 1997 $230,460) 203,550 223,100
Short-term investments, at cost 5,311,269 6,137,495
---------- ----------
Total Investments 99,044,614 94,326,185
Cash 73,222 55,768
Accrued investment income 1,765,027 1,807,364
Premiums and notes receivable, net 7,229,579 7,404,606
Reinsurance recoverable:
Paid losses and loss adjustment expenses 139,887 56,379
Unpaid losses and loss adjustment expenses 1,385,722 1,413,603
Prepaid reinsurance premiums 254,408 945,563
Deferred policy acquisition costs 5,358,076 4,886,684
Property and equipment (net of accumulated depreciation) 226,268 203,709
Deferred income taxes 767,468 1,005,865
Other assets 500,003 836,658
----------- -----------
Total Assets $116,744,274 $112,942,384
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses $42,724,137 $42,004,851
Unearned premiums 21,431,942 21,673,009
Advance premiums 1,366,937 1,368,114
Funds held as security for performance 697,096 723,066
Accrued expenses and other liabilities 2,752,194 2,095,567
Income taxes payable 606,556 16,993
---------- ----------
Total Liabilities $69,578,862 $67,881,600
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, no par - authorized 10,000,000 shares, issued and outstanding
shares 6,158,861 at March 31, 1998
and 6,153,706 at December 31, 1997 2,855,213 2,838,058
Accumulated other comprehensive income:
Net unrealized gains on investments classified as available for sale 1,145,858 1,222,095
Retained earnings 43,164,341 41,000,631
---------- ----------
Total Stockholders' Equity $47,165,412 $45,060,784
---------- ----------
Total Liabilities and Stockholders' Equity $116,744,274 $112,942,384
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE>
UNICO AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
---- ----
REVENUES
Insurance Company Revenues
<S> <C> <C>
Premium earned $10,554,810 $ 10,097,163
Premium ceded 1,171,028 955,623
--------- ---------
Net premium earned 9,383,782 9,141,540
Net investment income 1,309,785 1,154,516
Net realized investment gains - 919
Other income 958 115
---------- ----------
Total Insurance Company Revenues 10,694,525 10,297,090
Other Revenues from Insurance Operations
Gross commissions and fees 1,469,245 1,418,736
Investment income 49,093 34,954
Finance charges and late fees earned 263,153 290,068
Other income 1,528 2,801
---------- ----------
Total Revenues 12,477,544 12,043,649
---------- ----------
EXPENSES
Losses and loss adjustment expenses 4,799,701 4,974,473
Policy acquisition costs 2,629,106 2,639,930
Salaries and employee benefits 1,049,621 924,413
Commissions to agents/brokers 244,927 274,976
Other operating expenses 628,726 733,627
--------- ---------
Total Expenses 9,352,081 9,547,419
--------- ---------
Income Before Taxes 3,125,463 2,496,230
Income Tax Provision 961,753 731,076
--------- ---------
Net Income $ 2,163,710 $ 1,765,154
========= =========
PER SHARE DATA:
Basic Shares Outstanding 6,155,280 6,089,663
Basic Earnings Per Share $0.35 $0.29
Diluted Shares Outstanding 6,424,671 6,330,790
Diluted Earnings Per Share $0.34 $0.28
</TABLE>
See notes to unaudited consolidated financial statements
3
<PAGE>
UNICO AMERICAN CORPORATION AND SUBSIDIARIES
STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
---- ----
<S> <C> <C>
Net income $2,163,710 $1,765,154
Other comprehensive income net of tax:
Unrealized (losses) on securities classified as available-for-sale
arising during the period (76,237) (885,060)
Less: reclassification adjustment for gains included in net income - (607)
--------- -------
Comprehensive Income $2,087,473 $879,487
========= =======
</TABLE>
See notes to unaudited consolidated financial statements
4
<PAGE>
UNICO AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1998 1997
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net Income $2,163,710 $1,765,154
Adjustments to reconcile net income to net cash from operations
Depreciation and amortization 25,604 20,308
Bond amortization, net 167,899 111,766
Net realized (gain) on sale of securities - (919)
Changes in assets and liabilities
Premium, notes and investment income receivable 217,364 1,239,452
Reinsurance recoverable (55,627) 649,075
Prepaid reinsurance premiums 691,155 345,577
Deferred policy acquisitions costs (471,392) (140,108)
Other assets 336,655 41,750
Reserve for unpaid losses and loss adjustment expenses 719,286 89,546
Unearned premium reserve (241,067) (415,235)
Funds held as security and advanced premiums (27,147) 63,897
Accrued expenses and other liabilities 656,628 240,035
Income taxes current/deferred 867,233 623,080
--------- ---------
Net Cash Provided from Operations 5,050,301 4,633,378
---------- ---------
Investing Activities
Purchase of fixed maturity investments (8,467,945) (5,768,290)
Proceeds from maturity of fixed maturity investments 2,630,000 2,000,000
Purchase of equity securities - cost - (1,019,500)
Proceeds from sale of equity securities - 20,959
Net increase in short-term investments 836,106 828,935
Additions to property and equipment (48,163) (22,035)
--------- ---------
Net Cash (Used) by Investing Activities (5,050,002) (3,959,931)
--------- ---------
Financing Activities
Proceeds from issuance of common stock 17,155 350
Repayment of note payable - bank - (250,000)
------ ---------
Net Cash Provided (Used) by Financing Activities 17,155 (249,650)
------ -------
Net increase in cash 17,454 423,797
Cash at beginning of period 55,768 82,637
------ -------
Cash at End of Period $73,222 $506,434
====== =======
Supplemental cash flow information Cash paid during the period for:
Interest $121 $12,314
Income taxes $93,336 -
</TABLE>
See notes to unaudited consolidated financial statements
5
<PAGE>
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Nature of Business
Unico American Corporation ("Unico") is an insurance holding company. Unico and
its subsidiaries, all of which are wholly owned (the "Company"), provide,
primarily in California, property, casualty, health and life insurance, and
related premium financing.
Principles of Consolidation
The accompanying unaudited 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 Presentations
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 1998, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998. Quarterly financial statements should be read in conjunction with the
financial statements and related notes in the Company's 1997 Annual Report on
Form 10-K as filed with the Securities and Exchange Commission.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosure of certain assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. While every effort is made to ensure the
integrity of such estimates, actual results could differ from those estimates.
Investments
All of the Company's fixed maturity investments are classified as
available-for-sale and are stated at market value. Although classified as
available-for-sale, the Company's investment guidelines place primary emphasis
on buying and holding high-quality investments to maturity. Short-term
investments are carried at cost, which approximates market value. Investments in
equity securities are carried at market value. The unrealized gains or losses
from fixed maturities and equity securities are reported as a separate component
of stockholders' equity, net of deferred tax. When a decline in the value of a
fixed maturity or equity security is considered other than temporary, a loss is
recognized in the consolidated statements of operations. Realized gains and
losses are included in the consolidated statements of operations based on the
specific identification method.
Property and Equipment
Property and equipment are 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 federal income taxes is computed on the basis of income as
reported for financial reporting purposes. Deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes and are measured using the enacted tax rates and laws expected to apply
to taxable income in the years in which those temporary differences are expected
to be recovered or settled. Income tax expense provisions increase or decrease
in the same period in which a change in tax rates is enacted.
6
<PAGE>
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- --------------------------------------------------------------
Earnings Per Share
Basic earnings per share excludes the impact of common share equivalents and is
based upon the weighted average common shares outstanding. Diluted earnings per
share utilizes the average market price per share when applying the treasury
stock method in determining common share equivalents. Outstanding stock options
are treated as common share equivalents for purposes of computing diluted
earnings per share and represent the difference between basic and diluted
weighted average shares outstanding.
Recently Issued Accounting Standards
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income," which establishes standards for the
reporting and displaying of comprehensive income and its components. All items
required to be recognized as components of comprehensive income must be reported
in a financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 became effective for financial statements
with fiscal years beginning after December 15, 1997.
Statement of Financial Accounting Standards (SFAS No. 131), "Disclosures about
Segments of an Enterprise and Related Information," was issued in June 1997 and
is effective for fiscal years beginning after December 15, 1997. SFAS No. 131 is
not requiring interim information in the first year of implementation. SFAS No.
131 establishes standards for disclosures related to business operating
segments. The Company is currently evaluating the impact that these statements
will have on the consolidated financial statements.
NOTE 2 - FUNDS HELD AS SECURITY
- -------------------------------
Funds held as security for performance represent funds received from the
Company's daily automobile rental program which guarantee the contractual
obligations of its customers.
NOTE 3 - RESTRICTED FUNDS
- -------------------------
As required by law, the Company segregates from its operating accounts premiums
collected from insureds into separate trust accounts. As of a March 31, 1998,
these trust funds represent $2,478,898 of the Company's cash and short-term
investments. In addition, $2,725,000 of the Company's investments represent
statutory deposits of Crusader Insurance Company ("Crusader"), the Company's
property and casualty insurance subsidiary, 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 4 - STATUTORY CAPITAL AND SURPLUS
- --------------------------------------
As of March 31, 1998, Crusader's statutory capital and surplus were deemed
sufficient to support its present insurance premium writings.
NOTE 5 - INCENTIVE STOCK OPTION PLAN
- ------------------------------------
The Company's 1985 stock option plan provided 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 March
31, 1998, 368,693 options were outstanding of which 298,362 were currently
exercisable. During the quarter ended March 31, 1998, options on 5,255 shares of
common stock were exercised. There are no additional options available for
future grant under the 1985 plan.
7
<PAGE>
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 6 - EARNINGS PER SHARE
- ---------------------------
The following table represents the reconciliation of the numerators and
denominators of the Company's basic earnings per share and diluted earnings per
share computations reported on the Consolidated Statements of Operations for the
three months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1997
Basic Earnings Per Share
<S> <C> <C>
Net income numerator $2,163,710 $1,765,154
========= =========
Weighted average shares outstanding denominator 6,155,280 6,089,663
========= =========
Basic Earnings Per Share $0.35 $0.29
Diluted Earnings Per Share
Net income numerator $2,163,710 $1,765,154
========= =========
Weighted average shares outstanding denominator 6,155,280 6,089,663
Effect of diluted securities 269,391 241,127
--------- ---------
Diluted shares outstanding denominator 6,424,671 6,330,790
========= =========
Diluted Earnings Per Share $0.34 $0.28
</TABLE>
NOTE 7 - COMPREHENSIVE INCOME
- -----------------------------
The Company's other comprehensive income consists solely of net unrealized gains
(losses) on securities classified as available-for-sale. All prior period
information presented has been stated to conform with SFAS No. 130. The total
net unrealized (loss) on securities for the periods ended March 31, 1998 and
1997 consists of the following:
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1997
<S> <C> <C>
Net unrealized (loss) on securities before deferred income taxes $(115,111) $(1,341,000)
Deferred income taxes 39,274 459,940
------ -------
Net Unrealized (Loss) on Securities $ (76,237) $(885,060)
====== =========
The Company's accumulated other comprehensive income balance, which consists
solely of unrealized gains (losses) on securities classified as
available-for-sale, is as follows:
Accumulated other comprehensive income as of December 31, 1997 $1,222,095
Current period change (76,237)
-----------
Accumulated Other Comprehensive Income as of March 31, 1998 $1,145,858
=========
</TABLE>
8
<PAGE>
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 8 - CLAIMS AND LITIGATION
- ------------------------------
The Company, by virtue of the nature of the business conducted by it, becomes
involved in numerous legal proceedings 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, 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 9 - 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. On February 22, 1995, the Company signed an extension
to the lease with no increase in rent to March 31, 2007. The Company believes
that the terms of the lease at inception and at the time the lease extension was
signed were at least as favorable to the Company as could have been obtained
from non-affiliated third parties.
The Company utilizes for its own operations 100% of the space it leases.
9
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(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 reinvestments 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 March 31,
1998, the Company had cash and cash investments of $97,381,687 (at amortized
cost) of which $92,047,672 (95%) were investments of Crusader.
As of the quarter ended March 31, 1998, the Company had invested $91,766,736 (at
amortized cost) or 94% of its invested assets in fixed maturity obligations. In
accordance with Statement of Financial Accounting Standard No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," the Company is required
to classify its investments in debt and equity securities into one of three
categories: held-to-maturity, available-for-sale or trading securities. Although
all of the Company's 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 was in equity
securities of a regional utility company and high-quality, short-term
investments that include a U.S. treasury bill, 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 $91,766,736 (at
amortized cost) include $36,660,565 (40%) of pre-refunded state and municipal
tax exempt bonds, $15,479,529 (17%) of U.S. treasury securities, $39,226,642
(43%) in high quality industrial bonds and $400,000 of certificates of deposit.
The tax exempt interest income earned for the three months ended March 31, 1998
and 1997 was $446,747 and $454,616, respectively.
The Company's investment policy limits investments in any one company. This
limit was raised from $1,000,000 to $1,500,000 in 1997. This limitation excludes
bond premiums paid in excess of par value and U.S. Government or U.S.
Government guaranteed issues.
All of the Company's investments are high-grade investment quality; all state
and municipal tax exempt fixed maturity investments are pre-refunded issues, and
all certificates of deposit are FDIC insured.
On May 1, 1998, the Board of Directors declared a ($0.07) per share cash
dividend payable on August 14, 1998, to shareholders of record at the close of
business on July 31, 1998.
American Acceptance Corporation ("AAC"), the Company's insurance premium finance
subsidiary, has a bank line of credit with a variable rate of interest based on
fluctuations in the London InterBank Offered Rate ("LIBOR"). This credit line is
only used to provide AAC with the additional funds it requires to finance
insurance premiums. The bank note payable was paid in full on July 3, 1997,
resulting in no amounts being outstanding under the bank credit line. Due to
decreased utilization, AAC decreased this bank credit line from $4,000,000 to
$2,000,000 in September 1997.
In addition to the AAC line of credit, Unico has a $2,000,000 line of credit
with Union Bank. Interest on this line is referenced to LIBOR and is payable
monthly. The agreement contains certain covenants including maintenance of
certain financial ratios. This credit line expires September 2, 1998, at which
time it is expected to be renewed. As of March 31, 1998, no amounts have been
borrowed.
Although material capital expenditures may also be funded through borrowings,
the Company believes that its cash and short-term investments at year end, net
of trust restriction of $2,478,898, statutory deposits of $2,725,000, and
dividend restriction between Crusader and Unico plus the cash to be generated
from operations, should be sufficient to meet its operating requirements during
the next twelve months without the necessity of borrowing funds (excluding AAC's
credit line discussed above).
There are no material commitments for capital expenditures as of the date of
this report.
10
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
(b) Results of Operations:
All comparisons made in this discussion are comparing the three months ended
March 31, 1998, to the three months ended March 31, 1997, unless otherwise
indicated.
The Company's net income for the quarter ended March 31, 1998, increased
$398,556 (23%) to $2,163,710 compared to $1,765,154 for the quarter ended March
31, 1997. Revenues for the quarter ended March 31, 1998, increased $433,895 (4%)
to $12,477,544 compared to $12,043,649 for the quarter ended March 31, 1997.
Premium earned before reinsurance increased $457,647 (5%) to $10,554,810 for the
quarter ended March 31, 1998, compared to $10,097,163 for the quarter ended
March 31, 1997. Premium earned in California accounted for 67% of this increase.
Crusader's Commercial Package business represents approximately 97% of insurance
premiums earned as of March 31, 1998 compared to 96% as of March 31, 1997.
Ceded premium was 11% of gross earned premium for the quarter ended March 31,
1998, compared to 9% of gross earned premium for the quarter ended March 31,
1997.
Investment income, excluding realized investment gains, increased $169,408 (14%)
to $1,358,878 for the quarter ended March 31, 1998, compared to $1,189,470 for
the quarter ended March 31, 1997. This increase was primarily due to a 16%
increase (at amortized cost) in invested assets.
Commission and fee income increased $50,509 (4%) to $1,469,245 for the three
months ended March 31, 1998, compared to the three months ended March 31, 1997.
This increase consisted of the following:
Workers' compensation program $70,633
Daily automobile rental insurance program 18,307
Service fee income 21,282
Commercial automobile insurance program (44,845)
Health and life insurance program (14,868)
------
Net Increase in Commission and Fee income $50,509
=======
Losses and loss adjustment expenses were 51% of net premium earned for the
quarter ended March 31, 1998, compared to 54% of net premium earned for the
quarter ended March 31, 1997. This decrease 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. Crusader's
reinsurers pay Crusader 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 were 28% of net premium earned for the three months ended
March 31, 1998, compared to 29% for the three months ended March 31, 1997.
Salaries and employee benefits increased $125,208 (14%) to $1,049,621 for the
quarter ended March 31, 1998, compared to $924,413 for the quarter ended March
31, 1997.
Commissions to agents/brokers decreased $30,049 (11%) to $244,927 in the quarter
ended March 31, 1998, primarily due to related revenue decreases in the health
and life program and the discontinued commercial automobile program.
Other operating expenses decreased $104,901 (14%) during the quarter ended March
31, 1998 compared to the quarter ended March 31, 1997. This decrease was
primarily due to the timing of expenses incurred for professional services
rendered to the Company.
The effect of inflation on net income of the Company during the three months
ended March 31, 1998, and 1997 was not significant.
11
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Forward looking statements
Information contained in this discussion, other than historical information, are
considered "forward-looking statements" and may be subject to change based on
various important factors and uncertainties. Some, but not all, of the factors
and uncertainties that may cause actual results to differ significantly from
those expected in any forward-looking statement are disclosed in the Company's
1997 Form 10-K as filed with the Securities and Exchange Commission.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES
(c) During the quarter ended March 31, 1998, the Company issued an aggregate
of 5,255 shares of its common stock upon exercise of employee stock
options granted under the Unico American Corporation Employee Incentive
Stock Option Plan. These shares were issued to an aggregate of two
employees of the Company. Of these shares, 355 shares were issued in
exchange for 100 shares of common stock and $5.00 of cash and 4,900 shares
were issued in exchange for $17,150.00 in cash. These shares were acquired
for investment and without a view to the public distribution or resale
thereof, and the issuance thereof was exempt from the registration
requirements under the Securities Act of 1933, as amended, under Section 4
(2) thereof as transactions not involving a public offering.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
None
12
<PAGE>
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: May 13, 1998 By:/s/ERWIN CHELDIN
-------------
Erwin Cheldin
Chairman of the Board, President and Chief
Executive Officer, (Principal Executive Officer)
Date: May 13, 1998 By:/s/LESTER A. AARON
---------------
Lester A. Aaron
Treasurer, Chief Financial Officer, (Principal
Accounting and Principal Financial Officer)
13
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
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