SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended 5/31/00
Commission file number 000-30239
UNICO, INCORPORATED
________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Arizona 86-0205130
____________________________ ___________________________________
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
6475 Grandview Avenue
P.O. Box 777
Magalia, California 95954
________________________________________
(Address of principal executive offices)
(530) 873-4394
________________________________________________
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [ ] No [ X ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
As of July 7, 2000, the issuer had outstanding 55,266,712 shares of its
Common Stock, $0.10 par value per share.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The unaudited consolidated balance sheet of Unico, Incorporated, an
Arizona corporation, as of May 31, 2000 and the related audited consolidated
balance sheet of Unico, Incorporated as of February 29, 2000, the unaudited
related consolidated statements of operations and cash flows for the three
month periods ended May 31, 2000 and May 31, 1999, the unaudited related
statement of stockholders' equity for the three month period ended May 31,
2000, and the notes to the financial statements are attached hereto as
Appendix "A" and incorporated herein by reference.
The accompanying financial statements reflect all adjustments which are,
in the opinion of management, necessary to present fairly the financial
position of Unico, Incorporated consolidated with HydroClear, Ltd., its
wholly-owned subsidiary which is currently inactive. The names "Unico", "we",
"our" and "us" used in this report refer to Unico, Incorporated.
Unico was formed as an Arizona corporation on May 27, 1966. It was
incorporated under the name of Red Rock Mining Co., Incorporated. It was
later known as Industries International, Incorporated and I.I. Incorporated
before the name was eventually changed to Unico, Incorporated in 1979.
On March 30, 1992, Unico entered into a Mining Lease and Option to
Purchase agreement with Deer Trail Development Corporation, with headquarters
in Dallas, Texas. Deer Trail Development Corporation is now known as Crown
Mines, L.L.C. This Mining Lease and Option to Purchase is referred to in this
report as the "Deer Trail Lease". The Deer Trail Lease runs for a period of
10 years, and covers 28 patented claims, 5 patented mill sites and 171
unpatented claims located approximately 5 miles South of Marysvale, Utah. It
includes mine workings known as the Deer Trail Mine, the PTH Tunnel and the
Carisa and Lucky Boy mines. The property has not been mined since 1981.
There are no known, proven or probable reserves on the property.
During Unico's last 2 fiscal years ended February 29, 2000, and since
then, Unico has worked toward reopening the Deer Trail Mine. Unico has
acquired the necessary permits to commence mining activities, provided that
the surface disturbance from the mining activities does not exceed 5 acres for
both mine and mill. Unico plans to seek a permit for large scale mining
operations.
During the past 2 fiscal years, Unico has explored the Deer Trail
property, conducted a geological evaluation of the property, repaired old
mining equipment and Unico has upgraded the infrastructure of the mine by
installing pumping equipment, thousands of feet of pipe, and some new mining
track and mining timbers to prepare the way for new mining activities. The
only actual mining activities engaged in by Unico on the property have been
for testing and evaluation purposes only.
2
<PAGE>
Unico expects to commence active mining operations on the property in
approximately September 2000.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Plan of Operation.
During the next 12 months, Unico's plan of operation consists of the
following:
- acquire approximately 680 acres of property near the mine to
be used in connection with the proposed mining operations;
- finish the installation of a ball mill;
- hire additional employees needed to commence mining operations;
- commence mining operations in approximately September 2000;
- raise up to $1,000,000 in additional funds.
Since February 29, 2000, Unico has issued 5,000,000 shares of its common
stock at $0.10 per share. Unico has received approximately $150,000 of cash
proceeds and $50,000 of services from the sale of its shares and Unico expects
to receive approximately $300,000 more in cash proceeds in the near future.
Much of these funds have been spent acquiring equipment necessary for mining
operations. Unico's current cash will sustain operations only for
approximately 2 to 3 additional months.
Results of Operations.
During the three months ended May 31, 2000, Unico experienced a net loss
in the amount of $169,136, or approximately ($0.003) per share, compared to
the net loss of $215,605, or approximately ($0.004) per share, for the three
months ended May 31, 1999.
3
<PAGE>
Unico attributes the decreased net loss for the three month period ended
May 31, 2000 primarily to a $40,940 decrease in general and administrative
expenses.
Liquidity and Capital Resources
Unico's stockholders' (deficit) decreased $9,614 in the three months
ended May 31, 2000, from a deficit of ($1,694,310) as of February 29, 2000 to
a deficit of ($1,684,696) as of May 31, 2000. Cash and cash equivalents
decreased $3,246 to $209,540 at May 31, 2000 from $212,786 at February 29,
2000. Cash used in operating activities reflects a net loss of $169,136,
partially offset by non-cash expenses of $50,000 for common stock issued for
services.
This decrease in cash and cash equivalents was partially offset by net
cash provided by financing activities through $128,750 cash received for the
issuance of shares of Unico's common stock and a $67,500 increase in advances
from related parties. Unico utilized $140,900 cash for capital requirements
for the purchase of property and equipment, and approximately $58,596 cash in
paying operating expenses.
Unico's most significant cash needs in 2000 include raising funds for the
purchase of approximately 680 acres of land adjacent to the mining property
which Unico is leasing and to pay for expenses associated with the
commencement of mining activities. Unico's present cash resources are not
adequate to sustain operations through 2000. Unico will be required to raise
additional capital through borrowing or additional sale of equity.
Our auditors have issued a "going concern" opinion in note 8 of our
financial statements, indicating we do not have established revenues
sufficient to cover our operating costs and to allow us to continue as a going
concern. If we are successful in raising and/or collecting an additional
$250,000 to $300,000 in equity or debt capital in the next 2 to 3 months, we
believe that Unico will have sufficient funds to complete its planned real
property acquisition, commence mining operations, and meet operating expenses
until income from mining operations should be sufficient to cover operating
expenses.
We intend to seek additional capital from private sales of Unico's common
stock and, if necessary, from loans from our management. In the event income
from mining operations is delayed or is insufficient to cover operating
expenses, then Unico will need to seek additional funds from equity or debt
financing, for which we have no commitments.
4
<PAGE>
During the quarter ended May 31, 2000, Pellett Investments purchased or
arranged for the purchase of convertible notes for $400,000 which were
converted into 4,000,000 shares of Unico common stock at $0.10 per share.
Unico issued all 4,000,000 shares but Unico had received payment for only
approximately 1,000,000 of the shares as of May 31, 2000. Unico should soon
receive approximately $300,000 cash for the shares already issued. After
receiving payment of the remaining $300,000 cash Unico will then issue an
additional 1,200,000 shares to persons affiliated with Pellett Investments for
no additional consideration.
Revenue. We have had no revenues from operations during the past two
fiscal years or since our last fiscal year ended February 29, 2000. We do not
anticipate generating any revenues from operations until approximately 2 to 3
months after we commence active mining operations.
Cost of operations. During the last several months Unico has spent
substantial funds on purchasing equipment and preparing the Deer Trail mine
for active mining operations which we intend to commence in September 2000.
ANY FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-QSB REFLECT
MANAGEMENT'S BEST JUDGMENT BASED ON FACTORS CURRENTLY KNOWN AND INVOLVE RISKS
AND UNCERTAINTIES. ACTUAL RESULTS MAY VARY MATERIALLY.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The following legal proceedings involving Unico as a defendant were
either commenced or settled during the three month period ended May 31, 2000:
1. On February 9, 2000, a case was filed against Unico by Bill L.
Means, Sherman Milliner and Mary C. Milliner. The case was filed in
Superior Court, Maricopa County, State of Arizona (Case No.
CV2000-002588). The plaintiffs sought $150,000 plus interest as the
result of an alleged breach of contract by Unico. The case was
recently settled with Unico agreeing to pay $141,500 to the
plaintiffs over a period of approximately 6 years. If Unico defaults
on its settlement payment obligations, a judgment will be entered
against Unico for the full $150,000 plus prejudgment interest from
May 22, 1995 at 6% per annum, and post judgment interest at 10% per
5
<PAGE>
annum. Unico is to provide 1,000,000 shares of its common stock as
security for the judgment.
2. In April, 2000, Melvin J. Sullivan filed a lawsuit against Unico in
the U.S. District Court, District of Utah, Central Division (Case No.
2:00CV-0290) in which plaintiff alleges that he was injured while
operating a mucker on Unico's property. The plaintiff alleges
general damages of at least $100,000 and other unspecified damages.
Unico denies any liability, and intends to defend the case
vigorously. Unico has filed a counterclaim against Mr. Sullivan
seeking reimbursement for the repair costs incurred in repairing the
mucker.
Item 2. Changes in Securities.
During the three month period ended May 31, 2000, Unico made the
following sales of shares of Unico's common stock which were not registered
under the Securities Act of 1933:
No. of
Date Recipient Shares Consideration Valuation
-------- ---------------- --------- ------------- ----------
04/26/00 Xion, Inc. 2,000,000 Cash $200,000
05/02/00 B & H Industries 2,000,000 Cash $200,000
05/26/00 David J. Capraro 500,000 Cash $ 50,000
05/26/00 Eben Loewenthal 500,000 Services $ 50,000
Mr. David J. Capraro holds an option to purchase up to 1,550,000 shares
at $0.10 per share on or before 02/14/02. Mr. Capraro exercised a portion of
this option by purchasing 500,000 shares at $0.10 per share on or about
05/26/00 which purchase has been identified in the table above.
Unico is presently owed approximately $300,000 for the issuances of
shares to Xion, Inc. and/or B & H Industries in April and May, 2000.
All of the shares described above in the table were sold directly by Unico,
and no underwriters were involved in the transactions. Unico relied on
section 4(2) of the Securities Act of 1933 in making the sales of securities
to David J. Capraro and Eben Loewenthal. The shares sold to Xion, Inc. and B
& H Industries were sold pursuant to Rule 504 of Regulation D and Section 3(b)
of the Securities Act of 1933. No advertising or general solicitation was
employed in offering the shares. Each purchaser received disclosure
information concerning Unico. Each purchaser also had the opportunity to
investigate Unico and ask questions of its
6
<PAGE>
president and board of directors. The securities sold to David J. Capraro and
Eben Loewenthal were offered for investment purposes only and not for the
purpose of resale or distribution. The transfer of the shares sold to David
J. Capraro and Eben Loewenthal was appropriately restricted by Unico.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) There are no exhibits included with this report.
(b) No Current Reports on Form 8-K were filed by Unico during the
quarter ended May 31, 2000.
7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNICO, INCORPORATED
(Registrant)
Date: July 18, 2000 By: /s/ Ray C. Brown
---------------------------------
Ray C. Brown, Chief Executive
Officer and Principal Financial
and Accounting Officer
8
<PAGE>
UNICO, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2000 and February 29, 2000
<PAGE> 9
UNICO, INC. AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
May 31, February 29,
2000 2000
------------- -------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 209,540 $ 212,786
Taxes receivable 433 433
Prepaid expenses 5,000 9,719
------------- -------------
Total Current Assets 214,973 222,938
------------- -------------
PROPERTY AND EQUIPMENT
Property and equipment, net (Note 4) 310,088 178,029
------------- -------------
Total Property and Equipment 310,088 178,029
------------- -------------
OTHER ASSETS
Operating agreement (Note 10) - -
Refundable deposit 500 500
------------- -------------
Total Other Assets 500 500
------------- -------------
TOTAL ASSETS $ 525,561 $ 401,467
============= =============
<PAGE> 10
UNICO, INC. AND SUBSIDIARY
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
May 31, February 29,
2000 2000
------------- -------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 55,340 $ 32,915
Accrued expenses 1,410 1,410
Advances from related parties (Note 7) 755,699 688,199
Notes payable (Notes 5 and 10) 286,000 286,000
Accrued interest payable 557,761 530,456
------------- -------------
Total Current Liabilities 1,656,210 1,538,980
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 10) 554,047 556,797
------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, 100,000,000 shares authorized at
$0.10 par value; 50,266,712 shares issued and
outstanding 5,526,671 5,026,671
Additional paid-in capital 325,052 325,052
Stock subscription receivable (421,250) (100,000)
Accumulated deficit (7,115,169) (6,946,033)
------------- -------------
Total Stockholders' Equity (Deficit) (1,684,696) (1,694,310)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 525,561 $ 401,467
============= =============
<PAGE> 11
UNICO, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended
May 31,
2000 1999
------------- -------------
REVENUES
Sales $ - $ -
------------- -------------
Total Revenues - -
------------- -------------
EXPENSES
General and administrative 127,405 168,345
Depreciation and amortization 8,841 9,159
------------- -------------
Total Expenses 136,246 177,504
------------- -------------
Loss from Operations (136,246) (177,504)
------------- -------------
OTHER INCOME (EXPENSES)
Investment income 415 567
Interest expense (33,305) (38,668)
------------- -------------
Total Other Income (Expenses) (32,890) (38,101)
------------- -------------
NET LOSS $ (169,136) $ (215,605)
============= =============
BASIC LOSS PER SHARE $ (0.00) $ (0.00)
============= =============
<PAGE> 12
UNICO, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Stock
------------------------- Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, February 29, 2000 50,266,712 $ 5,026,671 $ 325,052 $ (100,000) $ (6,946,033)
Common stock issued for cash
and subscription receivable
at $0.10 per share 4,000,000 400,000 - (321,250) -
Common stock issued for
cash at $0.10 per share 500,000 50,000 - - -
Common stock issued for
services at $0.10 per share 500,000 50,000 - - -
Net loss for the three months
ended May 31, 2000 - - - - (169,136)
------------ ------------ ------------ ------------ -------------
Balance, May 31, 2000 55,266,712 $ 5,526,671 $ 325,052 $ (421,250) $ (7,115,169)
============ ============ ============ ============ =============
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION
UNICO, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
May 31,
2000 1999
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (169,136) $ (215,605)
Adjustments to reconcile net loss to net cash (used) by
operating activities:
Stock issued for services 50,000 21,900
Depreciation 8,841 9,159
Loss on disposition of asset - 667
Changes in operating assets and liabilities:
Decrease in accounts receivable and related receivables - 29,100
Decrease in prepaid expenses 4,719 -
Increase in accounts payable and other liabilities 46,980 53,112
------------- --------------
Net Cash (Used) by Operating Activities (58,596) (101,667)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (140,900) -
------------- --------------
Net Cash (Used) by Investing Activities (140,900) -
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in advances from related parties 67,500 82,746
Issuance of stock for cash 128,750 40,000
------------- --------------
Net Cash Provided by Financing Activities 196,250 122,746
------------- --------------
NET INCREASE (DECREASE) IN CASH (3,246) 21,079
CASH AT BEGINNING OF PERIOD 212,786 81,642
------------- --------------
CASH AT END OF PERIOD $ 209,540 $ 102,721
============= ==============
CASH PAID DURING THE PERIOD FOR:
Interest $ 6,000 $ -
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES:
Issuance of stock for services $ 50,000 $ 21,900
</TABLE>
<PAGE> 14
UNICO, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
May 31, 2000 and February 29, 2000
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Unico, Inc. (the Company) was organized under the laws of the State of
Arizona on May 27, 1966 under the name of I.I. Incorporated. The name was
later changed to Industries International, Incorporated, then Red Rock Mining
Co., Inc. and finally Unico, Inc. The Company was incorporated for the
purpose of exploring and, if warranted, developing unpatented lode mining
claims. The Company is presently maintaining and drilling the claims through
sampling, tunnel cleaning, timbering, drill site preparation and other
evaluation activities while seeking financing for further exploration and
development. To date, there has been no material production from the claims
and there are no known, proven or probable reserves.
HydroClear, Ltd., the Company's wholly-owned subsidiary, was organized
for the purpose of marketing water purification units used for purifying
swimming pool or cooling tower water by eliminating bacteria and algae without
the use of chlorine or bromine. HydroClear, Ltd. is currently inactive.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual method
of accounting. The Company has elected a February 28, or 29, year end.
b. Basic Loss Per Share
The following is an illustration of the reconciliation of the numerators
and denominators of the basic loss per share calculation:
For the
Three Months Ended
May 31,
2000 1999
-------------- ------------
Net loss (numerator) $ (169,136) $ (215,605)
Weighted average shares outstanding
(denominator) 51,989,538 47,674,114
-------------- ------------
Basic loss per share $ (0.00) $ (0.00)
============== ============
Dilutive loss per share is not presented due to potentially dilutive
items being antidilutive in nature.
<PAGE> 15
UNICO, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
May 31, 2000 and February 29, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. Provision for Taxes
At May 31, 2000, the Company had net operating loss carryforwards of
approximately $7,115,000 that may be offset against future taxable income
through 2020. No tax benefit has been reported in the financial statements
because the Company believes there is a 50% or greater chance the
carryforwards will expire unused. Accordingly, the potential tax benefits of
the net operating loss carryforwards are offset by a valuation allowance of
the same amount.
d. Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
e. Principles of Consolidation
The consolidated financial statements include those of Unico, Inc. (the
Company) and its wholly-owned subsidiary, HydroClear, Ltd.
f. 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 of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
g. Recoverability of Asset Costs
The Company assesses on an annual basis the recoverability of its
investment in mining rights. Any decline in value is recorded when
recognized. Any sale of assets is charged to asset costs until the cost has
been recovered in full.
h. Unaudited Financial Statements
The accompanying unaudited financial statements include all of the
adjustments which, in the opinion of management, are necessary for a fair
presentation. Such adjustments are of a normal recurring nature.
NOTE 3 - MINING CLAIMS AND LEASES
The Company received four Quit Claim Deeds, all dated August 5, 1986,
from an unrelated corporation for thirty-two (32) unpatented mining claims
located in Piute County, Utah. The mine was obtained in exchange for the
issuance of two million seven hundred thousand (2,700,000) shares of Company's
common stock. No cost basis has been ascribed to the mine.
<PAGE> 16
UNICO, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
May 31, 2000 and February 29, 2000
NOTE 3 - MINING CLAIMS AND LEASES (Continued)
On March 30, 1992, the Company entered into a ten-year Mining
Lease-Option to Purchase, to be effective June 1, 1992, of twenty-eight (28)
patented claims comprising 505.3 acres, five (5) patented mill sites with 30
acres and one hundred seventy one (171) unpatented claims encompassing 2,720
acres located near Marysvale, Utah (the Deer Trail Mine). Required lease
royalty-rentals are five percent (5%) of gross receipts from mineral sales
less certain specified operating costs but not less than, initially, four
thousand dollars ($4,000) per month. The minimum monthly royalty increased by
two thousand dollars ($2,000) in July 1994 and 1997, and will increase again
in July 2000. The option purchase price is two million dollars ($2,000,000)
until May 31, 1999, and four million dollars ($4,000,000) until May 31, 2002,
the end of the lease-purchase agreement.
NOTE 4 - FIXED ASSETS
Fixed assets are recorded at cost, major additions and improvements are
capitalized and minor repairs are expensed when incurred.
Depreciation of property and equipment is determined using the
straight-line method over the expected useful lives of the assets as follows:
Description Useful Lives
---------------- -------------
Automobiles 4 years
Lab equipment 10 years
Mining equipment 12 years
Fixed assets consist of the following:
May 31, February 29,
2000 2000
-------------- ------------
Automobiles $ 26,631 $ 26,631
Mining equipment 460,500 319,600
Lab equipment 800 800
-------------- ------------
Total fixed assets 487,931 347,031
-------------- ------------
Less: accumulated depreciation (177,843) (169,002)
-------------- ------------
Net Fixed Assets $ 310,088 $ 178,029
============== ============
Depreciation expense for the three months ended May 31, 2000 and the year
ended February 29, 2000 amounted to $8,814 and $29,213, respectively.
<PAGE> 17
UNICO, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
May 31, 2000 and February 29, 2000
NOTE 5 - NOTES PAYABLE
Joint Venture
The Company entered into a joint venture agreement with a limited
partnership to finance, own and operate a mining operation and processing
facility to be built near Marysvale, Utah. The claims described in Note 3,
above, were the properties to be exploited. In exchange for a $25,000 capital
contribution and the claims mentioned, the Company received a twenty-five
percent (25%) interest in the ownership, profits, gains, losses, deductions
and credits derived from the Joint Venture.
However, in response to litigation initiated by the Company, a proposed
settlement terminating the Joint Venture was signed on June 30, 1994.
Provisions included the return of all mine interests, all improvements
thereto, the benefit of all payments, engineering, etc. and a fluorite
contract to the Company. The Company is obligated to pay $250,000 plus
$36,000 plus interest at an annual rate of nine percent (9%) in thirty-six
(36) equal payments beginning in October 1994. The $250,000 could potentially
be convertible to the Company's stock. Additionally, the Company will be
obligated to pay approximately $580,000 from one-fourth of the net profit from
future mine operations. The note is currently in default, making the entire
balance due as of the balance sheet date. The balance due at May 31, 2000 was
$286,000.
NOTE 6 - INVESTMENT IN MINES
In May of 1995, the Company entered into an agreement to purchase 52
mining claims, 9 mill sites, water rights ad mill equipment near Searchlight,
Nevada from E.R.I. Gold and Silver, Corp. (ERI) for $280,000. According to
the terms of the agreement, the Company issued two million of its restricted
investment, publicly traded shares as payment in full to seller. The company
was then committed to re-purchase the shares within nine months of the date of
closing at a price of $0.14 per share. The nine month period was extended to
June 1, 1996. The Company decided not to purchase the shares, and according
to the agreement, ERI kept all shares issued to it. The investment was
written down to its estimated net realizable value of $-0- at February 28,
1998.
NOTE 7 - ADVANCES FROM RELATED PARTIES
Advances from related parties amounted to $755,699 at May 31, 2000, are
due on demand, and accrue interest at 10% per annum. Interest expense
amounted to $19,221 and $24,584 at May 31, 2000 and 1999, respectively.
NOTE 8 - GOING CONCERN
The Company's consolidated financial statements are prepared using
generally accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. The Company has incurred losses from its inception
through May 31, 2000. It has not established revenues sufficient to cover its
operating costs and to allow it to continue as a going concern. During the
next twelve months, the Company's plan of operation consists of the following:
<PAGE> 18
UNICO, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
May 31, 2000 and February 29, 2000
NOTE 8 - GOING CONCERN (Continued)
* Hire additional employees needed to commence mining operations;
* Commence mining operations in approximately June or July 2000; and
* Raise up to $1,000,000 in additional funds.
Management believes the Company's current cash will sustain operations
for approximately 2 to 3 additional months. In the event income from mining
operations is delayed or is insufficient to cover operating expenses, the
Company will need to seek additional funds from equity or debt financing, for
which the Company has no current commitments. In the interim, management is
committed to meeting the minimum operating needs of the Company.
NOTE 9 - DECLINE IN VALUE OF ASSETS
The Company issued 4,000,000 restricted common shares at $0.10 per share
for mining assets and an operating agreement for the Gold Button Mine located
in Wagoner, Arizona. The Company is not presently operating the mine due to
an order from the U.S. Forest Service regarding fire danger.
Due to the inability of the mine to produce revenues and the lack of
substantive evidence as to its net realizable value, the book value of the
operating agreement has been reduced to zero.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Litigation
----------
On August 8, 1996, the Allen Ball and Connie Ball Living Trust filed
suit against the Company. The suit is for the $286,000 and accrued interest
as summarized in Note 5. The Company has engaged counsel to defend itself in
the action.
In an action filed by the Mine Safety and Health Administration (MSHA)
the Company was assessed certain penalties as a result of citations issued by
MSHA. During January 2000, the Company settled with MSHA and is required to
pay penalties totaling $22,000. The penalties are to be paid in eight
installments of $2,750 beginning May 1, 2000 and continuing every six months
until paid. The Company has accrued $19,250 as a contingent liability at May
31, 2000.
On February 9, 2000, a case was filed in Superior Court, Maricopa
County, Arizona against the Company. The Plaintiffs are seeking $150,000 plus
interest as a result of an alleged breach of contract by the Company. During
April 2000, the Company began settlement agreements with the plaintiffs for
$141,500 which has been accrued as part of gold contracts payable and is
payable as follows:
<PAGE> 19
UNICO, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
May 31, 2000 and February 29, 2000
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
1. $12,000, comprised of $10,000 of principal plus $2,000 for
attorney fees to be paid upon execution of the release and
discharge agreement.
2. $12,000, comprised of $10,000 of principal plus $2,000 for
attorney fees to be paid on December 30, 2000.
3. $10,000 to be paid on June 30, 2001; and
4. $2,000 per month beginning July 31, 2001 until the total principal
amount of $137,500 has been paid.
The agreement also calls for security of judgment in the amount of
$150,000 plus 6% interest per year dating back to May 22, 1995. The judgment
will accrue interest at the statutory rate of 10% per year until paid in full.
Plaintiffs agree that they shall not record the judgment or attempt to execute
on it so long as the Company makes payment pursuant to the schedule set forth
above.
As further security, the amount owed under the judgment will be secured
by a stock pledge in the amount of 1,000,000 shares of the Company stock. An
escrow account will be established by the Company to hold the 1,000,000
shares.
Operating/Management Agreement
------------------------------
The Company had contracted with SLC Environmental, LLC (SLC) to manage
and operate all of its mines, mining property and mining claims. In return
for SLC's services, the Company was to pay all costs incurred by SLC in
operating and managing the mines. Additionally, the Company was to pay SLC
15% of the net profit, after taxes, from the operation and management of all
projects managed or operated by SLC. The Company terminated the services of
SLC during August 1996. SLC has claimed the Company owes it $318,870 as a
result of this agreement. The Company does not agree and plans to respond
vigorously to any legal proceedings, but has accrued this amount as a
contingent liability at May 31, 2000.
Commitments
-----------
On October 5, 1998, the company entered into a development agreement
with Guilderbrook, Inc. (NY Closely Held Corp.) whereby Guilderbrook, Inc.
will jointly provide necessary financial and management resources to retain
the Deer Trail Mine lease discussed in Note 3 and to provide necessary
equipment to put the mine into productive operation. For this, Guilderbrook,
Inc. will receive 25% of the net profits from the mine operations subsequent
ore sales.
During December 1999, the Company entered into an engagement agreement
with Pellett Investments (Pellett) whereby Pellett agreed to buy a convertible
note bearing interest at 5% per annum, convertible into ten million
(10,000,000) shares of the Company's common stock at $0.10 per share.
<PAGE> 20
UNICO, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
May 31, 2000 and February 29, 2000
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
The ten million shares are to be delivered as follows:
1. The Company shall deliver 2,000,000 shares of common stock to
Pellett as soon as practical;
2. Pellett will then forward $200,000 to the Company as soon as
practical;
3. Four subsequent conversions will be done in a duplicate manner as
described in 1. and 2. above to equal a total conversion of
$1,000,000; and
4. An additional 3,000,000 shares of common stock will be registered
in the name of Penny Pellett and Forest Minerals, Inc. upon payment
of each successful round of conversion as follows:
* 360,000 shares of common stock to Forest Minerals, Inc. and
* 240,000 shares of common stock to Penny Pellett.
Gold Delivery Contracts
-----------------------
The Company entered into four contracts for the advance payment of gold.
The contracts, which total to $166,000, allowed the Company to collect
$141,000, net of commissions. The contracts call for the Company to deliver
gold, in increments of not less than one troy ounce, beginning six months from
the various purchase dates. Three of these contracts are all currently due
and outstanding, one is currently being settled as described under litigation.
The amount accrued as a contingent liability associated with these contracts
at May 31, 2000 was $215,927 and was calculated by the ounces due under these
contracts at the February 28, 1997 spot rate as published in the Wall Street
Journal.
NOTE 11 - STOCK TRANSACTIONS
During April 2000, the Company issued 4,000,000 shares of stock for cash
of $78,500 and a receivable of $321,250 (or $0.10 per share).
During May 2000, the Company issued 500,000 shares of stock for cash of
$50,000 (or $0.10 per share).
During May 2000, the Company issued 500,000 shares of stock for services
valued at $50,000 (or $0.10 per share).
NOTE 12 - SUBSEQUENT EVENTS
During June and July 2000, an officer advanced approximately $65,000 to
the Company in the form of a note payable, accruing interest at 10% per annum,
unsecured.
