SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended May 31, 1997
Commission file number 0-14973
UNICO,INC.
(Exact name of Registrant as specified in its charter)
New Mexico 85-0270072
(State of Incorporation) (IRS Employer ID #)
Registrant's telephone number, including area code 505-326-2668
Securities registered pursuant to Section 12(g) of the Act:
$.20 par value common stock
(Title of class)
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 .
On June 30, 1997, there were 986,590 shares of registrant's
$0.20 par value common stock outstanding.
<PAGE>
INDEX
TO REPORT ON FORM 10-Q
FOR UNICO, INC.
Item in Form 10-Q Page
PART I: FINANCIAL INFORMATION
Item 1. Financial statements
Consolidated balance sheets as of May 31, 1997
and February 28, 1997 3
Consolidated statements of operations for the three
month periods ended May 31, 1997 and 1996 5
Consolidated statements of cash flows for the
three months ended May 31, 1997 and 1996 6
Notes to consolidated financial statements 7
Item 2. Managements discussion and analysis of financial
condition and results of operations. 7
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
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<CAPTION>
UNICO, INC.
Consolidated Balance Sheets
May 31, February 28,
1997 1997
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 442,821 $ 349,055
Accounts receivable 20,696 114,685
Accounts and accrued interest receivable from related parties 898 7,899
Inventories 20,861 20,861
Notes receivable from related parties 365,532 310,200
Tax refund receivable 325,539 340 298
TOTAL CURRENT ASSETS 1,176,347 1,142,998
PROPERTY AND EQUIPMENT
Land, buildings and improvements 434,327 434,327
Equipment 164,930 164,930
Refinery equipment 1,183,333 1,183,333
Co-generation equipment 290,298 290,298
Oil and gas properties 894,400 894,400
Property, plant and equipment (gross) 2,967,288 2,967,288
Accumulated depreciation & depletion (1,857,778) (1,828,936)
1,109,510 1,138,352
OTHER ASSETS
Notes receivable 9,318 9,318
Other assets (net) 151,359 152,359
Investment in Chatfield Dean 600,000 600,000
Investment in partnership 400,253 134,663
1,160,930 896,340
$ 3,446,787 $ 3,177,690
</TABLE>
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<TABLE>
<CAPTION>
Consolidated Balance Sheets - Continued
May 31, February 28,
1997 1997
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 55,132 $ 87,033
Taxes other than income 2,704 2,566
Other accrued expenses 7,788 3,115
Current portion of convertible subordinated
debentures payable to related parties 178,000 178,000
Current portion of long-term debt 8,892 8,892
Income taxes payable 106,000 -
TOTAL CURRENT LIABILITIES 358,516 279,606
LONG-TERM DEBT, net of current portion 7,579 9,727
CONVERTIBLE SUBORDINATED DEBENTURES PAYABLE
TO RELATED PARTIES - -
DEFERRED TAXES PAYABLE, net of current portion 81,950 85,800
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value,
authorized 8,000,000 shares,
none outstanding - -
Common stock, $0.20 par value,
authorized 2,500,000 shares,
issued and outstanding 986,590
shares 197,318 197,318
Additional paid in capital 2,042,576 2,042,576
Retained earnings 758,848 562,663
2,998,742 2,802,557
$ 3,446,787 $ 3,177,690
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
UNICO, INC.
Consolidated Statements of Income
For the three months ended
May 31, May 31,
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUES
Petroleum product sales $ - $ 140,774
Electrical capacity and energy - 75,912
Rent and other income 3,105 3,105
Natural gas sales 39,552 51,127
Income (loss) from investment in partnership 265,590 (63,929)
Management fees and overhead cost recovery 115,726 117,400
423,973 324,389
COSTS AND EXPENSES
Cost of sales 21,942 228,467
General and administrative 79,932 103,945
Depreciation, depletion
and amortization 28,842 34,478
Interest, net (5,745) 3,190
124,971 307,080
INCOME (LOSS) FROM OPERATIONS
BEFORE INCOME TAXES 299,002 (45,691)
Provision for income taxes:
Current 106,667 (17,000)
Deferred (3,850) (3,900)
102,817 (20,900)
NET INCOME (LOSS) $ 196,185 $ (24,791)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 986,590 986,590
EARNINGS (LOSS) PER COMMON SHARE $ 0.20 $ (0.03)
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
UNICO, INC.
Consolidated Statements of Cash Flows
For the three months ended
May 31, May 31,
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 196,185 $ (24,791)
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation, depletion and amortization 28,842 34,478
Deferred income taxes (3,850) (3,900)
(Income) loss on investment in partnership (265,590) 63,929
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 100,990 24,809
(Increase) decrease in inventories - 13,328
Increase (decrease) in accounts payable
and accrued expenses (27,090) (9,478)
Decrease in refundable deposits 1,000 -
Income tax refunds received 14,759 -
Increase (decrease) in income taxes accrued 106,000 (420,500)
NET CASH FLOW PROVIDED, (USED) BY OPERATING ACTIVITIES 151,246 (322,125)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment - (26,950)
Cash distribution received from partnership - 318,829
Increase in certificates of deposit - (1,923)
Decrease in certificates of deposit - 235,000
Investment in Chatfield Dean - (100,000)
Increase in notes receivable (55,332) (55,000)
Collections on notes receivable - 1,000
NET CASH FLOW PROVIDED (USED) BY INVESTING ACTIVITIES (55,332) 370,956
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt - 26,950
Payments on long term debt (2,148) (32,827)
NET CASH FLOW USED BY FINANCING ACTIVITIES (2,148) (5,877)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 93,766 $ 42,954
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 349,055 232,409
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 442,821 $ 275,363
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
The consolidated balance sheet as of May 31, 1997, the
consolidated statement of income for the three month periods ended May
31, 19976 and 1996, and the consolidated statement of cash flows for
the three month periods ended May 31, 1997 and 1996, have been
prepared by the Company, without audit. In the opinion of management,
all adjustments, (which include only normal recurring adjustments),
necessary to present fairly the financial position, results of
operations and changes in cash at May 31, 1997, and for all periods
presented have been made.
The Company's financial statement for the period May 31, 1997
have been prepared on a going concern basis which contemplates the
realization of assets and the settlement of liabilities and
commitments in the normal course of business. Several of the
Company's revenue sources have substantially declined over the past
year. Management recognizes that the Company must generate additional
resources to replace its existing depleting revenue base. The Company
has positive working capital and positive stockholders' equity at May
31, 1997. The Company also has no material long-term debt service
requirements at May 31, 1997. The Company's current declining revenue
stream would allow the Company to sustain operations on an ongoing
basis for at least the next fiscal year. Management's plans to
enhance its revenue base include consideration of the sale of its
refinery in Fredonia, Arizona, with a possible continued equity
participation, acquisition of additional refinery equipment in other
locations through a private placement offering, the sale of its
interest in Sand Creek Chemical Limited Partnership, or other business
transactions which would generate sufficient resources to assure
continuation of the Company's operations.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principals have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction
with the Company's Form 10-K, filed with the Securities and Exchange
Commission. The results of operations for the period ended May 31,
1997, are not necessarily indicative of operating results for the full
year.
Investment in Partnership
During the three month period ended May 31, 1997, unaudited
income for SCCLP was $442,650. The company's share of income
allocations as of that date included $98,268 and $167,322 to Gas
Technologies Group, Inc. ("GTGI"), and Intermountain Chemical, Inc.
("IC") respectively. The GTGI and IC shares are recorded using the
equity method and are included in results of operations for all
periods presented.
During the three month period ended May 31, 1997, the Company
received no cash distributions from SCCLP.
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations.
Business
The Company was incorporated under the laws of the State of New
Mexico in April, 1979. Company resources are segmented into four
categories of business; petroleum product refining and processing,
electrical energy production, natural gas production, and methanol
<PAGE>
production. Currently, refining and processing and electrical energy
production are performed by the Company's wholly-owned subsidiary,
Intermountain Refining, Co., Inc. ("IRC"), while natural gas
production is carried-out by the Company under the name Unico
Resources. Through its wholly-owned subsidiary, Intermountain
Chemical, Inc., the Company manages and operates a methanol production
facility, owned by others, in Commerce City, Colorado. Through its
wholly owned subsidiary GTGI, the Company maintains a limited
partnership interest in the general partner of the methanol production
facility.
Refining
The Company in the past refined low-cost, heavy crude oil and
other low gravity refined products into diesel fuel, fuel oils, and
asphalt which were generally marketed on a wholesale basis in the
intermountain region. IRC experienced a sharp reduction in the
availability of crude oil from it's traditional sources and has
operated it's refinery only on a limited basis during the past four
years. The Company is hopeful that a long term solution to the supply
shortage can be resolved but thus far has been unsuccessful in
locating raw materials that would allow the economic operation of the
facility. In addition, IRC periodically provides certain asphalt
terminalling services wherein IRC receives a fixed monthly fee and
reimbursement of certain operating expenses directly related to the
service provided.
Co-Generation
The co-generation plant is capable of producing up to 3,000
kilowatts of electrical energy that has been sold to an electric
company in the local area. Additionally, when the refinery is
operating the plant produces all electricity and a portion of the
steam used in the refining process thereby contributing some savings
in refinery operating costs. In 1997 the Company's electric customer
terminated its electric purchase agreement with the Company and the
co-generation plant has been idled pending identification of
alternative uses for this resource.
Natural Gas Production
In July, 1988, the Company acquired an interest in and began
operating 20 natural gas wells located in the Hugoton basin in
Southwestern Kansas. Natural gas and helium produced is sold, under
exclusive contract, to K.N. Energy, of Lakewood, Colorado.
Methanol Production
In July, 1988, the Company initiated a project to construct a
250 ton per day methanol production facility in the Denver, Colorado
area. The facility converts natural gas into chemical grade methanol
which is marketed to refiners and chemical distributors. The Company,
through its subsidiary IC, is the managing general partner of Sand
Creek Chemical Limited Partnership ("SCCLP") which performs all
production and marketing operations associated with the facility. IC
holds the general partnership interest in IC Partners Limited, ("IC-
PL"), the general partner of SCCLP. The facility is owned by Fleet
Bank, previously Shawmut Bank Connecticut, who leases the facility to
SCCLP under a fifteen year operating lease. Construction and start-up
testing of the facility was substantially completed in October 1993
and the facility is currently operating near design capacity. The
Company provides management, accounting and personnel services to the
facility and was active in the completion of construction of the
project. The Company has received various payments and expense
reimbursements associated with its services and activities on the
project.
In December 1994, the Company, through its newly formed wholly owned
subsidiary GTGI, acquired a limited partnership interest in IC-PL.
The Company receives allocations of SCCLP income and loss in
accordance with it's various interests in IC-PL.
<PAGE>
Results of Operations
Quarter ended May 31, 1997 compared to quarter ended May 31,1996
Total revenues for the current year quarter increased to
$424,000, up 31% from $324,000 during the same period last year.
Earnings before income taxes increased to $297,000, up 754% from a
loss of $46,000 experienced during the prior year quarter. Cash flow
increased to $94,000, up 118% from $43,000 last year.
The increase in revenues consists of a $330,000 increase from
income allocations associated with the Registrants investment in SCCLP
offset be declines of $141,000 from petroleum product sales, $76,000
from electrical energy and capacity sales, and $12,000 from natural
gas sales. The significant improvement in SCCLP income allocations is
attributed to greatly improved operating performance of the Commerce
City Methanol production facility coupled with the realization of
improved product prices compared to last year. The reduction in
petroleum product sales was due to the termination of a crude oil
contract in February of 1997. The reduction in electrical energy and
capacity sales was due to the termination of an electrical energy and
capacity supply agreement in January 1997. The Registrant is actively
seeking alternative uses for these two facilities but has yet to
develop any economically feasible alternatives. The decline in
natural gas sales is attributed to a 13% decline in production due to
reduced spring demand coupled with an 11% decline in market prices
received compared to last year. Revenue associated with SCCLP
management fees and administrative cost reimbursement, as well as
rental income, remained substantially unchanged from last year.
Operating income (loss) by industry segment, before allocation
of general corporate overhead for the first quarter of 1998 compared
to the same period during 1997 is as follows:
Increase
Segment 1998 1997 (Decrease)
Refining $ (7,500) $ (38,800) $ 31,300
Electrical generation (3,100) 29,200 (32,300)
Gas production 11,700 21,300 (9,600)
Methanol project 381,300 53,200 328,100
Corporate overhead
and other (83,400) (110,600) 27,200
$ 299,000 $ (45,700) $344,700
The decline in refining losses is attributed to reduced
employment and maintenance costs associated with the idling of the
refining facility. It is anticipated that the refinery facility can
be maintained at relatively low cost in the future. The decline in
electrical generation income is also attributed to the idling of the
facility pending identification of alternative utilization of the
generators. As with the refinery, it is anticipated that the
generation facility can be maintained in an idled mode a very small
cost. The decline in gas production income is attributed to the
overall reduction in revenues coupled with an increase in well
workover costs due to a pump failure during the current year. It is
anticipated that summer demand will increase in the next quarter and
gas prices are expected to improve compared to last summer which
should result in earnings improvements over the next few months. The
substantial improvement in methanol related activities is due to
improved operating performance of the facility contributing to both
increased sales volumes as well as significantly reduced repair costs.
In addition, methanol product prices have improved significantly over
last year and have continued to remain firm into the summer months
when prices are generally expected to fall. Earnings associated with
the facility are expected to remain favorable at least through the end
of July 1997. The Registrant is currently negotiating the possible
sale of its interest in SCCLP however, no formal agreement has been
reached at this time. The improvement in corporative overhead losses
is attributed to lower administrative office costs specifically in the
areas of professional services and interest. All other administrative
costs remained relatively unchanged.
<PAGE>
Liquidity and Capital Resources
The Registrant had cash and cash equivalents of $443,000 as of
May 31, 1997 compared with $349,000 at the beginning of the current
year representing a $94,000 increase during the current quarter. The
increase consists of $151,000 contribution from operations offset by a
$55,000 increase in the note receivable from Red Hills Manufacturing,
Inc. and a $2,100 reduction in term debt.
Presently, capital requirements are viewed to be minimal as the
Registrants has relatively little debt and management believes that
cash flow from ongoing operations will be adequate to meet cash
demands in the near future. Longer term however, it is recognized
that the Registrant will need to utilize its resources and develop
additional sources of cash flow to avoid depletion of current working
capital.
Significant sources of cash flow in the coming months consists
of management fees and administrative salary reimbursement from SCCLP
estimated to be approximately $38,000 per month plus cash flow from
natural gas production and sales of an estimated $10,000 per month.
The Registrant anticipates the receipt of income tax refunds from the
prior year of approximately $325,000. The Registrant anticipates
monthly operating costs and debt service to run approximately $21,000
per month in the near term. The payment of income tax liabilities, if
any, associated with SCCLP income allocations are expected to be
funded out of cash distributions from the partnership. The Registrant
presently has sufficient cash on hand to retire all of its outstanding
debt.
Inflation, Deflation and Changing Prices
The results of operations and capital expenditures will
continue to be affected by inflation, deflation and changing prices.
Prices of natural gas, and generator fuel could have a materially
adverse effect on the Registrant's operations. Management is unable
to predict the full impact of these factors on the results of
operations or working capital.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
(a) There are presently no legal proceedings pending of which
the Registrant is a party.
Item 4. Submission of Matters to a Vote of Security Holders
(a) During the period covered by this report, there were no
submissions of any matters to a vote of security holders,
through the solicitation of proxies or otherwise.
Item 5. Other Information
(a) On January 15, 1996 the Registrant executed a Letter of
Intent with Chatfield Dean & Co., ("Chad") setting out
the terms of a proposed acquisition, by the Registrant,
of all of the outstanding common and preferred stock of
Chad. The Registrant has previously reported information
regarding this proposed acquisition in its Form 8-K filed
as of January 15, 1996, and in its Form 10-K filed for
the year ended February 29, 1996. On July 30, 1995, the
Registrant and Chad executed a definitive merger
agreement with respect to the proposed acquisition as
reported by the Registrant in it's Form 8-K filed with
the Commission on August 12, 1996. A summary of the
significant details of the acquisition are contained
within that filing. On May 14, 1997 the Registrant filed
a Form 8-K where it was reported that the merger
agreement between the Registrant and Chad had been
terminated and that the parties had no plans to
renegotiate the agreement. The Registrant subsequently
filed a request to withdraw the Form S-4 dated February
10, 1997 that was pending before the Commission in
relation to the proposed merger.
<PAGE>
(b) On June 2, 1997 the Registrant issued a press release
announcing that it has reached an agreement in principal
to acquire all of the outstanding stock of Santa Maria
Refining Company from Saba Petroleum Company. The
agreement however was not approved by Saba's board of
directors and the agreement has been terminated with no
current plans to renegotiate a new agreement. The
Registrant has not filed any reports on Form 8-K with the
Commission regarding this matter.
Item 6. Exhibits and Reports on Form 8-K
(b) There were no submissions on Form 8-K during the period
covered by this report.
(1) May 14, 1997 reporting the termination of the merger
agreement between the Registrant and Chatfield Dean
as discussed in Item 5 (a) of this Form 10-Q.
SIGNATURES
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 Registrant and in capacities and on the dates indicated:
UNICO, INC.
By: Rick L. Hurt Date: July 8, 1997
Rick L. Hurt, Controller, Secretary,
Treasurer, and Chief Financial Officer
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