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 August 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 September 30, 1997, there were 986,590 shares of registrant's $0.20
par value common stock outstanding.
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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 August 31, 1997
and February 28, 1997 3
Consolidated statements of operations for the three
and six month periods ended August 31, 1997 and 1996 5
Consolidated statements of cash flows for the
six months ended August 31, 1997 and 1996 6
Notes to consolidated financial statements 7
Item 2. Managements discussion and analysis of financial
condition and results of operations. 8
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
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<CAPTION>
UNICO, INC.
Consolidated Balance Sheets
August 31, February 28,
1997 1997
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 602,251 $ 349,055
Accounts receivable 22,886 114,685
Accounts and accrued interest receivable
from related parties 940 7,899
Inventories 20,861 20,861
Notes receivable from related parties 299,203 310,200
Tax refund receivable 367,208 340 298
TOTAL CURRENT ASSETS 1,313,349 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 (1,895,579) (1,828,936)
1,071,709 1,138,352
OTHER ASSETS
Notes receivable 9,318 9,318
Other assets (net) 149,868 152,359
Investment in Chatfield Dean 600,000 600,000
Investment in partnership 240,806 134,663
999,992 896,340
$ 3,385,050 $ 3,177,690
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<TABLE>
<CAPTION>
Consolidated Balance Sheets - Continued
August 31, February 28,
1997 1997
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 59,609 $ 87,033
Taxes other than income 2,597 2,566
Other accrued expenses 12,460 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 69,665 -
TOTAL CURRENT LIABILITIES 331,223 279,606
LONG-TERM DEBT, net of current portion 5,381 9,727
CONVERTIBLE SUBORDINATED DEBENTURES PAYABLE
TO RELATED PARTIES - -
DEFERRED TAXES PAYABLE 78,100 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 730,452 562,663
2,970,346 2,802,557
$ 3,385,050 $ 3,177,690
<FN>
See notes to consolidated financial
</TABLE>
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<TABLE>
<CAPTION>
UNICO, INC.
Consolidated Statements of Income
For the three months ended For the six months ended
August 31, August 31, August 31, August 31,
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Refined product sales $ - $ 108,304 $ - $ 249,078
Electrical capacity and energy - 57,300 - 133,212
Rent and miscellaneous income 6,836 2,832 9,941 5,937
Natural gas sales 68,577 64,302 108,129 115,429
Income (loss) from investment in partnership (159,447) (571,698) 106,143 (635,627)
Management fees and overhead
cost recovery 115,726 116,200 231,452 233,600
31,692 (222,760) 455,665 101,629
COSTS AND EXPENSES
Cost of sales 29,714 154,709 51,656 383,176
General and administrative 81,107 65,713 161,039 169,658
Depreciation, depletion
and amortization 37,801 35,159 66,643 69,637
Interest, net (5,515) 1,899 (11,260) 5,089
143,107 257,480 628,078 627,560
INCOME (LOSS) FROM OPERATIONS
BEFORE INCOME TAXES (111,415) (480,240) 187,587 (525,931)
Provision for income taxes:
Current (79,169) (142,448) 27,498 (159,448)
Deferred (3,850) (4,000) (7,700) (7,900)
(83,019) (146,448) 19,798 (167,348)
NET INCOME (LOSS) $ (28,396) $ (333,792) $ 167,789 $ (358,583)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 986,590 986,590 986,590 986,590
EARNINGS (LOSS) PER COMMON SHARE $ (0.03) $ (0.34) $ 0.17 $ (0.36)
<FN>
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
UNICO, INC.
Consolidated Statements of Cash Flows
For the six months ended
August 31, August 31,
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 167,789 $ (358,583)
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation, depletion and amortization 66,643 69,637
Deferred income taxes (7,700) (7,900)
(Income) loss on investment in partnership (106,143) 635,627
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 98,758 29,699
(Increase) decrease in inventories - 13,328
Increase (decrease) in accounts payable
and accrued expenses (18,048) (8,919)
Decrease in refundable deposits 2,491 -
Income tax refunds received 15,257 -
Increase (decrease) in income taxes accrued 27,498 (562,948)
NET CASH FLOW PROVIDED, (USED) BY OPERATING ACTIVITIES 246,545 (190,059)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment - (26,950)
Cash distribution received from partnership - 318,829
Increase in certificates of deposit - (3,485)
Decrease in certificates of deposit - 235,000
Investment in Chatfield Dean - (100,000)
Increase in notes receivable (259,000) (119,853)
Collections on notes receivable 269,997 1,500
NET CASH FLOW PROVIDED (USED) BY INVESTING ACTIVITIES 10,997 305,041
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt - 26,950
Payments on long term debt (4,346) (89,594)
NET CASH FLOW USED BY FINANCING ACTIVITIES (4,346) (62,644)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 253,196 $ 52,338
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 349,055 232,409
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 602,251 $ 284,747
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
The consolidated balance sheet as of August 31, 1997, the consolidated
statement of income for the three month periods ended August 31, 1997 and
1996, and the consolidated statement of cash flows for the three month
periods ended August 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 August 31, 1997, and
for all periods presented have been made.
The Company's financial statement for the period August 31, 1997 has 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
August 31, 1997. The Company also has no material long-term debt service
requirements at August 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 August 31, 1997, are not necessarily
indicative of operating results for the full year.
Investment in Partnership
During the three month period ended August 31, 1997, unaudited income for
SCCLP was $176,906. The company's share of income allocations as of that
date included $39,273 and $66,870 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 six month period ended August 31, 1997, the Company received no
cash distributions from SCCLP.
Subsequent Events
On October 6, 1997 and effective as of September 1, 1997, IC Partners Ltd.,
("ICPL"), the general partner of SCCLP, sold 100% of its interest in SCCLP to
an unrelated third party. The proceeds from the sale, net to the Company's
interest, was $150,000. In addition, the Company will receive a distribution
from SCCLP of approximately $28,800 for the payment of estimated tax
liabilities associated with income allocations to partners through August 31,
1997. It is therefore estimated that the Company will realize a loss of
approximately $62,000 on the disposition of its investment in SCCLP.
While the Company's wholly owned subsidiary IC is no longer the Managing
General Partner of SCCLP, the new Managing General Partner will continue to
utilize administrative services provided by the Company until such time that
administrative functions can be integrated under the control of new
management. The Company will receive reimbursement for administrative
services rendered on a time and materials basis.
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 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.
In October 1997, and effective as of September 1, 1997, IC-PL sold all of
its interest in SCCLP to an unrelated third party. Except for providing
continuing administrative services on a temporary basis, the Company no
longer has any involvement with SCCLP.
Results of Operations
Quarter ended August 31, 1997 compared to quarter ended August 31, 1996
Total revenues increased to $32,000, up 114% from a negative $223,000
experienced during the prior year quarter. Earnings before income taxes
increased to a loss of $111,000 during the current year quarter, up 77% from
a loss of $480,000 during the same period last year. Cash flow increased to
$253,000, a 387% increase from $52,000 realized last year.
The increase in revenues is attributed to a $412,000 decrease in loss
allocations associated with SCCLP offset by reductions in petroleum product
sales of $108,000 and electrical capacity sales of $57,000. The improvement
in SCCLP loss allocations is attributed to substantially improved operating
performance and higher product prices compared to the prior year. The
reductions associated with petroleum product sales and electrical capacity
sales relate to terminations of various contracts in February and January
1997 respectively.
Operating income (loss) by industry segment, before allocation of general
corporate overhead for the second quarter of 1998 compared to the same period
during 1997 is as follows:
Increase
Segment 1998 1997 (Decrease)
Refining $ (9,100) $ (29,600) $ 20,500
Electrical generation (3,100) 43,100 (46,200)
Gas production 28,300 34,300 (6,000)
Methanol project (43,800) (455,600) 411,800
Corporate overhead
and other (83,700) (72,400) (11,300)
$(111,400) $ (480,200) $ 368,800
The decline in refining losses is attributed to reduced employment and
maintenance costs associated with the idling of the refinery. The decline in
electrical generation income is also attributed to idling of the facility
pending identification of alternative uses for the generators. The slight
reduction in earnings from natural gas production is the result of improved
prices offset by slightly reduced production and the incurrance of certain
infrequent workover expenses. The substantial improvement in methanol
project losses is directly attributed to improved operating performance of
the facility coupled with higher product prices. The loss for the current
year quarter reflects the cost of the annual scheduled turnaround which
occurred in August of the current year. Administrative overhead expenses
increased slightly during the current year quarter mainly attributed to an
increase in office building expenses and repairs and the timing of
realization of certain annual expenses.
Six months ended August 31, 1997 compared to six months ended August, 31,
1996
Total revenues for the current year increased to $456,000, up 348% from
$102,000 in the prior year. Earnings before income taxes increased to
$188,000, up 136% over a loss of $526,000 in the prior year. Cash flow
increased to $253,000 up 384% from $52,000 realized during the same period
last year.
The increase in revenues is attributed to a significant improvement in
earnings allocations associated with SCCLP and offset by reductions in sales
of petroleum products and sales of electrical capacity and energy. All other
sources of revenues remained relatively unchanged from the prior year.
Petroleum product sales were terminated in February 1997 when the crude oil
purchase contract held by IRC expired. Electrical capacity and energy sales
were terminated in January 1997 when IRC's agreement with its electric
customer expired. The current improvement in income allocations from SCCLP
is attributed to steady operating performance during the first five months of
the current year coupled with improved methanol prices compared the last
year. Much of the current year gains were reversed in August 1997 due to
significant repair costs associated with planned turnaround activities.
Operating income (loss) by industry segment, before allocation of general
corporate overhead for the first six months of 1998 compared to the same
period during 1997 is as follows:
Increase
Segment 1998 1997 (Decrease)
Refining $ (16,600) $ (68,400) $ 51,800
Electrical generation (6,200) 72,300 (78,500)
Gas production 40,000 55,600 (15,600)
Methanol project 337,500 (402,400) 739,900
Corporate overhead
and other (167,100) (183,000) 15,900
$ 187,600 $ (525,900) $ 713,500
The reduction in losses associated with refining activities is the result
in cost saving measures implemented while the refinery is in a shut down
mode. The reduction in earnings associated with electrical generation is
attributed to the termination of the stand-by power agreement in January
1997. It should be noted that the majority of losses experienced currently
for both refining and generation consist of ongoing depreciation charges.
The reduction in earnings from natural gas production is associated with
expenses incurred to workover one well and plugging of one non producing
well. The substantial improvement associated with the methanol project is
attributed to improved operations at the SCCLP facility and higher product
prices realized compared to last year resulting in increased income
allocations to the Registrant. Management fee income and overhead cost
reimbursements were substantially unchanged from the prior year. As noted in
the financial statements filed with this report, the Registrant, effective as
of September 1, 1997, no longer holds a partnership interest in SCCLP nor
will it receive further management fees. It will however continue to receive
certain reimbursements for administrative services which will diminish over
the next several months. The reduction in corporate overhead costs is
attributed to an increase in rental income, a slight reduction in office
related expenses, and an increase in interest income.
Liquidity and Capital Resources
The Registrant had cash and cash equivalents of $602,000 as of August 31,
1997 compared to $349,000 at the beginning of the year representing a
$253,000 increase. The increase consists of a $246,000 contribution from
operations, net collections of notes receivable of $11,000, offset by
payments on debt of $4,000.
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 an
estimated $10,000 per month from natural gas production, and an additional
$5,000 per month from rental and interest income. It is estimated that
ongoing administrative costs will be approximately $13,500 per month before
consideration of possible cost reductions associated with the phaseout of
SCCLP administrative services. The Registrant anticipates the receipt of
approximately $367,000 from tax refunds from prior years and expects to
receive distributions from ICPL of approximately of $179,000 associated with
the sale of ICPL's interest in SCCLP. 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 October 6, 1997, ICPL, the general partner of SCCLP of which
the Registrant owns 90%, executed an agreement to sell all of its
interest in SCCLP to an unrelated third party. The effective
date of the sale was September 1, 1997. As a result of the sale,
IC, a wholly owned subsidiary of the Registrant, is no longer the
managing general partner of SCCLP and the Registrant is relived
of all continuing obligations, contingent or otherwise,
associated with general partnership interests in SCCLP. ICPL,
upon wrap up of all of its financial affairs, intends to dissolve
and distribute all of its net assets to its partners prior to the
end of calendar 1997. The Registrant will continue to provide
certain administrative services to SCCLP on a temporary basis
pending thetransfer of all accounting and reporting activities to
the new general partner. As part of the agreement, the
Registrant, along with William N. Hagler, its president, have
agreed not to compete in the methanol production business for a
period of three years. The Registrant believes that based on the
checkered history of the methanol facility, and scheduled
increases in plant lease costs slated for early 1998, the
disposal of its interest in SCCLP and the termination of ongoing
obligations associated with the management of the partnership is
in the best interest of the Registrant and its shareholders.
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.
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: October 10, 1997
Rick L. Hurt, Controller, Secretary,
Treasurer, and Chief Financial Officer
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