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, 1998
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 (510) 668-
4990
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, 1998, there were 7,149,428 shares of
Registrant's $0.20 par value common stock outstanding, and 5,474
shares of the Registrant's Series A Preferred 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 May 31, 1998
and February 28, 1998 3
Consolidated statements of operations for the three
month periods ended May 31, 1998 and 1997 5
Consolidated statements of cash flows for the
three months ended May 31, 1998 and 1997 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 11
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<CAPTION>
UNICO, INC.
Consolidated Balance Sheets
May 31, February 28,
1998 1998
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,112,882 $ 1,236,506
Accounts receivable 67,561 22,059
Accounts and accrued interest receivable
from related parties 56 2,390
Inventories 20,861 20,861
Notes receivable from related parties 81,353 102,026
Tax refund receivable 29,167 6,567
TOTAL CURRENT ASSETS 1,311,880 1,390,409
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 (1,993,642) (1,960,679)
973,646 1,006,609
OTHER ASSETS
Notes receivable 8,024 8,383
Other assets (net) 167,866 167,866
Investment in Chatfield Dean 600,500 600,500
776,390 776,749
$ 3,061,916 $ 3,173,767
</TABLE>
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<CAPTION>
Consolidated Balance Sheets - Continued
May 31, February 28,
1998 1998
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 74,042 $ 62,553
Taxes other than income 3,174 9,156
Other accrued expenses - -
Income taxes payable 250 25,024
TOTAL CURRENT LIABILITIES 77,466 96,733
DEFERRED TAXES PAYABLE, net of current portion 54,000 58,250
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value,
authorized 8,000,000 shares,
none outstanding - -
Common stock, $0.20 par value,
authorized 50,000,000 shares,
issued 1,129,308
shares 225,862 225,862
Additional paid in capital 2,213,837 2,213,837
Less: Treasury stock 3,699 shares (9,016) (9,016)
Retained earnings 499,767 588,101
2,930,450 3,018,784
$ 3,061,916 $ 3,173,767
<FN>
See notes to consolidated financial statements.
</TABLE>
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<CAPTION>
UNICO, INC.
Consolidated Statements of Income
May 31, May 31,
1998 1997
<S> <C> <C>
REVENUES
Natural gas sales $ 59,708 $ 39,552
Electrical capacity and energy - -
Processing and terminalling agreements - -
Petroleum product sales - -
Rent and other income 4,328 3,105
64,036 42,657
COSTS AND EXPENSES
Cost of sales 46,509 21,942
General and administrative 113,854 79,932
Depletion, depreciation and amortization 32,963 28,842
Interest, net (14,107) (5,745)
179,219 124,971
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (115,184) (82,314)
Provision (benefit) for income taxes
Current (22,600) (22,905)
Deferred (4,250) (3,925)
(26,850) (26,830)
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS (88,334) (55,484)
DISCONTINUED OPERATIONS
Income from operations related to the investment
in IC Partners, Ltd. (Less applicable income
taxes of $129,647 for 1998. - 251,669
NET INCOME (LOSS) $ (88,334) $ 196,185
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 1,129,308 986,590
BASIC AND FULLY DILUTED EARNINGS PER SHARE
Net income (loss) from continuing operations $ (0.08) $ (0.06)
Net income (loss) from discontinued operations 0.00 0.26
Net income (loss) per share $ (0.08) $ 0.20
<FN>
See notes to consolidated financial statements.
</TABLE>
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<CAPTION>
UNICO, INC.
Consolidated Statements of Cash Flows
For the three months ended
May 31, May 31,
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (88,334) $ 196,185
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation, depletion and amortization 32,963 28,842
Deferred income taxes (4,250) (3,850)
(Income) loss on investment in partnership - (265,590)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (43,168) 100,990
Increase (decrease) in accounts payable
and accrued expenses 5,507 (27,090)
Decrease in refundable deposits - 1,000
Income tax refunds received - 14,759
Increase (decrease) in income taxes accrued (47,374) 106,000
NET CASH FLOW PROVIDED, (USED) BY OPERATING ACTIVITIES (144,656) 151,246
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable (55,000) (55,332)
Collections on notes receivable 76,032 -
NET CASH FLOW PROVIDED (USED) BY INVESTING ACTIVITIES 21,032 (55,332)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long term debt - (2,148)
NET CASH FLOW USED BY FINANCING ACTIVITIES - (2,148)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (123,624) $ 93,766
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,236,506 349,055
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,112,882 $ 442,821
<FN>
See notes to consolidated financial statements.
</TABLE>
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Notes to Consolidated Financial Statements
The consolidated balance sheet as of May 31, 1998, the consolidated
statement of income for the three month periods ended May 31, 1998 and
1997, and the consolidated statement of cash flows for the three month
periods ended May 31, 1998 and 1997, 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,
1998, and for all periods presented have been made.
The Company's financial statements for the period May 31, 1998 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, 1998. The Company also has no
debt service requirements at May 31, 1998. 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, 1998, are not
necessarily indicative of operating results for the full year.
Discontinued Operations
Effective as of September 1, 1997, the Company sold its interest in IC
Partners Limited. Accordingly all operations associated with the
investment in and the operation of Sand Creek Chemical Ltd. are reported as
discontinued operations for all periods presented.
Subsequent Events
On June 30, 1998 and effective as of June 1, 1998, the Company issued
5,476,200 shares of its $.20 par value common stock and 5,474 shares of its
Series A Convertible Preferred Stock to the shareholders of Starlicon Group
International, Inc. ("SGI"), in exchange for 100% of the outstanding stock
of Starlicon International Corporation ("Starlicon"). Starlicon, located
in Fremont California, markets computer peripherals under the Paradise
brand name as well as certain generic computer components.
In accordance with the Stock Purchase Agreement dated February 21, 1998
between the Company and SGI and as amended by the Novation Agreement dated
June 30, 1998, all of the assets of Unico, Inc. will be transferred to its
wholly owned subsidiary Intermountain Refining Co., Inc. ("IRC"), and will
continue to be managed by, and at the sole discretion of, IRC's present
management which includes William N. Hagler, President and Chairman, and
Rick L. Hurt, Secretary, Treasurer and Director. In addition, upon the
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occurrence of certain events relating to Unico seeking and obtaining a new
listing with Nasdaq, but no sooner than November 30, 1998 and no later than
April 1, 1999, the Board of Directors of IRC, may, at their sole
discretion, consider a transaction involving IRC's stock, assets or
business prospects including a transaction that contemplates a distribution
of IRC's stock or assets to the holders of Unico Common Stock, exclusive of
holders who received stock issued in conjunction with the Starlicon
acquisition or who are issued Unico stock subsequent to June 1, 1998.
Mr. Hagler and Mr Hurt have resigned as officers and directors of Unico
but were reappointed as Assistant Executive Vice President and Assistant
Secretary respectively on a temporary basis for purposes of transferring
the assets of Unico to IRC. Mr. Hagler and Mr. Hurt also entered into
consulting agreements with the Company to provide for the orderly
implementation of the Starlicon acquisition. In addition to nominal hourly
fees to be paid for such consulting services, the Company issued warrants
to purchase 100,000 and 50,000 shares of Unico common stock to Mr. Hagler
and Mr. Hurt respectively. The warrants have an exercise price of $1.40
per share and have certain rights as to registration and anti-dilution.
In conjunction with the acquisition, the Company will issue 547,619
shares of its common stock to Azemuth, Inc., a company controlled by Mr.
Ike Suri and an affiliate of Starlicon, as compensation for consulting
services performed in connection with the acquisition.
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. Until September 1, 1997, 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 maintained
a limited partnership interest in the general partner of the methanol
production facility. The investment in the facility was sold effective as
of September 1, 1997.
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
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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
The Company has an interest in and operates 19 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 converted natural gas into chemical grade methanol which was
marketed to refiners and chemical distributors. Until September 1, 1997,
the Company, through its subsidiary IC, was the managing general partner of
Sand Creek Chemical Limited Partnership ("SCCLP") which performed all
production and marketing operations associated with the facility. IC held
the general partnership interest in IC Partners Limited, ("IC-PL"), the
general partner of SCCLP. The facility is owned by Fleet Bank, formerly
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 provided management,
accounting and personnel services to the facility and had been 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 a newly formed wholly-owned
subsidiary Gas Technologies Group, Inc. ("GTGI"), acquired a limited
partnership interest in IC-PL. The Company has received allocations of
SCCLP income and losses in accordance with its various interests in IC-PL.
Effective as of September 1, 1997, IC-PL sold all of its interest in SCCLP
to an unrelated third party and then dissolved. Both IC and GTGI received
cash distributions upon the dissolution of ICPL. Effective as of February
28, 1998, both IC and GTGI were liquidated into the Company. Operations
related to the Company's investment in IC-PL are reflected as discontinued
operations in the Company's financial statements effective for the year
ended February 28, 1998.
Results of Operations
Quarter ended May 31, 1998 compared to quarter ended May 31, 1997
Total revenues for the current year quarter increased to $64,000, up 50%
from $43,000 during the same period last year. Earnings from continuing
operations declined to a loss of $88,000, down 59% from a loss of $55,000
experienced during the first quarter last year. Cash flow decreased to a
use of $124,000 during the current quarter, down 232% from $94,000 last
year.
The increase in revenues is attributed to a substantial increase in
revenues from natural gas production coupled with a slight increase in
office space rental income. The increase in natural gas revenues is
attributed to a 7% increase in production over the same period last year
coupled with a 41% increase in gas prices realized.
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Operating income (loss) by industry segment, before allocation of
general corporate overhead for the first quarter of 1999 compared to the
same period during 1998 is as follows:
Increase
Segment 1999 1998 (Decrease)
Refining $ (6,500) $ (7,500) $ 1,000
Electrical generation (2,700) (3,100) 400
Gas production 4,600 11,700 (7,100)
Corporate overhead
and other (110,600) (83,400) (27,200)
$(115,200) $ (82,300) $ (32,900)
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 earnings is attributed to
a substantial increase in well equipment and down hole repairs experienced
during the current year compared to those experienced last year. With the
substantial improvement in gas prices in the current year and the
completion of significant repairs during the spring, it is anticipated that
gas production activities will demonstrate a marked improvement during the
summer and fall months. The increase in general and administrative costs
is attributed to increased professional services costs related to the
Starlicon acquisition and renovations performed on the Registrants
Farmington New Mexico office building.
Liquidity and Capital Resources
The Registrant had cash and cash equivalents of $1,113,000 as of May 31,
1998 compared with $1,237,000 at the beginning of the current year
representing a $124,000 decrease during the current quarter. The decrease
consists of $144,000 use from operations offset by a $21,000 collection on
the note receivable from Red Hills Manufacturing, Inc.
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.
Sources of cash flow in the coming months are estimated to consist of
approximately $10,000 per month from natural gas production, rental income
of $1,500 per month and $5,000 from interest income. The Registrant will
also receive approximately $30,000 from terminalling services during of
summer months. Monthly cash outflows for ongoing overhead are presently
estimated to be approximately $22,000 per month.
Estimated working capital and cash flow requirements associated with the
subsequently acquired Starlicon International Corporation, (see Item 5(a)
of this report), have not as yet been identified. Under the terms of the
acquisition agreement, cash and working capital associated with the
Registrant's operations prior to the acquisition are not available to fund
cash and working capital requirements of Starlicon.
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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.
Impact of Year 2000
The Company has reviewed the potential impact of Year 2000 issues and
believes that the cost to replace and or modify equipment, computer
hardware, and computer software will not be material and that Year 2000
issues will not have a material impact on the Company's ability to operate
into the next century.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
(a) With respect to the complaint filed by the Registrant in the
United States District Court for the Central District of
California entitled Unico, Inc. v. Starlicon Group, Inc.,
Starlicon International Corporation, et al, Case No. CV 98-3990
DT (Shx), seeking the Court's confirmation of the Registrant's
unilateral rescission of the Starlicon acquisition, as
previously reported in the Registrants Form 10-K filed for the
year ended February 28, 1998, on June 30, 1998 the parties
entered into a Novation agreement wherein the terms of the
subject acquisition of Starlicon were revised and made
effective as of June 1, 1998. The Registrant will withdraw its
complaint upon completion of certain documentation provided for
in the Novation agreement.
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 June 30, 1998, and effective as of June 1, 1998, the
Registrant acquired all of the outstanding stock of Starlicon
International Corporation. This transaction is discussed in
more detail in the Registrant's Form 8-K dated June 30, 1998
and filed with the Commission on July 14, 1998, incorporated
herein by reference, and as discussed in the Notes to the
Registrant's Financial Statements for the quarter ended May 31,
1998 filed herein as part of this report on Form 10-Q.
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 except as follows:
(1) June 30, 1998 reporting the acquisition of Starlicon
International Corporation as discussed in Item 5(a) of this
Form 10-Q and in the Notes to the Registrant's Financial
Statements for the quarter ended May 31, 1998 as filed with
this report.
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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 15, 1998
Rick L. Hurt,
Assistant Secretary
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