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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
[ ] Transition Report Under Section 13 or 15(d) of the
Exchange Act
For the transition period from to
Commission file number 0-14973
UNICO, INC.
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(Exact name of small business issuer as specified in its charter)
New Mexico 85-0270072
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2925 Bayview Drive, Fremont, CA 94538
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(Address of principal executive offices) (Zip Code)
510/770-3990
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(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or 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[ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes No N/A
---- ----
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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: March 31, 1999
As of March 31, 1999, the Registrant had 7,229,428 shares of the
Registrant's $0.20 par value common stock outstanding, excluding 3,699
shares held by the Registrant for resale. For accounting purposes, the
acquisition of Multiwave was effective as of October 31, 1998. It
requires the issuance of 2,388,792 shares. While these shares will be
issued upon shareholder approval, for the purposes of this Form 10-QSB,
they are treated as if issued on October 31, 1998. The total number of
shares deemed to be outstanding as of March 31, 1999 is 9,618,220, in
order to properly reflect the Multiwave acquisition described herein.
Transitional Small Business Disclosure Format (check one):
Yes No X
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INDEX TO
REPORT ON FORM 10-QSB
UNICO, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31, 1999 and June 30, 1998 5
Statements of Operations for the three months ended
March 31, 1999 and March 31, 1998 7
Statements of Operations for the nine months ended
March 31, 1999 and March 31, 1998 8
Statements of Cash Flows for the nine months ended
March 31, 1999 and March 31, 1998 9
Notes to Financial Statements 10
Item 2. Management's Discussion and Analysis or Plan of
Operations 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and reports on Form 8-K 25
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PART I - FINANCIAL INFORMATION
The interim financial statements included herein were prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles were condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures made
are adequate to make the information presented not misleading. It is
suggested that the interim financial statements be read in conjunction with
the financial statements and the notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended June 30, 1998.
The accompanying interim financial statements were prepared, in all material
respects, in conformity with the standards of accounting measurement set forth
in Accounting Principles Board Opinion No. 28 and reflect, in the opinion of
management, all adjustments, which are of a normal recurring nature, necessary
to summarize fairly the financial position and results of operations for such
periods. The results of operations for such interim periods are not
necessarily indicative of the results to be expected for the full year.
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ITEM 1. FINANCIAL STATEMENTS
UNICO, INC.
Balance Sheets
(Dollars In Thousands) March 31, June 30,
1999 1998
ASSETS (unaudited) (audited)
Current Assets
Cash $ 814 $ 30
Accounts receivable, less $325 and $114
allowance for doubtful accounts and
returns, allowances and discounts 4,863 1,034
Inventories 2,140 434
Prepaid expenses & other current assets 745 4
------- --------
Total current assets 8,562 1,502
------- --------
Property and Equipment
Furniture and equipment 376 38
Leasehold improvements 8 25
------- --------
384 63
Accumulated depreciation 91 11
------- --------
293 52
------- --------
Trademark, less $43 and $24
accumulated amortization 87 106
Goodwill, less $88 accumulated amortization 972 0
Due from Luna 0 14
Due from Hwang and Hwang Note 139 133
Other 221 0
Old Unico Investment 3,163 3,163
------- --------
4,582 3,416
------- --------
$ 13,437 $ 4,970
======= ========
The accompanying notes are an integral
part of these financial statements.
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ITEM 1. FINANCIAL STATEMENTS (CONT'D)
UNICO, INC.
Balance Sheets (Cont'd)
(Dollars In Thousands) March 31, June 30,
1999 1998
(unaudited) (audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdrafts $ 0 $ 211
Accounts payable 8,439 433
Deferred revenues 270 210
Due RTC 0 32
Due Yin 0 100
Accrued payroll & other current liabilities 50 25
--------- --------
Total Current Liabilities 8,759 1,011
--------- --------
Long-Term Liabilities 424 0
--------- --------
Commitments and contingencies
Stockholders' Equity 4,254 3,959
--------- --------
$ 13,437 $ 4,970
========= ========
The accompanying notes are an integral
part of these financial statements.
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UNICO, INC.
Statements of Operations
(Dollars In Thousands)
Three months ended March 31,
1999 1998
(unaudited) (unaudited)
Net sales $ 11,413 $ 5,644
Cost of goods sold 10,589 5,650
--------- ----------
Gross profit (loss) 824 (6)
--------- ----------
Salaries and wages 783 162
Rent 89 21
Research and development 57
Amortization 61 10
Other expenses 777 57
--------- ----------
1,767 250
--------- ----------
Operating loss (943) (256)
Interest, net (11) 1
Other income, net 8 0
--------- ----------
Net loss $ (946) $ (255)
========= ==========
Basic loss per share ($ 0.0627) ($ 0.0233)
========== ==========
Shares used in computation 15,092,220 10,950,200
The accompanying notes are an integral
part of these financial statements.
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UNICO, INC.
Statements of Operations
(Dollars In Thousands)
Nine months ended March 31,
1999 1998
(unaudited) (unaudited)
Net sales $ 22,449 $ 19,261
Cost of goods sold 20,683 18,833
--------- ----------
Gross profit 1,766 428
--------- ----------
Salaries and wages 1,467 419
Rent 183 45
Research and development 174 0
Amortization 108 18
Other expenses 1,751 188
--------- ----------
3,683 670
--------- ----------
Operating loss (1,917) (242)
Interest, net (7) 1
Other income, net 194 0
--------- ----------
Net loss $ (1,730) $ (241)
========= ==========
Basic loss per share ($ 0.1235) ($ 0.0220)
========== ==========
Shares used in computation 14,003,867 10,950,200
The accompanying notes are an integral
part of these financial statements.
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UNICO, INC.
Statements of Cash Flows
(Dollars In Thousands)
Nine months ended March 31,
1999 1998
(unaudited) (unaudited)
Operating cash flows
Net loss $ (1,730) $ (241)
Depreciation and amortization 187 22
Services rendered for stock 42 0
Receivables change (701) (485)
Inventory change 3,369 9
Prepaid expenses change (163) 13
Accounts payable change (572) (201)
Due from others 0 45
Other current liabilities change (588) 7
Deferred revenues change 60 95
---------- ----------
Cash used by operations (96) (736)
---------- ----------
Investing cash flows
Property acquisitions (99) (1)
Other assets (123) 2
Multiwave investment (146) 0
Cash of acquired entities 1,360 42
---------- ----------
Cash provided by
investing activities 992 43
---------- ----------
Financing cash flows
RTC receivables collected 0 588
Yin advance (100) 0
Reduction in due RTC (32) (100)
Bank overdrafts (404) 165
Long-term liabilities 424 0
Capital contributions 0 40
---------- ----------
Cash provided by (used for)
financing activities (112) 693
---------- ----------
Change in cash 784 0
Cash - beginning of period 30 0
---------- ----------
Cash - end of period $ 814 $ 0
========== ==========
The accompanying notes are an integral
part of these financial statements.
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UNICO, INC.
Notes To Financial Statements
March 31, 1999
1. Basis of Presentation
The financial statements include the assets and liabilities of Paradise
Innovations, Inc. (Paradise). The Statements of Operations for the periods
ended March 31, 1998 include activity for three and eight months for "Old
Paradise" acquired on July 31, 1997. The Statements of Operations for the
three and nine months ended March 31, 1999 include Multiwave's operations from
November 1, 1998. Following the legal closing of the acquisition, Uraco
Holdings, one of Multiwave's former parents along with some other Multiwave
shareholders, will convert US$ 2 million of Multiwave's debt to equity as a
capital contribution. The capital contribution is treated as if it occurred
on October 31, 1998. All dollar amounts in the tables are in thousands.
Unico's old operations, held by Intermountain Refining Corp. (IRC) are
included in the investment in Old Unico. The Company accounts for this
investment at cost as it cannot use IRC's assets for corporate purposes and
has no control over IRC's operations; therefore, IRC is not consolidated in
the financial statements presented on this Form 10-QSB.
2. Earnings Per Share
Earnings (loss) per common share is computed as if Unico issued 5,476,200
of its 6,023,829 common shares issued to acquire Old Unico on October 3, 1996,
when the Company was first incorporated, and they were continuously out-
standing. The 5,474 shares of Unico preferred were converted to 5,474,000
shares of Unico common for purposes of this calculation and were also treated
as if they had been continuously outstanding from October 3, 1996. The
2,388,792 shares issued to effect the Multiwave acquisition were treated as if
outstanding from October 31, 1998. No operations of Old Unico are included in
the calculation as Old Unico is carried at cost. After July 1, 1998 earnings
per share were calculated including 1,125,609 shares of Unico common held by
Old Unico's shareholders.
3. Inventories
Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market value (net realizable value).
March 31, 1999
(unaudited)
Raw Materials $ 830
Work in Process 648
Finished Goods 662
-------
$2,140
=======
Inventory of $434 at June 30, 1998 was all finished goods.
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4. The Company Profile
On June 30, 1998, the Company completed acquiring all outstanding shares of
Paradise Innovations, Inc. (formerly known as Starlicon International
Corporation) by issuing 5,476,200 new shares of common stock and 5,474 new
shares of convertible preferred stock. The Company accounted for this
acquisition as a reverse acquisition. The term "Old Unico" is used to refer
to Unico, Inc. before the June 30, 1998 acquisition.
Starlicon International Corporation (Starlicon) was incorporated under the
laws of the State of California on October 3, 1996. On July 31, 1997,
Starlicon acquired certain assets, including the Paradise trademark, owned by
Relialogic Technology Corporation (RTC). On August 4, 1998, Starlicon changed
its name to Paradise Innovations, Inc. in order to obtain better brand
recognition and to facilitate future product and company acquisitions.
Throughout this Form 10-QSB, the Company's Starlicon subsidiary will be
referred to as Paradise.
On November 30, 1997, Old Unico entered into a Stock Purchase Agreement (the
Agreement) with Starlicon Group, Inc. (SGI) to acquire 100% of the outstanding
stock of privately-held Paradise. The acquisition was ultimately completed
pursuant to a Novation Agreement (see Form 8-K filed on July 14, 1998). Under
the terms of the Novation Agreement, the Company issued 5,476,200 shares of
$0.20 par value restricted Common Stock and 5,474 shares of Series A
Convertible Preferred Stock to the shareholders of SGI in exchange for 100% of
the outstanding stock of Paradise.
As part of the Novation Agreement, all of Old Unico's assets not owned by
Intermountain Refining Co., Inc. (IRC) were transferred to IRC in satisfaction
of certain inter-company obligations and as a contribution to IRC's capital.
IRC is operated and managed at the sole discretion of IRC's management with a
nominee holding Old Unico's proxy to vote IRC's shares.
As a result of the Paradise acquisition, the Company has two operating
entities in unrelated industries, Paradise and IRC. IRC was incorporated as a
New Mexico corporation in July 1985. It conducts three categories of
business: petroleum product refining and processing, electrical energy
production and natural gas production.
Through its wholly-owned subsidiary Paradise, the Company markets computer
peripherals, including video and sound cards, modems, multimedia products and
Internet set-top boxes, a proprietary line of computer peripherals under the
Paradise trademarked brand name. Paradise's customer base includes private
label computer manufacturers and major technology distributors, such as Tech
Data, Ingram Micro, D&H Distributing, Almo Distributing, Comark and SED.
The Company intends to focus on its core competence, which is the design,
manufacture, marketing and distribution of computer peripherals and Internet
communication products. Subject to approval by its shareholders, it has
acquired Multiwave Innovation Pte. Ltd., a Singapore-based design and
engineering firm which will enhance the Company's ability to bring innovative
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products to market quickly and extend its distribution capabilities in Europe
and Asia. The Company is also negotiating with IRC management to spin off its
energy related assets currently held by IRC to its shareholders of record as
of a record date to be determined.
The Company has submitted preliminary Proxy Statements to the SEC for review
and is actively revising its filings to meet SEC requirements. As soon as
possible, the Company intends to hold a shareholders' meeting.
On December 3, 1998, the Company waived its request for a hearing and
voluntarily removed its common shares from listing on the Nasdaq SmallCap
Market. The shares now trade on the Over The Counter (OTC) Electronic
Bulletin Board. The action was taken following discussions with Nasdaq staff
on various issues facing the Company, including the staff's September 30,
1998, notification that its shares would be removed from listing on its
SmallCap Market.
The Company has reviewed the potential impact of Year 2000 issues. It
believes it is in compliance and prepared to operate into the next century.
The Company believes that in the worst case scenario, which it believes to be
highly improbable, it may have to conduct business manually for a brief
period, during which it is replacing or repairing equipment. It weighed the
cost of developing a contingency plan to address the worst case scenario
versus the financial consequences of the worst case scenario. It believes
that the cost of developing a contingency plan outweighs the cost of the worst
case scenario. The Company believes it has taken a prudent management
decision in relying on its conclusion that it is prepared to conduct business
through the New Year.
5. Segments
The Company is engaged in two primary business industries: computer-related
products and oil and gas. Through its wholly-owned subsidiary Paradise, it
designs and markets computer peripherals. Through its wholly-owned subsidiary
IRC, it engages in energy exploration and generation business. All of the
Company's oil and gas related operations are held by IRC and their financial
results are disclosed in Note 7.
During fiscal 1998, Paradise, the Company's operating subsidiary, engaged in
one business segment - distributing computer chips, both memory and central
processing units. Effective August 1, 1997 with the asset acquisition
previously discussed, Paradise began distributing proprietary products and
operating in two segments. Paradise is organized by product segments: chips
and proprietary products.
Segment assets at March 31, 1999 were:
Proprietary Old Elimi-
Distribution Products Unico nations Total
------------ ----------- ------ -------- ---------
$537 $11,700 $3,163 ($ 1,963) $ 13,437
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Segment operating results for the three months ended March 31, 1999 were:
Distri- Proprietary Elimi-
bution Products nations Total
------- ----------- -------- --------
Revenues $ 0 $ 14,926 ($ 3,513) $ 11,413
Interest, net 0 (11) 0 (11)
Depreciation 0 55 0 55
Amortization 0 61 0 61
Operating loss (16) (948) 21 (943)
Segment operating results for the nine months ended March 31, 1999 were:
Distri- Proprietary Elimi-
bution Products nations Total
------- ----------- -------- --------
Revenues $ 4,519 $ 25,154 ($ 7,224) $ 22,449
Interest, net 0 (7) 0 (7)
Depreciation 0 79 0 79
Amortization 0 108 0 108
Operating loss (164) (1,738) (15) (1,917)
6. The Company Strategy
This discussion contains forward-looking statements. These statements are
based on current expectations. Actual results may differ materially.
The Company shifted its focus to its newly acquired hi-tech subsidiary,
Paradise Innovations, Inc. (Paradise) with the June 30, 1998 acquisition of
Paradise (formerly known as Starlicon International Corporation). Paradise
currently has two primary business segments: designing, manufacturing,
marketing and sales of proprietary computer peripherals, multimedia products,
and Internet related communications products; and chip distribution.
Consistent with the new focus, on October 27, 1998, the Company signed a
definitive agreement to acquire all issued and outstanding shares of Multiwave
Innovation Pte. Ltd. (Multiwave), a Singapore-based engineering company with a
focus on research and development of high performance multimedia and Internet
communications products. Multiwave was formerly owned primarily by NatSteel
Electronics, Ltd., one of the world's top custom manufacturer of high-tech
products with clients such as Apple Computers, IBM and Hewlett-Packard, and by
Uraco Holdings Ltd., a precision manufacturer. Both NatSteel and Uraco are
publicly traded on the Singapore stock exchange. Multiwave has been operating
as Paradise Innovations (Asia) Pte. Ltd. (Paradise Asia), a wholly owned
subsidiary of the Company, since October 31, 1998.
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With the Multiwave acquisition, the Company is establishing worldwide
distribution and partnerships with global manufacturing companies to bring
exciting new products to market quickly as demanded by the hi-tech industry.
The Company continues to contemplate acquisitions of products and companies
that fit its strategy of identifying and creating products that can be
distributed in high volumes by its worldwide distribution partners.
At the 1998 Fall Comdex, the high-tech trade show held in Las Vegas, the
Company announced the product launch of Internet set-top boxes, in which
it is actively pursuing strategic alliances and partnerships that will
position this exciting Internet product within a wide-variety of retail
channels and vertical markets. The Company expects that sales volumes and
margins will increase when this product reaches the market in the very near
future. In addition, the Company continues to research and develop future
products to be launched.
The Internet set-top boxes will comprise a substantial part of the Company's
future sales. They will command higher unit prices, raising the sales run
rate. The Company expects these impacts to take place in the early part of
the next fiscal year (July 1, 1999 onwards).
7. Old Unico
Old Unico's consolidated balance sheets are summarized as of June 30, 1998 and
March 31, 1999, and its consolidated statement of operations for the three and
nine months ended March 31, 1999, are:
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OLD UNICO
Consolidated Condensed Balance Sheets
(Dollars In Thousands)
March 31, June 30,
1999 1998
----------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,112 $ 1,134
Other current assets 126 82
Notes receivable from related
Parties - 84
------------ --------
TOTAL CURRENT ASSETS 1,238 1,300
------------ --------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land, buildings and improvements 434 434
Equipment 165 165
Crude oil refining equipment 1,183 1,183
Co-generation facilities 290 290
Oil and gas properties,
(successful efforts method) 895 895
------------ --------
2,967 2,967
Less accumulated depletion
and depreciation (2,106) (2,005)
------------ --------
861 962
------------ --------
OTHER ASSETS
Investment in Chatfield Dean 175 301
Other assets & deferred charges 174 176
------------ --------
349 477
------------ --------
$ 2,448 $ 2,739
============ ========
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OLD UNICO
Consolidated Condensed Balance Sheets, (Continued)
(Dollars In Thousands)
March 31, June 30,
1999 1998
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 172 $ 49
Taxes other than income taxes 3
------------ -------------
TOTAL CURRENT LIABILITIES 172 52
------------ -------------
DEFERRED TAXES - 52
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 and outstanding 1,129,308
shares 226 226
Additional paid in capital 2,214 2,214
Less: Treasury stock 3,699 shares (9) (9)
Retained earnings (accumulated deficit) (155) 204
------------ ------------
2,276 2,635
------------ ------------
$ 2,448 $ 2,739
============ ============
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OLD UNICO
Consolidated Condensed Statements Of Operations
(Dollars In Thousands)
For Periods Ended
March 31, 1999
Three Months Nine Months
------------ ------------
REVENUES
Natural gas sales $ 55 $ 224
------------ ------------
COSTS AND EXPENSES
Cost of sales 26 64
General and administrative 73 623
Gain on realization of investment (125)
Depletion, depreciation
and amortization 32 101
Interest, net (10) (35)
Bad debt expense 0 8
------------ ------------
121 636
------------ ------------
LOSS BEFORE INCOME TAXES (66) (412)
Current Benefit (Expense) for income taxes (1) 53
------------ ------------
NET LOSS $ (67) $ (359)
============ ============
8. Multiwave Acquisition
On October 31, 1998, the Company purchased Multiwave for 2,388,792 shares of
common stock valued at $2,000,000 and incurred $146,000 in expenses to effect
the acquisition. The non-cash effects of the acquisition were excluded from
the Statements of Cash Flows. The assets acquired and liabilities assumed
were:
Cash $ 1,360
Receivables 3,128
Inventory 5,075
Prepaid expenses 128
Other assets 540
Property and equipment 222
---------
10,453
Less: Accounts payable (8,267)
Bank overdrafts (193)
Other liabilities (907)
---------
$ 1,086
=========
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9. Pro Forma Statements of Operations (Unaudited)
This pro forma Statement of Operations presents the effects of the
Multiwave acquisition as if it occurred on June 30, 1998. The pro forma
statement of operations is not necessarily indicative of the results of
operations and financial position which will be attained in the future.
Nine months ended March 31, 1999
Unico Pro Forma Pro Forma
As Reported Multiwave adjustments Consolidated
----------- ---------- ----------- ------------
Revenues $ 22,449 $ 9,153 $(381)(b) $ 31,221
Cost of sales 20,683 8,156 (381)(b) 28,458
----------- ---------- ----------- ------------
Gross profit 1,766 997 2,763
Operating expenses 3,683 1,175 71 (a) 4,929
----------- ---------- ----------- ------------
Operating loss (1,917) (178) (71) (2,166)
Other income 187 492 679
=========== ========== =========== =============
Net income (loss) $ (1,730) $ 314 $ (71) $ (1,487)
=========== ========== =========== =============
Basic earnings
(loss)per share $(0.1235) $0.2957 $(0.0987)
=========== ========== =============
Weighted average shares
outstanding 14,003,867 1,061,686 15,065,553
(a) To record goodwill amortization.
(b) To eliminate intercompany sales.
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10. Pro Forma Statements of Operations (Unaudited)
This pro-forma consolidated statement of operations present the effects of the
Multiwave acquisition as if it occurred on June 30, 1997.
Nine Months Ended March 31, 1998 (US$ 000)
Unico Pro Forma Pro Forma
As Reported Multiwave Adjustments Consolidated
----------- --------- ----------- ------------
Revenues $19,261 $ 7,561 $ $ 26,822
Cost of sales 18,833 7,043 25,876
----------- --------- ----------- ------------
Gross profit 428 518 946
Operating expenses 670 3,580 4,250
----------- --------- ----------- ------------
Operating loss (242) (3,062) (3,304)
Other income (expense) 1 294 (159)(a) 136
----------- --------- ----------- ------------
Net loss $ (241) $ (2,768) $(159) $ (3,168)
=========== ========= =========== ============
Basic loss per share $(0.0220) $(1.1587) $(0.2375)
=========== ========= ============
Average shares
outstanding 10,950,200 2,388,792 13,338,992
NOTE: (a) To amortize goodwill over five years.
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11. Line of Credit
The Company's Singapore operation had in place prior to the acquisition a Line
of Credit with a local bank. The balance owed increased $251,000 in the third
quarter of fiscal 1999. Borrowings supplemented operating capital.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Disclaimer
The discussion and analysis below contains trend analysis and other
forward-looking statements within the meaning of Sections 27A and 21E of the
Securities Exchange Act of 1934. These statements are based on current
expectations. Actual results may differ materially.
Operating Results
The fiscal 1999 Results of Operations for the current quarter shows a 102%
increase in sales with a 7% gross margin. 95% of the revenues in the third
quarter of fiscal 1998 were chip sales with low margins. The low margin
coupled with an adjustment of the prior quarter's service revenue and credits
issued for price protection and customer advertising accounts for the negative
gross margin. In contrast, branded peripherals with higher margins comprised
100% of revenues in 1999's third quarter.
There are two reasons for the increase in sales of branded peripherals in
1999's third quarter. First, sales through the Company's distribution
network increased as a result of targeted sales efforts. Second, and more
importantly, the acquisition of Multiwave augmented the sales of these branded
items, particularly in Europe and Asia, by $7,415,000.
Operating expenses as a percentage of sales for the current quarter increased
from 4% in fiscal 1998 to 15% in fiscal 1999. Salaries and wages increased
significantly, due to added staff with the Multiwave acquisition. This
increase is a result primarily of the added engineering and R&D capabilities.
Anticipated new products will enable the Company to more fully utilize its
distribution network with sales of the new products. With the Acquisition,
the Company gained a Singapore subsidiary and increased rent expenses.
$53,000 of the reported amortization in 1999's third quarter is for goodwill.
Approximately 44% of the increase in the category other expenses in the
Statement of Operations is due to the acquisition. The category other
expenses in the current quarter also includes $171,000 for advertising,
co-op, product promotion programs and marketing development funds.
The Results of Operations for the nine month periods ending March 31, 1998
and 1999 reflect a 17% increase in sales with a 313% increase in margin.
Operating expenses as a percentage of sales for the periods increased from 3%
in fiscal 1998 to 16% in fiscal 1999.
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In order to compare the Paradise operations last year with the same operations
this year, the impacts of the Multiwave acquisition were excluded in the
following analyses. The analyses that follow are based on estimates, as the
sales and expenses resulting from the acquisition were co-mingled with the
sales and expenses of Paradise in the Company's accounting systems.
Chip sales decreased from $5.4 million in the third quarter of fiscal 1998 to
zero in the current quarter. These sales resulted in $121,000 in gross margin
in the quarter ending March 31, 1998. Branded peripherals sales increased
from $261,000 in this same period last fiscal year to $4.0 million in the
current quarter. These sales generated $67,000 in margin in the quarter
ending March 31, 1999. The lower than expected margin is due to $18,000 in
credits issued for price protection, $111,000 in freight expenses and $20,000
in customs duties and fees. Paradise USA's main supplier is Paradise
Singapore. As the shipping of raw materials is now from overseas and its
costs are internal, there were increases in freight, duties and fees. The
Company continues to work closely with its newly acquired Singapore subsidiary
to reduce these expenses.
Excluding the impact of the Multiwave acquisition, operating expenses as a
percentage of sales for the most current three month period increased from 4%
in fiscal 1998 to 21% in fiscal 1999. Salaries and wages increased due to the
addition of a seasoned sales force. The Company also built staff in marketing
and administration, in anticipation of growth through internal efforts and
acquisitions. The category of other expenses includes $171,000 for
advertising, co-op, product promotion programs and marketing development
funds. Also included in this category is $93,000 in shareholder expense and
legal and accounting fees.
Excluding the impact of the Multiwave acquisition, chip sales for the nine
months ending March 31, 1999 decreased from $17.8 million to $4.5 million, or
75% and branded peripherals increased from $1.4 million to $8.4 million, or
500%, in comparison to the nine months ending March 31, 1998. Operating
expenses as a percentage of sales for this same period (again excluding
Multiwave expenses) increased from 4% in fiscal 1998 to 16% in fiscal 1999.
Financial Position
Accounts receivable, inventories and prepaid expenses increased by $3,829,000,
$1,706,000 and $741,000, respectively, from June 1998 to March 1999. The
increases are attributable to the Multiwave acquisition. The balance sheet
category prepaid expenses and other current assets include other receivables
of $465,000. The other receivables are from Singapore tax authorities as a
result of chipset purchases. Furniture and equipment at the end of the
current quarter increased by $338,000 which resulted primarily from the
acquisition. Accounts payable increased by $8,006,000 during the nine months
ended March 1999, also as a result of the acquisition.
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Working Capital, Liquidity and Capital Resources
At March 31, 1999, net working capital deficiency was 1.5% of total assets.
While the Company's business is working capital intensive, management is
reducing working capital requirements and the Company's financing costs.
In September 1998, the Company signed an agreement with Silicon Valley Bank
(SVB) to sell its accounts receivable from time-to-time to SVB. The terms of
these sales are 1.5% per month for receivables from OEM/End User customers and
1.25% for receivables from distributor/reseller customers, plus a 0.5% service
fee. The amount of receivables sold and outstanding at any time is limited to
$800,000. The Company believes that this agreement will provide working
capital liquidity while it continues to review its accounts receivable and
payable terms.
The Company has approached banks to obtain asset-based lines of credit. It
anticipates that the growth in operations targeted by the Company will require
financing above normal operating requirements. The funds raised, if any, will
be used for working capital, capital improvements, marketing and to fund
growth.
The Company is planning a private placement to obtain equity capitalization
and resources for potential acquisitions. It worked diligently in that
direction during the third fiscal quarter and is hopeful for closure next
fiscal year, although there is no certainty of any outcome.
The Company believes that its cash balances and available credit are
sufficient to meet anticipated operating requirements for the foreseeable
future. There can be no assurance that additional capital beyond the amounts
currently forecasted by the Company will not be required nor that any such
required additional capital will be available on reasonable terms, if at all.
Current Developments
Since December 1998, the Company's management and IRC management have been
negotiating the terms of the IRC spin-off. These negotiations are necessary
as the Novation Agreement, which governs the spin-off, left several critical
issues undefined. Moreover, many conditions have emerged since its execution,
in June 1998, which require modifications to the Novation Agreement.
Despite concerted efforts, the negotiations broke down. On March 27, 1999,
the Company made IRC what became the last offer for a negotiated settlement.
On or about March 31, 1999, IRC filed a complaint with the U.S. District Court
for failure of the Company and IRC to reach agreement with respect to the
terms of the spin-off and other matters related to the Novation Agreement.
Moreover, IRC sought a temporary restraining order enjoining certain Unico
shareholders from revoking proxies they had granted to an IRC attorney to vote
their shares in favor of the spin-off.
On April 1, 1999, at the hearing scheduled by the court, the parties
stipulated to dismiss the court action without prejudice. The Company's
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management and IRC management continue to discuss the most effective manner to
spin-off IRC.
On October 27, 1998, the Company signed a definitive agreement to acquire 100%
of the outstanding stock of privately held Multiwave Innovation Pte. Ltd. The
agreement calls for Unico to issue 2,388,792 shares of common shares to the
current shareholders of Multiwave. These shares have been appraised by
Cronkite and Kissell, Inc., a valuations firm, at $2 million.
Multiwave is an engineering company with a focus on research and development
which will provide the Company's distribution company, Paradise Innovations,
with rapid access to new and exciting products. Multiwave is a pioneer in the
design, development, production and marketing of high performance multimedia
and Internet related products for brand name sales or OEM contracts. Their
products are modem cards, sound cards, Internet set-top boxes and various
other multimedia upgrade kits and Internet related products.
Multiwave markets products on a transcontinental scale with sales in Japan,
Australia, Malaysia, Korea, Hong Kong, most major European countries, North
America and Latin America. Multiwave's largest former shareholders are
NatSteel Electronics Ltd. and Uraco Holdings Ltd., both publicly held
companies listed on the Singapore Stock Exchange. NatSteel has contract
manufacturing operations in Singapore, Malaysia, Indonesia, Hungary, China and
Mexico. Uraco is a precision manufacturer of disk drives and semiconductor
equipment peripherals. NatSteel and Uraco will become significant owners of
Unico's common shares following the completion of the merger.
The Multiwave acquisition had a substantial impact on the Company's
financial statements. The Company accounts for the acquisition using the
purchase method. It increased the Company's net assets on its balance sheet.
On the statement of operations, it increases revenues as Multiwave's sales
were consolidated with the Company's as of October 31, 1998 and Multiwave
began operating as Paradise Innovations Pte. Ltd., a wholly owned subsidiary
of the Company.
Following the closing of the acquisition and the exchange of shares, Multiwave
will convert US$2,000,000 of its debt to Uraco Holdings, one of its former
parents and its other shareholders, into equity as a capital contribution.
This Form 10-QSB treats this capital contribution as if it had occurred on
October 31, 1998.
The Company filed a Form 8-K on November 6, 1998 disclosing the acquisition,
and a Form 8-K/A on January 22, 1999 containing Multiwave's audited financial
statements. On February 18, 1999, it filed another Form 8-K/A with the pro-
forma financial statements.
On February 1, 1999, Mr. Ike Suri, one of the Company's largest shareholders
and a director of Starlicon Group, Inc., Paradise's former parent company,
accepted the positions of Chairman of the Board and Chief Executive Officer of
the Company.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than collection actions arising in the ordinary course of the Company's
business, no material legal proceedings to which the Company is a party or of
which any of its property is subject are pending or known to be contemplated,
and the Company knows of no legal proceedings pending or threatened, or
judgment against any director or officer of the Company in his or her capacity
as such.
Since December 1998, the Company's management and IRC management have been
negotiating the terms of the IRC spin-off. These negotiations are necessary
as the Novation Agreement, executed in June 1998, which governs the spin-off,
left several critical issues undefined. Moreover, many conditions have
emerged since June which require modifications to the Novation Agreement.
Despite concerted efforts, the negotiations broke down. On March 27, 1999,
the Company made to IRC what became the last offer for a negotiated
settlement. On or about March 31, 1999, IRC filed a complaint with the U.S.
District Court for failure of the Company and IRC to reach agreement with
respect to the terms of the spin-off and other matters related to the Novation
Agreement. Moreover, IRC sought a temporary restraining order enjoining
certain Unico shareholders from revoking proxies they had granted to an IRC
attorney to vote their shares in favor of the spin-off.
On April 1, 1999, at the hearing scheduled by the court, the parties
stipulated to dismiss the court action without prejudice. The Company's
management and IRC management continue to discuss the most effective manner to
spin-off IRC.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 30 , 1998, the Company was advised by Nasdaq that its securities
should be removed from listing on the Nasdaq Smallcap Market based on its
staff's review of the Company's public filings. The Company waived its rights
to a hearing with Nasdaq and voluntarily placed its common stock for listing
on the Over the Counter (OTC) Electronic Bulletin Board.
The Company filed a Form S-8 on September 14, 1998 to register 390,000 shares
of its common stock it provided to three individuals as compensation for
consulting services. Upon further review, the Company deemed it may have
inadvertently violated the intent of the Novation Agreement (see Form 8-K
filed on July 14, 1998). Following a prudent course of action and with their
agreements, the Company rescinded the service contracts and canceled the
shares issued to two of the three individuals, Mr. John Hwang, its current
President, and Mr. Ike Suri, a major shareholder of the Company, and, as of
February 1, 1999, its Chairman and Chief Executive Officer.
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After further review, the Company decided to rescind the service contract with
the third unrelated party and has canceled 100,000 of the 130,000 shares
previously issued to him. The Company continues to negotiate with the party
regarding the 30,000 remaining shares. The Company acknowledges it should
compensate the party for past services rendered. The Company canceled a total
of 360,000 of the 390,000 shares issued for this purpose.
Once shareholder approval has been obtained in the annual shareholders'
meeting on a date to be determined, the Company will issue 2,388,792 shares of
common stock to consummate the Multiwave acquisition.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In the three months ended March 31, 1999, there were no matters submitted
to a vote of security holders.
ITEM 5. OTHER INFORMATION
On February 1, 1999, Mr. Ike Suri, one of the Company's largest shareholders
and a director of Starlicon Group, Inc., Paradise's former parent company,
accepted the positions of Chairman of the Board and Chief Executive Officer of
the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
2.1 Stock Purchase Agreement dated October 27, 1998, filed on November 6,
1998, on Form 8-K.
2.2 Preliminary Proxy Statement and related materials filed on February 12,
1999 Schedule Pre 14A.
3.0 Articles of Incorporation and bylaws are incorporated by reference to
the Company's registration statement on Form 10 filed September 9, 1986
and amendments thereto filed on July 29, 1994 on Form 8-K. Restated and
amended Articles of Incorporation are filed as an exhibit on February 12,
1999 on Schedule Pre 14A.
4.1 Instruments defining the rights of security holders including
Indentures are incorporated by reference to the Company's
registration statement on Form 10 filed September 9, 1986.
Instrument defining rights of holders of Series A preferred stock.
4.3 Warrant issued to William N. Hagler.
4.4 Warrant issued to Rick L. Hurt.
10.1 Lease for premises at 2925 Bayview Drive, Fremont, CA, filed on
Form 10-KSB/A on November 3, 1998, incorporated by reference.
10.2 Lease for telephone equipment filed on Form 10-KSB/A on November 3,
1998, incorporated by reference.
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10.3 Contract with Silicon Valley Bank filed on Form 10-KSB/A on November 3,
1998, incorporated by reference.
10.4 Service contracts are incorporated by reference to Form S-8 filed on
September 14, 1998.
11.0 Statement regarding computation of per share earnings in Form 10-K
filed on June 15, 1998.
23.0 Consent from Weinbaum & Yalamanchi, the Company's independent
accountants in the form of their report dated September 9, 1998 in
Item 7 of Form 10-KSB filed on October 15, 1998.
27.0 Financial data schedule pursuant to Item 601(c) of Regulation S-B in
Item 1 of this Form 10-QSB.
B. Reports on Form 8-K
On January 5, 1999, the Company filed an 8K announcing the resignation of Mr.
Wing Po as a member of the Company's Board of Directors.
On January 22, 1999, the Company filed an 8K/A containing Multiwave's audited
financial statements.
On February 18, 1999, the Company filed an 8K/A that disclosed the unaudited
pro forma financial information for the combination of Multiwave and the
Company.
Both of the above 8K/As were amendments to the Form 8K filed November 6, 1998
which disclosed the definitive agreement for the acquisition of Multiwave
Innovation Pte. Ltd. by the Company.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Unico, Inc.
---------------------------------------------------------------
(Registrant)
Date May 17, 1999 /s/ John Hwang
------------------ ---------------------------------
Signature(1)
John Hwang
President
Date May 17, 1999 /s/ Henry Tang
------------------ ---------------------------------
Signature(1)
Henry Tang
Vice President & Secretary
- ----------------------
(1) Print name and title of each signing officer under his signature.
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