<PAGE>
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 December 31, 1998
[ ] 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: December 31, 1998
As of December 31, 1998, 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 in March 1999, 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 December 31, 1998 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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2
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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 December 31, 1998 and June 30, 1998 5
Statements of Operations for the three months ended
December 31, 1998 and December 31, 1997 6
Statements of Operations for the six months ended
December 31, 1998 and December 31, 1997 7
Statements of Cash Flows for the six months ended
December 31, 1998 and December 31, 1997 8
Notes to Financial Statements 9
Item 2. Management's Discussion and Analysis or Plan of
Operations 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and reports on Form 8-K 21
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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 Annual
Report on Form 10-KSB for the year ended June 30, 1998, and the Quarterly
Report on Form 10-QSB for the three months ended September 30, 1998.
With the exceptions noted below, the accompanying interim financial statements
were prepared, in all material respects, in conformity with the standards of
accounting measurements 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.
These financial statements herein do not contain complete disclosure of
inventory details, other income, other receivables, and 1997 pro-forma
information for Multiwave Innovations Pte. Ltd., as its acquisition by and
inclusion as a subsidiary of the Company were recent, as of October 31, 1998.
This Form 10-QSB will be filed again, complete with all appropriate
information, no later than March 15, 1999. The Company will also revise its
discussion of operating results after it receives certain information from
Multiwave.
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ITEM 1. FINANCIAL STATEMENTS
UNICO, INC.
Balance Sheets
(Dollars In Thousands) December 31, June 30,
1998 1998
ASSETS (unaudited) (audited)
Current Assets
Cash $ 1,707 $ 30
Accounts receivable, less $107 and $84
allowance for doubtful accounts and
returns, allowances and discounts 4,379 1,034
Inventories 4,756 434
Prepaid expenses & other current assets 489 4
------- --------
Total current assets 11,331 1,502
------- --------
Property and Equipment
Furniture and equipment 333 38
Leasehold improvements 8 25
------- --------
341 63
Accumulated depreciation 34 11
------- --------
307 52
------- --------
Trademark, less $37 and $24
accumulated amortization 93 106
Goodwill, less $34 accumulated amortization 1,003 0
Due from Luna 0 14
Due from Hwang and Hwang Note 137 133
Other 90 0
Old Unico Investment 3,163 3,163
------- --------
4,486 3,416
------- --------
$ 16,124 $ 4,970
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdrafts $ 0 $ 211
Accounts payable 9,689 433
Deferred revenues 150 210
Due RTC 0 32
Due Yin 0 100
Accrued payroll & other current liabilities 910 25
--------- --------
Total Current Liabilities 10,749 1,011
--------- --------
Long-Term Liabilities 175 0
--------- --------
Commitments and contingencies
Stockholders' Equity 5,200 3,959
--------- --------
$ 16,124 $ 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
December 31,
1998 1997
(unaudited) (unaudited)
Net sales $ 5,960 $ 7,413
Cost of goods sold 5,300 7,087
--------- ----------
Gross profit 660 326
--------- ----------
Salaries and wages 530 144
Rent 71 11
Research and development 117
Amortization 41 3
Other expenses 752 89
--------- ----------
1,511 247
--------- ----------
Operating income (loss) (851) 79
Interest income, net 2 0
Other income (expense), net 186 0
--------- ----------
Net income (loss) $ (663) $ 79
========= ==========
Basic earnings (loss) per share ($ 0.0464) $ 0.0072
========== ===========
Shares used in computation 14,295,796 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)
Six months ended
December 31,
1998 1997
(unaudited) (unaudited)
Net sales $ 11,035 $ 13,616
Cost of goods sold 10,094 13,182
--------- ----------
Gross profit 941 434
--------- ----------
Salaries and wages 684 258
Rent 94 24
Research and development 117
Amortization 47 8
Other expenses 973 131
--------- ----------
1,915 421
--------- ----------
Operating income (loss) (974) 13
Interest income, net 4 1
Other income (expense), net 186 0
--------- ----------
Net income (loss) $ (784) $ 14
========= ==========
Basic earnings (loss) per share ($ 0.0582) $ 0.0013
========== ==========
Shares used in computation 13,459,612 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)
Six months ended
December 31,
1998 1997
(unaudited) (unaudited)
Operating cash flows
Net loss $ (784) $ 14
Depreciation and amortization 71 31
Services rendered for stock 42 0
Receivables change (217) (558)
Inventory change 753 (137)
Prepaid expenses change 93 (44)
Accounts payable change 989 245
Due from others 0 (133)
Other current liabilities change (40) 7
Deferred revenues change (60) 19
---------- ----------
Cash provided by (used for) operations 847 (556)
---------- ----------
Investing cash flows
Property acquisitions (56) (71)
Other assets (113) 63
Multiwave cash acquired 1,360 42
Long-term liabilities 175 0
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Cash provided by
investing activities 1,366 34
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Financing cash flows
RTC receivables collected 0 588
Yin advance (100) 0
Reduction in due RTC (32) 0
Bank overdrafts (404) (48)
Other equity transactions, net 0 0
---------- ----------
Cash provided by (used for)
financing activities (536) 540
---------- ----------
Change in cash 1,677 18
Cash - beginning of period 30 0
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Cash - end of period $ 1,707 $ 18
========== ==========
The accompanying notes are an integral
part of these financial statements.
8
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UNICO, INC.
Notes To Financial Statements
December 31, 1998
1. Basis of Presentation
The financial statements include the assets and liabilities of Paradise
Innovations, Inc. (Paradise). The Statements of Operations for the period
ended December 31, 1997 includes activity for three and six months for "Old
Paradise" acquired on July 31, 1997. The Statements of Operations for the
three months ended December 31, 1998 include Multiwave's operations from
November 1, 1998. Following the legal closing of the acquisition Uraco
Holdings, one of Multiwave's former parents, 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, has no control over IRC's operations nor
its Board of Directors.
2. Earnings Per Share
Earnings (loss) per common share is computed as if Unico had issued 5,476,200
of its 6,023,829 common shares issued to acquire Old Unico on October 3, 1996
and they were continuously outstanding. 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. The Company Profile
On June 30, 1998, the Company completed the acquisition of 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.
9
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On February 21, 1998, 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
products to market quickly and extend its distribution capabilities in Europe
and Asia. The Company has also decided to spin off its energy related assets
currently held by IRC to its shareholders of record as of February 12, 1999.
At its next annual shareholders' meeting scheduled for March 5, 1999, the
Company is requesting that its shareholders grant its Board of Directors the
authority to negotiate with IRC's management and to consummate a spin-off of
IRC, as IRC's business lies outside the Company's high-tech industry focus.
It is also requesting approval and ratification of the Multiwave acquisition.
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 are now traded 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 plans to apply for a listing on a globally
recognized U.S. stock exchange.
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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.
4. 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.
During fiscal 1997 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.
All of the Company's oil and gas related operations are held by IRC and
disclosed in Note 6.
Segment assets at December 31, 1998 were as follows:
Proprietary Old Elimi-
Distribution Products Unico nations Total
------------ ----------- ------ -------- ---------
$522 $14,720 $3,163 ($ 2,281) $ 16,124
Segment operating results for the three months ended December 31, 1998 were as
follows:
Distri- Proprietary Elimi-
bution Products nations Total
------- ----------- -------- --------
Revenues $ 380 $ 9,285 ($ 3,705) $ 5,960
Interest income 0 2 0 2
Depreciation 0 23 0 23
Amortization 0 7 34 41
Operating loss (32) (749) (70) (851)
Segment operating results for the six months ended December 31, 1998 were as
follows:
Distri- Proprietary Elimi-
bution Products nations Total
------- ----------- -------- --------
Revenues $ 4,519 $ 10,227 ($ 3,711) $ 11,035
Interest income 0 4 0 4
Depreciation 0 24 0 24
Amortization 0 13 34 47
Operating loss (148) (756) (70) (974)
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5. The Company Strategy
The Company shifted its focus to its newly acquired hi-tech subsidiary,
Paradise Innovations, Inc. (Paradise) with the June 30, 1998 reverse
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.
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, which is
currently in the evaluation phase by major cable companies, ISPs and top
branded consumer electronic manufacturers. 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 in the remaining quarters of fiscal 1999 and beyond. They will
command higher unit prices, raising the sales run rate in the remaining
quarters of the fiscal year and beyond.
6. Old Unico
Old Unico's consolidated balance sheets are summarized as of June 30, 1998 and
December 31, 1998, and its consolidated statement of operations for the three
months ended December 31, 1998, as follows:
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OLD UNICO
Consolidated Condensed Balance Sheets
(Dollars In Thousands)
December 31, June 30,
1998 1998
----------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,116 $ 1,134
Other current assets 156 82
Notes receivable from related
Parties - 84
------------ --------
TOTAL CURRENT ASSETS 1,272 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 (2,073) (2,005)
------------ --------
894 962
------------ --------
OTHER ASSETS
Investment in Chatfield Dean 175 301
Other assets & deferred charges 168 176
------------ --------
343 477
------------ --------
$ 2,509 $ 2,739
============ ========
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OLD UNICO
Consolidated Condensed Balance Sheets, (Continued)
(Dollars In Thousands)
December 31, June 30,
1998 1998
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 163 $ 49
Taxes other than income taxes 3 3
------------ -------------
TOTAL CURRENT LIABILITIES 166 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) (88) 204
------------ ------------
2,343 2,635
------------ ------------
$ 2,509 $ 2,739
============ ============
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OLD UNICO
Consolidated Condensed Statements Of Operations
(Dollars In Thousands)
For Periods Ended
December 31, 1998
Three Months Six Months
------------ ------------
REVENUES
Natural gas sales $ 94 $ 169
------------ ------------
COSTS AND EXPENSES
Cost of sales 14 38
General and administrative 439 550
Gain on realization of investment (125) (125)
Depletion, depreciation
and amortization 34 69
Interest, net (11) (25)
Bad debt expense 8 8
------------ ------------
359 515
------------ ------------
LOSS BEFORE INCOME TAXES (265) (346)
Current Benefit for income taxes 50 54
------------ ------------
NET LOSS $ (215) $ (292)
============ ============
7. Multiwave Acquisition
On October 31, 1998, the Company purchased Multiwave for 2,388,792 shares of
common stock stock valued at $2,000,000 and incurred $123,000 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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8. 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.
Unico
Before Pro Forma Pro Forma
Acquisition Multiwave adjustments Consolidated
----------- ---------- ----------- ------------
Revenues $ 11,035 $ 9,153 $(381)(b) $ 19,807
Cost of sales 10,094 8,156 (381)(b) 17,869
----------- ---------- ----------- ------------
Gross profit 941 997 1,938
Operating expenses 1,915 1,175 68 (a) 3,158
----------- ---------- ----------- ------------
Operating income
(loss) (974) (178) (68) (1,220)
Other income
(charges) 190 492 682
----------- ---------- ----------- -------------
Net income (loss) $ (784) $ 314 $ (68) $ (538)
=========== ========== =========== =============
Basic earnings
(loss)per share $(0.0582) $0.1972 $(0.0357)
=========== ========== =============
Weighted average shares
outstanding 13,459,612 1,592,512 15,052,124
(a) To record goodwill amortization.
(b) To eliminate intercompany sales.
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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.
Operating Results
Although the comparison of fiscal 1998 and 1999 Results of Operations for the
most current three month periods shows a 20% sales decrease, gross margin
increased significantly, by 102%. This is due to management's efforts to
change product mix. 89% of the revenues in the second quarter of 1998 were
chip sales with low margins. In contrast, branded components with higher
margins comprised 94% of revenues in the second quarter of 1999.
There are two reasons for the increase in sales of branded components in the
second quarter of 1999. 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.
Excluding Multiwave sales, chip sales decreased from $6.6 million in the
second quarter of fiscal 1998 to $380,000 in the current quarter. These sales
resulted in $22,000 in gross margin in the quarter ending December 31, 1998.
Branded component sales decreased from $826,000 in this same period last
fiscal year to $616,000 in the current quarter. These sales generated
approximately $25,000 in margin in the quarter ending December 31, 1998. The
low margin is due to approximately $90,000 in credits issued for price
protection and customer advertising. For the six month period ending
December 31, 1998, chip sales decreased from $12.5 million to $4.5 million,
excluding Multiwave sales. Branded component sales increased from $1.2 to
$1.6 million, an increase of 35%.
Operating expenses as a percentage of sales for the most current three month
period increased from 3% in fiscal 1998 to 25% in fiscal 1999. Salaries and
wages increased significantly, due to the Multiwave acquisition. This
anticipated increase is a result of the added engineering and R&D capabilities
which enable the Company to more fully utilize its distribution network with
newly developed products. With the Acquisition, the Company gained a
Singapore subsidiary and increased rent expenses.
Excluding Multiwave expenses, the Company estimates that operating expenses
increased to $312,000, an increase of $65,000 from the second quarter of the
last fiscal year. With the Company's new Fremont facility, rent and
associated expenses increased as a result of the move. In addition,
the Company built staff, particularly in marketing and administration, in
anticipation of growth through internal efforts and acquisitions, such as
Multiwave. The Company estimates that operating expenses for the six month
period ending December 31, 1998 increased by about $349,000 from the same
period last fiscal year to approximately $770,000.
Approximately $34,000 of the reported amortization in the second quarter of
1999 is a result of goodwill. Approximately 37% of the increase in the
category other expenses of the Statement of Operations can be attributed to
the acquisition. The category other expenses in the current quarter also
includes over $300,000 for Comdex and $36,000 for advertising expenses.
17
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The Results of Operations for the six month periods ending December 31, 1997
and 1998 reflected a 19% decrease in sales with a 117% increase in margin.
Operating expenses as a percentage of sales for the period increased from 3%
in fiscal 1998 to 17% in fiscal 1999.
Financial Position
Accounts receivable, inventories and prepaid expenses increased by $3,345,000,
$4,322,000 and $485,000, respectively, from June 1998 to December 1998. The
increases are attributable to the Multiwave acquisition. The balance sheet
category prepaid expenses and other current assets include other receivables
of approximately $306,000, prepaid Director's and Officer's insurance in the
amount of $61,000, and prepaid inventory of $22,000. Furniture and equipment
at the end of the current quarter increased by $278,000 which resulted from
the acquisition. Accounts payable increased by $9,256,000 during the six
months ended December 1998, also as a result of the acquisition.
Working Capital, Liquidity and Capital Resources
At December 31, 1998, net working capital was 3.6% of total assets. While
the Company's business is working capital intensive, management is reducing
working capital requirements and the Company's financing costs. A program to
review accounts receivable and payable terms reduced the day sales outstanding
(DSO) in the U.S. to less than thirty days. With the acquisition, the Company
intends to undergo a similar review of its Singapore operation.
In September, 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 will be used
for working capital, capital improvements, 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 second fiscal quarter and is hopeful for closure in the
near future.
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
On September 24, 1998, the Company's Board of Directors: 1) appointed Mr.
Henry Tang as Secretary of the corporation, 2) accepted Ms. Fynna Bernardez's
resignation as the former Secretary and 3) determined to change the fiscal
year of the Company from February 28 to June 30.
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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 Over the Counter electronic Bulletin Board. The Company plans to apply for
listing on a globally recognized national stock exchange.
On October 5, 1998, the Company issued 50,000 shares of common stock,
restricted under Rule 144, to the investment firm of Chatfield Dean & Co. as
remuneration for investment banking advice.
In October, the Company rescinded 260,000 shares of common it issued on
September 14, 1998 to Mr. John Hwang, the President of the Company and Mr. Ike
Suri, a significant shareholder. The Company values the services of these
individuals and wishes to continue to benefit from their services. The
Company will enter into compensation agreements with them for past and
future services. The Company concluded it is prudent to rescind the service
contract to an unrelated third party which resulted in the issuance of another
130,000 shares, also on September 14, 1998. The Company has placed a hold on
100,000 shares and continues to negotiate with the third party on the return
of the remaining 30,000 shares. The Company also acknowledges that it should
compensate the party for past services.
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 components. NatSteel and Uraco will become significant owners of
Unico's common shares following the completion of the merger.
The Multiwave acquisition has a substantial impact on the Company's
financial statements. The Company accounts for the acquisition using the
purchase method. It increases 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 Asia, 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, into equity as a capital contribution. This Form 10-Q treats this
capital contribution as if it had occurred on October 31, 1998.
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The Company filed a Form 8-K on November 6, 1998 disclosing the acquisition,
and a Form 8-K/A on January 22, 1999 disclosing Multiwave's audited financial
statements. Within a few days, it will file another Form 8-K/A with the pro-
forma financial statements. Identical pro-forma financial statements are
disclosed in the preliminary proxy statement filed on February 12, 1999.
On January 8, 1999, the Company retained the New Mexico law firm of Sutin,
Thayer & Browne to be its corporate counsel. The firm is presently engaged in
assisting the Company with negotiations with IRC management for the spin-off,
in preparations for the annual shareholder meeting, acquisitions, and other
legal matters.
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. He brings to the Company wide experience with investment banking
and management of high-tech companies. Mr. Suri and Mr. John Hwang have
partnered in previous successful ventures.
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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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. The Company
values the services rendered by these individuals and intends to enter into
agreements with them for past and future services.
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.
On October 5, 1998, the Company issued 50,000 shares of its common stock as
compensation to Chatfield Dean & Co. for investment banking services and
advice.
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Once shareholder approval has been obtained in the annual shareholders'
meeting on March 5, 1999, the Company will issue 2,388,792 shares of common
stock to consummate the Multiwave acquisition. It is anticipated that this
will occur in March 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In the three months ended December 31, 1998, there were no matters submitted
to a vote of security holders.
ITEM 5. OTHER INFORMATION
On January 8, 1999, the Company retained the New Mexico law firm of Sutin,
Thayer & Browne (Sutin) to be its corporate counsel. The firm is presently
engaged in assisting the Company with negotiations with IRC management for the
spin-off, in preparations for the annual shareholder meeting, acquisitions,
and other legal matters. No compensation to Sutin is on a contingent basis;
fees will be settled with cash.
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. He brings to the Company wide experience with investment banking
and management of high-tech companies. Mr. Suri and Mr. John Hwang have
partnered in previous successful ventures.
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 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.
10.3 Contract with Silicon Valley Bank filed on Form 10-KSB/A on November 3,
1998, incorporated by reference.
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A. Exhibits (continued)
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
The Company filed a Form 8-K on October 5, 1998 as it was advised by Nasdaq
that the securities of the Company should be removed from listing on the
Nasdaq SmallCap Market based on their review of the Company's public filings.
On October 6, 1998, the Company filed a Form 8-K disclosing: (1) a change in
the Company's fiscal year end from February 28 to June 30, (2) the appointment
of Mr. Henry Tang as Secretary of the Corporation, (3) the acceptance of Ms.
Fynna Bernardez's resignation as the former Secretary.
The Company filed a Form 8-K on November 5, 1998 disclosing its cancellation
of the 130,000 shares issued to each of Messrs. John Hwang and Ike Suri.
On November 6, 1998, the Company filed a Form 8-K to disclose that the Company
signed a definitive agreement, in the form of a stock purchase agreement, to
purchase all issued and outstanding shares of Multiwave Innovation Pte. Ltd.
The Company filed a Form 8-K on November 24, 1998 disclosing it canceled the
130,000 shares issued to a third party. The Company has placed a hold on
100,000 of the shares and is negotiating with the party on the remaining
30,000 shares. The Company acknowledges it needs to compensate him for past
services rendered.
On December 16, 1998, the Company filed a Form 8-K disclosing the placement of
its common shares for trading on the OTC bulletin board after it voluntarily
removed them from listing on the Nasdaq SmallCap Market.
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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 February 16, 1999 /s/ John Hwang
------------------ ---------------------------------
Signature(1)
John Hwang
President
Date February 16, 1999 /s/ Henry Tang
------------------ ---------------------------------
Signature(1)
Henry Tang
Vice President & Secretary
- ----------------------
Print name and title of each signing officer under his signature.
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