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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest
event reported) For the Quarter Ended June 30, 1996
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UNICO, Inc.
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(Exact Name of Registrant as Specified in Charter)
Delaware 0-15303 733-1215433
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
8380 Alban Road, Springfield, Virginia 22150
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (703) 644-0200
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ITEM 5. OTHER EVENTS
The Company accepted the resignation of its Chief Financial Officer,
Robert Pulliza, effective June 18, 1996. Subhash Ghei, the Company's
Controller and Vice President of Finance and Administration since 1994 has
been appointed as Mr. Pulliza's successor.
On July 30, 1996, the Board of Directors of UNICO, Inc., approved a Loan
Conversion Agreement and Addendum to Loan Conversion Agreement, dated July
12, 1996 and July 30, 1996, respectively, by and between UNICO, Inc.,
Renaissance Capital Partners, Ltd., a Texas Limited Partnership, and Duncan
Smith Investments Co., a Texas Corporation. The Loan Conversion Agreement
and Addendum to Loan Conversion Agreement are attached hereto and
incorporated by reference herein as Exhibits 1 and 2, respectively.
The net effect of these Agreements is to convert $1,757,569 of
subordinated debt into $1,757,569 of convertible preferred stock. The Company
has attached a full Balance Sheet and Statement of Operations as of July 30,
1996. These documents are incorporated by reference herein as Exhibits 3
through 5. The pro forma results of this conversion on the Company's Balance
Sheet are as follows:
June 30, 1996 Conversion June 30, 1996
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Total Assets $6,192,837 N/A $6,192,837
Total Liabilities $5,627,255 ($1,757,569) $3,869,686
Shareholder Equity $ 565,579 $1,757,569 $2,323,148
EXHIBITS
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1 Loan Conversion Agreement dated July 12, 1996, effective July 30,
1996, by and between UNICO, Inc., Renaissance Capital Partners, Ltd.
and Duncan Smith Investments Co. (incorporated by reference into
item 5).
2 Addendum to Loan Conversion Agreement dated July 30, 1996 by and
between UNICO, Inc., Renaissance Capital Partners, Ltd. and Duncan
Smith Investments Co. (incorporated by reference into item 5 above).
3 Consolidated Balance Sheets, June 30, 1996 and December 31, 1995
(incorporated by reference into item 5 above).
4 Consolidated Statements of Operations for the Quarter Ended June 30,
1996 and for the Six Months Ended June 30, 1996 (incorporated by
referenced into item 5 above).
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5 Notes to Interim Consolidated Financial Statements (incorporated into
Item 5 above).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UNICO, INC.
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(Registrant)
Date 7/30/96 By /s/ Gerard R. Bernier
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Exhibit 1
LOAN CONVERSION AGREEMENT
This loan conversion agreement the "Conversion Agreement" is entered
into as of this 12th day of July, 1996 by and between UNICO, Inc., a Delaware
corporation ("UNICO"), Renaissance Capital Partners, Ltd., a Texas limited
partnership ("Renaissance") and Duncan Smith Investments Co., a Texas
Corporation, ("Duncan Smith");
WITNESSETH:
Whereas UNICO and its wholly owned subsidiaries and Renaissance are
parties to a certain Convertible Debenture Loan Agreement dated December 31,
1991 (the "Loan Agreement") and a Registration Rights Agreement of even date
therewith (the "Registration Rights Agreement"); and
Whereas pursuant to the Loan Agreement UNICO has borrowed $1,250,000, in
principal amount, and Renaissance is the owner and holder of a 12.5%
Convertible Debenture issued December 31, 1991 in the face amount of
$1,250,000 (the "Debenture") issued pursuant to the Loan Agreement and the
aforesaid borrowing; and
Whereas Renaissance is the holder and UNICO is the maker of eight 10%
convertible notes designated numbers R1 through R8 in the aggregate principal
sum of $150,000 (collectively, the "Renaissance Convertible Notes"); and
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Whereas unpaid interest has accrued under the Loan Agreement evidenced
by the Debenture as of and through the date hereof in the amount of $163,058;
and
Whereas unpaid interest has accrued under the Renaissance Convertible
Notes as of and through the date hereof in the amount of $17,599; and
Whereas Duncan Smith is the holder and UNICO is the maker of eight 10%
convertible notes designated numbers DS1 through DS8 in the aggregate
principal sum of $150,000 (collectively, the "Duncan Smith Convertible
Notes"); and
Whereas unpaid interest has accrued under the Duncan Smith Convertible
Notes as of and through the date hereof in the amount of $17,599; and
Whereas the parties have agreed to convert, redeem and exchange the
Debenture, the Renaissance Convertible Notes and the Duncan Smith Convertible
Notes (the Renaissance Convertible Notes and the Duncan Smith Convertible
Notes being collectively referred to herein as the "Convertible Notes") and
the full amount of all principal and accrued interest thereon for UNICO's
Series B Preferred Stock more particularly described herein;
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Now therefore in consideration of the mutual promises herein contained
and further valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Series B Preferred Stock
By resolution duly adopted in accordance with its charter, bylaws
and the General Corporation Law of the State of Delaware, UNICO has created
and reserved up to 2,000,000 shares of Series B Preferred Stock designating
therefor rights and privileges to the holder thereof identical in each and
every respect to the rights and privileges of holders of shares of Common
Stock except in the following respects:
a. Voting Rights
In respect to any questions coming before or to be voted upon
by the stockholders of UNICO, each share of Series B Preferred Stock shall be
entitled to four votes, whereas each share of Common Stock shall be entitled
to one vote, and the Series B Preferred Stock and the Common Stock shall vote
together as one class.
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b. Dividends
Holders of Series B Preferred Stock and the holders of Common
Stock shall be entitled to receive, when and as declared by the Board of
Directors, dividends (payable in cash, stock or otherwise) out of any funds
legally available therefore, provided that neither the Series B Preferred
Stock nor the Common Stock shall be preferred over the other as to any
dividend or distribution except as provided in Subsection 1c hereof and
except as so provided. Neither the holders of the Series B Preferred Stock
nor the holders of the Common Stock shall be entitled to receive any dividend
or distribution which is not identical in kind, record and payment date per
share for each class except as provided in subsection 1c. The amount of any
dividend or distribution to the holders of Series B Preferred Stock shall be
four times that of the dividend or distribution to any holder of Common Stock.
c. Liquidating Preference
In the event of a voluntary or involuntary liquidation,
dissolution or winding up of UNICO, the holders of Series B Preferred Stock
shall be entitled to be paid the sum of $1.00 per share before any
distribution or payment shall be made to the holder of any Common Stock.
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d. Call, Redemption or Conversion
Neither the Series B Preferred Stock nor the Common Stock into
which it may be converted shall be subject to or enjoy any call or redemption
rights by UNICO or the holders thereof except as follows:
The holders of Series B Preferred Stock shall have the right,
at the holders option, at any time, to convert all or in multiples of 250
shares any part of their holdings of Series B Preferred Stock into such
number of fully paid and nonassessable shares of Common Stock $.01 par value
of UNICO as shall be provided for herein.
i. Conversion Ratio
Each share of Series B Preferred Stock shall be
convertible into four shares of UNICO's Common Stock, subject to adjustment
at the time of conversion in accordance with the provisions hereof.
ii. Adjustment to Conversion Ratio
The parties acknowledge their intent to establish a
preferred stock conversion ratio which yields one share of UNICO Common Stock
for every $.25 of indebtedness under the Debenture and Convertible Notes
converted, redeemed and
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exchanged hereunder. If and whenever any additional shares of Common Stock
are issued by UNICO for a net consideration per share less than $.25 per
share then in each such case the conversion price shall be reduced to the net
consideration received per share and the number of shares issuable to the
holder of Series B Preferred Stock shall be proportionately increased.
Further, in the event that UNICO shall at any time change as a whole by
subdivision or combination in any manner or by the making of a stock dividend
the number of shares of Common Stock then outstanding into a different number
of shares, with or without par value, then thereafter the number of shares of
Common Stock issuable upon the conversion of Series B Preferred Stock shall
be increased or decreased as the case may be in direct proportion to the
increase or decrease in the number of shares of Common Stock by reason of
such change; provided however that no adjustment in the conversion ratio
shall be made hereunder in either of the following cases:
1. A stock dividend on the Common Stock where the
identical stock dividend in Common Stock was paid in the Series B Preferred
Stock; and
2. A subdivision or combination of the Common Stock
where the identical subdivision or combination was made on the Series B
Preferred Stock.
Further, in the event of any capital reorganization or reclassification
of Common Stock of the corporation (other than a change in par value or from
par value to no par value or from no par value to par value as a result of a
subdivision or combination), or in case of the consolidation or merger of the
corporation with or into any other corporation
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(other than a consolidation or merger in which the corporation is the
continuing corporation and which does not result in any change in the Common
Stock), or of the sale of the properties and assets of the corporation as, or
substantially as, an entity to any other corporation, each share of Series B
Preferred Stock shall after such capital reorganization, reclassification of
capital stock, consolidation, merger or sale entitle the holder to obtain the
kind and number of shares of Common Stock or other securities or property of
the corporation or of the corporation resulting from such consolidation or
surviving such merger or to which such sale shall be made, as the case may
be, to which such holder would have been entitled if he had held the Common
Stock issuable upon conversion of such shares of Series B Preferred Stock
immediately prior to such capital reorganization, reclassification of capital
stock, consolidation, merger or sale. All calculations under this
subsection shall be made to the nearest share or dollar as the case may be.
iii. Automatic Conversion
On August 1, 1998 or, if earlier, the date upon
which a registration statement with respect to an offering of UNICO's
securities is declared effective, (the "Automatic Conversion Date"), the
Series B Preferred Stock shall thereupon be automatically converted into
Common Stock in accordance with the conversion ratio above specified. From
and after the Automatic Conversion Date, each outstanding certificate which
prior to the Automatic Conversion Date represented Series B Preferred Stock
shall be deemed for all corporate purposes to evidence the ownership of the
whole
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number of duly issued and outstanding shares of Common Stock into which the
shares of Series B Preferred Stock have been so converted and upon surrender
of such certificate the holder shall be entitled to receive in exchange
therefore a certificate or certificates representing the whole number of
shares of Common Stock into which the shares of Series B Preferred Stock
theretofore represented by such certificate have been converted as aforesaid.
iv. Certificates Upon Conversion
As promptly as practicable after surrender for
conversion of a certificate representing shares of Series B Preferred Stock,
UNICO shall deliver to or upon written order of the holder of the share of
Series B Preferred Stock so surrendered a certificate representing the number
of fully paid and nonassessable shares of Common Stock into which such
Series B Preferred Stock may be converted in accordance with the provisions
hereof. With respect to conversions prior to the Automatic Conversion Date
such conversion shall be deemed to be made at the close of business on the
date that such Series B Preferred Stock shall have been surrendered for
conversion so that the rights of the holder of such Series B Preferred Stock
as a holder of Series B Preferred Stock shall cease at such time and the
person or persons entitled to receive the shares of Common Stock upon the
conversion of such Series B Preferred Stock shall be treated for all purposes
as having become the record holder or holders of such shares of Common Stock
at such time.
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v. Registration Rights
Upon conversion of the Series B Preferred Stock into
Common Stock, Renaissance shall have with respect to such Common Stock as is
issued in exchange for UNICO's indebtedness under the Loan Agreement and
Debenture, the demand and piggyback registration rights provided for in the
Registration Rights Agreement. Duncan Smith and Renaissance shall have with
respect to such Common Stock as is issued in exchange for UNICO's
indebtedness under the Convertible Notes, the demand registration rights
provided for in the Convertible Notes.
2. CONVERSION REDEMPTION AND EXCHANGE
Contemporaneous with the execution hereof Renaissance and UNICO agree to
convert, redeem and exchange 1,580,657 shares of UNICO's Series B Preferred
Stock for all indebtedness created pursuant to and evidenced by the Loan
Agreement, the Debenture and the Renaissance Convertible Notes and UNICO, as
borrower, and its subsidiaries, as guarantors, are released of any further
liability thereunder. Contemporaneous with the execution hereof Duncan Smith
and UNICO agree to convert, redeem and exchange 167,599 shares of UNICO's
Series B Preferred Stock for all indebtedness created pursuant to and
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evidenced by the Duncan Smith Convertible Notes and UNICO, as borrower, and
its subsidiaries, as guarantors, are released of any further liability
thereunder.
3. NECESSARY DOCUMENTS
The parties agree to execute such documents and certificates as may
be reasonable and necessary to effectuate the purposes of this agreement.
4. CONTEMPORANEOUS BANK CLOSING
The parties acknowledge that the effectiveness of this agreement is
contingent upon the contemporaneous closing of a refinancing of UNICO's
indebtedness to its primary lender Bank First extending the payment terms of
its existing indebtedness on terms agreeable to the parties.
5. MISCELLANEOUS
a. This Conversion Agreement contains the entire agreement
between the parties and supersedes all prior agreements and understandings of
any relating to the subject matter hereof and thereof.
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b. Sections headings are for the convenience of reference only and
except as a means of identification of reference shall in no way effect the
interpretation of this Conversion Agreement.
6. MULTIPLE COUNTERPARTS
This Conversion Agreement may be executed in any number of counterparts
all of which taken together shall constitute one and the same agreement and
any of the parties hereto may execute this Conversion Agreement by signing
any such counterpart.
In witness whereof the parties have executed this Conversion Agreement
as of the date and year first above written.
UNICO, Inc. Renaissance Capital Partners, Ltd.
By: /s/ Gerard R. Bernier By: /s/ Russell Cleveland
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Duncan Smith Investments Co.
By: /s/ Goodhue Smith
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ADDENDUM TO LOAN CONVERSION AGREEMENT
THIS ADDENDUM to a certain Loan Conversion Agreement dated July 12,
1996, by and between UNICO, Inc., a Delaware corporation ("UNICO"),
Renaissance Capital Partners, Ltd., a Texas Limited Partnership
("Renaissance"), and Duncan Smith Investments Co., a Texas Corporation
("Duncan Smith")(the "Conversation Agreement") is entered into as of the 30th
day of July 1996, by and between the aforesaid parties for the purpose of
amending in the matter hereinafter set forth the Conversation Agreement:
WITNESSETH:
WHEREAS, paragraph 4 of the Conversion Agreement required the
contemporaneous closing of a refinancing of UNICO's indebtedness to its
primary lender, BancFirst extending the payment terms of its existing
indebtedness on terms agreeable to the parties; and
WHEREAS, BancFirst has issued a commitment letter dated July 24, 1996
(the "Commitment Letter"), the terms of which are sufficiently agreeable to
the parties so as to permit a conversion described in the Conversion
Agreement to proceed; and
WHEREAS, the parties desire to supplement and amend the Conversion
Agreement in the manner hereinafter set forth;
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NOW THEREFORE, in consideration for the mutual promises herein contained
and further valuable consideration, receipt and sufficiency is hereby
acknowledged, the parties hereto agree to amend and supplement the Conversion
Agreement in the manner hereinafter set forth:
1. The parties hereby waive the requirement of contemporaneous closing
of the refinance set forth in paragraph 4 of the Conversion Agreement and
agree that the exchange and conversion provided for in the Conversion
Agreement shall be effective as of July 30, 1996 (the "Effective Date"). As
the Company has heretofore issued Series B Preferred Stock, reference in the
Conversion Agreement to Series B Preferred Stock is amended to refer to
Series C Preferred Stock
2. In accordance with the revised Effective Date of the conversion,
the unpaid interest accrued under the Loan Agreement evidenced by the
Debenture as of and through the Effective Date is the sum of $170,871, the
unpaid interest which has accrued under the Renaissance Convertible Notes as
of and through the Effective Date is the sum of $18,349; and the unpaid
interest which has accrued under the Duncan Smith Convertible Notes as of and
through the Effective Date is the sum of $18,349. Accordingly, the share of
Series B (now Series C) Preferred Stock recited in Paragraph 2 of the
Conversion Agreement to be issued to Renaissance and to Duncan Smith are
revised to be 1,589,220 and 168,349,respectively.
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3. In connection with the refinancing of the Company's indebtedness to
BancFirst, Renaissance agrees to loan the Company the sum of $50,000 to
satisfy the Bank's conditions set forth in paragraph 5. of its Commitment
Letter. Such loan shall be evidenced by a promissory note providing a
maturity date of December 15, 1998, interest at the rate of 9.25% per annum,
payable monthly provided payments to BancFirst are current and shall be
guaranteed by United Coupon Corporation ("UCC") and secured by UCC's accounts
receivable, subordinate to BancFirst.
4. Except as set forth herein, the terms and conditions of the
Conversion Agreement shall remain as originally stated therein, all
capitalized terms not herein defined shall have the meaning described in the
Conversion Agreement.
UNICO, Inc. Renaissance Capital Partners, Ltd.
By: /s/ Gerard R. Bernier By: /s/ Russell Cleveland
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Duncan Smith Investments Co.
By: /s/ Goodhue Smith
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EXHIBIT 3
PART 1. FINANCIAL INFORMATION
UNICO, Inc.
CONSOLIDATED BALANCE SHEETS 1 of 2
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June 30, December 31
ASSETS 1996 1995
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CURRENT:
Cash and cash equivalents $234,097 $300,821
Accounts Receivable:
Trade (net of allowance for uncollectible
accounts of $882,820 and $377,793) 539,962 771,495
Inventory 188,969 254,505
Notes receivable 94,615 189,707
Notes receivable-Stockholders 280,000 280,000
Prepaid expenses 100,845 171,203
Accrued revenues 87,602 0
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Total current assets 1,526,091 1,967,731
PROPERTY:
Furniture, fixtures & equipment 4,415,402 4,285,322
Leasehold improvements 161,593 152,470
Less accumulated depreciation (1,779,622) (1,552,175)
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Property, net 2,797,373 2,885,617
GOODWILL (net of amortization of
$342,561 and $317,309) 1,682,461 1,707,713
DEPOSITS AND OTHER 186,912 200,619
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TOTAL $6,192,837 $6,761,680
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The accompanying notes are an integral part of the consolidated
financial statements.
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UNICO, Inc.
CONSOLIDATED BALANCE SHEETS 2 of 2
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June 30, December 31
LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1995
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CURRENT LIABILITIES:
Accounts payable $1,352,218 $1,258,768
Accrued liabilities 469,893 242,844
Notes payable, current portion 1,059,785 781,715
Deferred revenue 110,921
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Total current liabilities 2,881,896 2,394,248
LONG-TERM LIABILITIES
Notes payable, net of current portion 805,021
Convertible debenture-Affiliate 1,400,000 1,386,750
Subordinated debenture 1,010,000 996,750
Other 335,359 91,933
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Total long-term liabilities 2,745,359 3,280,454
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Total liabilities 5,627,255 5,874,702
REDEEMABLE PREFERRED STOCK:
Preferred stock - $.01 par value:
5,000,000 shares authorized;
Series A and B Redeemable Preferred stock -
280 shares issued and outstanding
(Redemption value of $280,000) 3 3
COMMITMENTS AND CONTINGENCIES (Note 2)
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value;
5,000,000 shares authorized;
Series A Convertible Preferred Stock-
0 shares issued and outstanding -- --
Common stock-$.01 par value;
20,000,000 shares authorized;
8,158,095 shares outstanding 78,830 78,830
Additional paid in capital 4,974,034 4,974,034
Accumulated deficit (4,487,285) (3,965,889)
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Total stockholders' equity 565,579 1,086,975
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TOTAL $6,192,837 $6,761,680
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The accompanying notes are an integral part of the consolidated
financial statements.
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EXHIBIT 4
UNICO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTER ENDED JUNE 30, 1996 AND 1995
1996 1995
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REVENUES:
Coupon and advertising sales,
net of discounts and allowances $1,698,817 $3,337,200
Franchise fees 28,290 28,150
Other 6,331 166,549
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TOTAL REVENUES 1,733,438 3,531,899
EXPENSES:
Production 1,120,833 2,470,180
General and administrative 640,554 709,770
Franchise development 88,395 96,949
Interest expense-Affiliate 15,000 39,384
Interest expense-Other 79,826 65,356
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TOTAL EXPENSES 1,944,608 3,381,639
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NET INCOME (LOSS) BEFORE
INCOME TAXES (211,170) 150,260
PROVISIONS FOR INCOME TAX 9,000 6,741
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NET INCOME (LOSS) $ (220,170) $ 143,519
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WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 8,158,095 7,728,342
NET INCOME (LOSS) PER COMMON SHARE $ (0.027) $ 0.02
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
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CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
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REVENUES:
Coupon and advertising sales,
net of discounts and allowances $3,941,510 $6,384,074
Franchise fees 120,423 28,150
Other 76,904 259,518
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TOTAL REVENUES 4,138,837 6,671,742
EXPENSES:
Production 2,488,032 4,568,344
General and administrative 1,260,072 1,566,066
Franchise development 177,397 195,277
Interest expense-Affiliate 58,563 77,912
Interest expense-Other 138,502 107,061
Restructuring cost 520,000
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TOTAL EXPENSES 4,642,566 6,514,660
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NET INCOME (LOSS) BEFORE
INCOME TAXES (503,729) 157,082
PROVISIONS FOR INCOME TAX 17,667 9,470
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NET INCOME (LOSS) $ (521,396) $ 147,612
---------- ----------
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WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 8,158,095 7,557,533
NET INCOME (LOSS) PER COMMON SHARE $ (0.064) $ 0.02
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
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UNICO, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 1996 AND 1995
1. BASIS OF PRESENTATION
The interim consolidated financial statements at June 30, 1996 and for
the three month and six month periods ended June 30, 1996 and 1995 are
unaudited, but include all adjustments which the Company considers
necessary for a fair presentation. The December 31, 1995 balance sheet
was derived from the Company's audited financial statements.
The accompanying unaudited financial statements are for the interim
period and do not include all disclosures normally provided in annual
financial statements and should be read in conjunction with the
Company's audited financial statements. The accompanying unaudited
interim financial statements for the six month period ended June 30,
1996 are not necessarily indicative of the results which can be
expected for the entire year.
2. COMMITMENTS & CONTINGENCIES
Prior to 1995, the Florida Department of Revenue issued a Notice of
Intent to levy additional sales taxes with penalty and interest charges
totaling approximately $480,000 against the Company's subsidiary,
Cal-Central Marketing Corporation. A liability for a portion of this
matter was recorded by Cal-Central and was included in other long-term
liabilities in the financial statements at December 31, 1994.
Subsequent to December 31, 1995, written settlement was reached with
Florida authorities whereby Cal-Central agreed to a payout of $35,000,
payable at $5,000 per quarter, over seven quarters beginning in June
1996. The agreed to amount is recorded as a liability at December 31,
1995 and June 30, 1996.
The Company is exposed to various other legal matters encountered in
the normal course of business. In the opinion of management, the
resolution of these matters will not have a material adverse effect on
the Company's consolidated financial position or results of operations.
3. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"), deferred tax assets or liabilities are
computed on the difference between the financial statement and income
tax bases of assets and liabilities ("temporary differences") using the
enacted marginal tax rate. Deferred income tax expenses or benefits are
based on the changes in the deferred tax asset or liability from period
to period.
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Management has determined that it is not more likely than not the
Company will be able to realize all the tax benefits from available net
operating loss carryforwards and has, therefore, provided a valuation
allowance of an equal amount. The deferred income tax expense of
$17,667 for the six month period and the $9,000 for the quarter ended
June 30, 1996 reflected in the respective Statement of Operations
represents state income taxes payable by the Company's subsidiary,
United Coupon Corporation on profits that are not impacted by the net
operating loss carryforwards.
4. SUBSIDIARY RESTRUCTURING
The Company acquired Cal-Central Marketing Corporation as a wholly
owned subsidiary on October 27, 1993. Operating profitability and cash
flow for the subsidiary have been below management's expectations and
anticipated potential since the acquisition. During the third quarter
of 1995, management determined that it was in the best interest of the
shareholders and the Company to close the Fort Lauderdale, Florida
facility and consolidate all art and printing functions for Cal-Central
into the Company's newly expanded facility in Springfield, Virginia.
This transition was accomplished during December 1995, and a
restructuring charge of $772,433 was recorded during 1995 to reflect
initial costs associated with the restructuring.
During the quarter ended March 31, 1996, the Company further evaluated
the collectibility of remaining accounts receivable of Cal-Central,
including receivables related to advertising commitments completed
during the period. As a result of this review, the company recorded an
additional accounts receivable impairment of $520,000 related to the
restructuring of Cal-Central. Remaining accounts receivable of
Cal-Central, deemed to be collectible following this additional
impairment allowance, is $107,413.
5. CORPORATE RESTRUCTURING
On March 4, 1996, the Company entered into a Third Restated and Amended
Loan Agreement with BancFirst which provided for the renewal of the
Company's existing term and revolving credit facilities until January
31, 1997.
In consideration of the plan to consolidate the corporate office
functions from Oklahoma City to the expanded offices of the Company in
Springfield, Virginia, the Company's Chairman, Chief Executive Officer
and President, W. Douglas Frans, and its Chief Financial Officer, Ted
W. Strickland, proposed to resign their positions following completion
of specific key objectives encompassing the bank restructuring and
annual audit. The Board of Directors approved this plan on March 22,
1996, and appointed Gerard R. Bernier, current Chief Executive Officer
and President of United Coupon Corporation, and Robert F. Pulliza,
former Executive Vice President and Chief Operating Officer of United
Coupon Corporation, as their respective successors. This transition of
corporate authority and relocation of corporate headquarters became
effective March 31, 1996.
