FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1998
Commission File # 0-15303
UNICO, Inc.
(Exact name of Registrant as specified in its Charter)
Delaware
(State or other jurisdiction of incorporation or organization)
73-1215433
(IRS Employer Identification Number)
8380 Alban Road, Springfield, VA 22150
(Address of principal executive offices) (Zip Code)
(703) 644-0200
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class: Common Stock, $.01 Par Value
Number of shares outstanding as of May 15, 1998
2,119,077
UNICO, Inc.
INDEX
Page No.
PART 1 - FINANCIAL INFORMATION
Item 1 Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Operations
For the Quarter Ended March 31, 1998
and the Quarter Ended March 31, 1997 5
Consolidated Statements of Cash Flow
For the Quarter Ended March 31, 1998
and the Quarter Ended March 31, 1997 6
Notes to Interim Consolidated Financial
Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART 11 - OTHER INFORMATION 11
SIGNATURE PAGE 13
PART 1. FINANCIAL INFORMATION
UNICO, Inc.
CONSOLIDATED BALANCE SHEETS 1 of 2
March 31, December 31,
ASSETS 1998 1997
- ------- --------- ------------
CURRENT:
Cash and cash equivalents $ 90,036 $ 129,860
Accounts receivable:
Trade (net of allowance for
Uncollectible accounts of
$82,900 and $60,000) 275,705 292,003
Inventory 166,114 119,203
Other receivables 134,911 2,877
Prepaid expenses 2,328 9,140
---------- ----------
Total current assets 669,094 553,083
PROPERTY:
Printing and office equipment 3,513,286 3,428,274
Computer equipment and software 604,591 604,591
Transportation equipment 138,693 138,693
Leasehold improvements 63,063 63,063
------------ ------------
Total 4,319,633 4,234,621
Less accumulated depreciation (2,368,897)
(2,166,065)
------------ ------------
Net property and equipment 1,950,736 2,068,556
DEPOSITS AND OTHER ASSETS 15,155 18,302
------------ ------------
TOTAL ASSETS $ 2,634,985 $ 2,639,941
============ ============
The accompanying Notes To Financial Statements are an integral
part of these financial statements.
UNICO, Inc.
CONSOLIDATED BALANCE SHEETS 2 of 2
March 31, December 31,
LIABILITIES & STOCKHOLDERS' EQUITY 1998 1997
--------- ------------
CURRENT LIABILITIES:
Accounts payable $ 1,011,708 $ 1,307,198
Accrued liabilities 709,649 485,433
Notes payable, current portion 1,428,977 1,449,384
Deferred revenue 267,351 120,509
------------ ------------
Total current liabilities 3,417,685 3,362,524
LONG TERM LIABILITIES:
Notes payable 360,622 360,622
Deferred rent 320,874 320,874
------------ ------------
Total long term liabilities 681,496 681,496
------------ ------------
Total liabilities 4,099,181 4,044,020
COMMITMENTS AND CONTINGENCIES (Note 2)
DEFICIENCY IN STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value:
5,000,000 shares authorized;
designated as:
Redeemable Preferred;
70 shares issued and outstanding 1 1
Series A Convertible Preferred - -
Series B Preferred - -
Series C Preferred stock, $.01
par value; voting on the basis of
4 votes to 1 vote for the common
stock, preferred in liquidation at
$1 per share over common shareholders,
convertible into common stock on the
basis of 4 common shares for each
preferred share, with automatic
conversion on August 1, 1998;
authorized, 2,000,000 shares,
authorized, 428,185 shares issued
and outstanding 4,282 4,282
Common stock - $.01 par value;
20,000,000 shares authorized;
2,119,077 shares issued and
outstanding 21,191 21,191
Additional paid-in capital 6,801,008 6,801,008
Deferred compensation (4,557) (4,557)
Accumulated deficit (8,286,121) (8,226,004)
------------ ------------
Total deficiency in stockholders'equity (1,464,196) (1,404,079)
------------ ------------
TOTAL LIABILITIES AND DEFICIENCY IN
STOCKHOLDERS' EQUITY $ 2,634,985 $ 2,639,941
============ ============
The accompanying Notes To Financial Statements are an integral
part of these financial statements.
UNICO, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 1998 AND 1997
1998 1997
---- ----
REVENUES:
Other $ 7,973 $ 468,377
TOTAL REVENUES 7,973 468,377
EXPENSES:
General and administrative 117,882 100,490
Interest expense - affiliate - 23,211
Interest expense - other 5,681 20,220
-------- --------
TOTAL EXPENSES 123,563 143,921
-------- --------
NET INCOME (LOSS) BEFORE INCOME TAXES
AND DISCONTINUED OPERATIONS (115,590) 324,456
INCOME TAX PROVISION 0 0
NET INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS (115,590) 324,456
GAIN FROM OPERATIONS TO BE DISCONTINUED:
Income from operations of subsidiary to
be sold, net of an income tax provision
of $9,000 in 1998 and $9,000 in 1997 55,473 27,345
----------- ----------
NET INCOME LOSS $ (60,117) $ 351,801
=========== ==========
BASIC NET INCOME (LOSS) PER
COMMON SHARE:
Weighted average common shares
Outstanding 2,119,077 2,119,077
----------- ----------
Loss from continuing operations $ (.055) $ .153
Income from discontinued operations .026 .013
----------- ----------
Net income (loss) per common share $ (.029) $ .166
=========== ==========
The accompanying Notes To Financial Statements are an integral
part of the financial statements.
UNICO, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (60,117) $ 351,801
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 170,932 105,493
Provision for bad debts 22,900 28,610
Deferred income taxes 9,000 9,000
Changes in operating assets and
liabilities:
Accounts and notes receivable (115,736) (128,030)
Prepaid expenses and inventory (40,099) (101,586)
Deposits and other 3,147 (59,672)
Accounts payable and accrued
liabilities (71,274) 389,943
Deferred revenue 146,842 (1,965)
---------- ---------
Net Cash Provided by (Used in) Operating
Activities 65,595 593,594
CASH FLOWS FROM INVESTING ACTIVITIES:
Territory Buy Back Allowance - (497,500)
Purchase of property (85,012) (46,398)
--------- ----------
Net Cash Provided by (Used in)
Investing Activities (85,012) (543,898)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debentures 0 0
Proceeds from notes payable 0 151,125
Payment of notes payable (20,407) (36,560)
Payment of funding costs 0 0
---------- ----------
Net Cash Provided (Used In)
Financing Activities (20,407) 114,565
---------- ----------
CHANGE IN CASH AND CASH EQUIVALENTS: (39,824) 164,261
Cash and Cash Equivalents -
Beginning of Period 129,860 231,971
--------- ----------
Cash and Cash Equivalents -
End of Period $ 90,036 $ 396,232
========= ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for income taxes $ 0 $ 0
Cash paid for interest $ 5,681 $ 20,220
========= ==========
The accompanying Notes To Financial Statements are an integral
part of the financial statements.
UNICO, Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 1998 and 1997
- --------------------------------------------------
1. BASIS OF PRESENTATION
- -------------------------
The interim consolidated financial statements at March 31, 1998
and for the three month periods ended March 31, 1998 and 1997 are
unaudited, but include all adjustments which the Company
considers necessary for a fair presentation. The December 31,
1997 balance sheet was derived from the Company's audited
financial statements.
The accompanying unaudited financial statements are for the
interim periods 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
included in the Company's Form 10-KSB for the year ended December
31, 1997. The accompanying unaudited interim financial
statements for the three month period ended March 31, 1998 are
not necessarily indicative of the results which can be expected
for the entire year.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
2. COMMITMENTS & CONTINGENCIES
- -------------------------------
The Company is exposed to various 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"), which
requires an asset and liability approach to accounting for income
taxes. Under 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.
Management has determined that it is not more likely than not
that 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 income tax expense of $9,000 reflected in the Statements of
Operations for the quarter ended March 31, 1998 and March 31,
1997 represents state income taxes payable by United Marketing
Solutions, Inc. on first quarter profits that are not impacted by
the net operating loss carryforwards.
4. SUBSIDIARY RESTRUCTURING
- ----------------------------
Certain amounts in the 1997 financial statements as reported
herein have been reclassified to conform with the 1998
presentation. These reclassifications relate primarily to
reporting discontinued operations. These reclassifications had
no effect on the net income or loss, total current assets or
total current liabilities as previously reported.
During 1997, the Company decided to dispose of its principal
operating subsidiary United Marketing Solutions, Inc. (formerly
United Coupon Corporation), by sale if a suitable purchaser
could be obtained. Accordingly, the results of operations for
1998 and 1997 have been presented showing the results of
continuing operations and discontinued operations, net of
applicable income taxes. A summary of the subsidiary's
operations for the three months ended March 31, 1998 and 1997 are
as follows:
1998 1997
------ ------
REVENUE
Printing, design and advertising
sales, net $ 1,195,648 $ 1,447,291
Franchise fees 138,785 72,685
Other 50,272 -
----------- -----------
Total revenue 1,384,705 1,519,976
EXPENSES
Cost of sales 797,930 989,547
Franchise development 130,044 79,350
General and administrative 392,258 414,734
---------- -----------
Total expenses 1,320,232 1,483,631
---------- -----------
NET INCOME BEFORE INCOME TAX
(PROVISION) 64,473 36,345
INCOME TAX PROVISION 9,000 9,000
--------- ---------
NET INCOME $ 55,473 $ 27,345
========= =========
5. CORPORATE RESTRUCTURING
- ---------------------------
At its meeting on December 31, 1997, the stockholders approved a
reverse split of all of the Company's outstanding common and
preferred shares on a one-for-four basis. All share amounts
presented in the financial statements have been adjusted to
reflect this reverse split.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
- ----------------------------------------------------------
Certain matters discussed herein (including the documents
incorporated herein by reference) are forward-looking statements
intended to qualify for the safe harbors from liabilities
established by the Private Litigation Reform Act of 1995. These
forward-looking statements can generally be identified as such
because the context of the statement will include words such as
the Company "believes," "plans," "intends," "anticipates,"
"expects," or words of similar import. Similarly, statements that
describe the Company's future plans, objectives, estimates, or
goals, are also forward-looking statements. Such statements
address future events and conditions concerning capital
expenditures, earnings, litigation, liquidity, capital resources
and accounting matters. Actual results in each case could differ
materially from those currently anticipated in such statements by
reason of factors such as future economic conditions, including
changes in customer demands; future legislative, regulatory and
competitive developments in markets in which the Company
operates; and other circumstances affecting anticipated
revenues and costs.
Liquidity and Capital Resources
- -------------------------------
The Company's principal measures of liquidity are cash,
certificates of deposit, accounts receivable and salable
inventory. Also, management deems appropriately managed
and collateralized bank lines of credit as a proper supplement to
its liquidity.
The Company's working capital was a deficit $2,748,591 at March
31, 1998, a 2% improvement from December 31, 1997. This change
reflects: a reduction in Cash and Equivalents of $39,824
resulting primarily from the net loss from operations for the
period; a net increase of $115,736 in Trade and Other Accounts
Receivable; an increase of $46,911 in paper and work in process
Inventory at United Marketing Solutions, Inc. ("United
Marketing"); a decrease of $6,812 in Prepaid Expenses related to
utilization of lower annual insurance renewals and similar
contracts; These changes were impacted by a decrease of
$295,490 in Accounts Payable and a $224,216 increase in Accrued
Liabilities related to accrual of seasonal operating costs at
United Marketing, as well as accrual of costs related to
potential sale of United Marketing. Working capital was also
aided by a $20,407 reduction in the current portion of
Notes Payable net of principal payments made during the period.
Deferred Revenue increased by $146,842 during the period.
Long term liabilities were unchanged during the period.
Management adopted a restructuring plan for its subsidiary Cal-
Central Marketing Corporation during 1995. Management abandoned
its restructuring plan for Cal-Central during the fourth quarter
of 1996 and wrote off remaining accounts receivable and goodwill
associated with this operation. During the quarter ended March
31, 1997, management determined that appropriate actions had been
taken to eliminate the ultimate liability for approximately
$403,000 of Cal-Central obligations. These amounts were written
off during such period, resulting in other income of an equal
amount. Had this action not been taken, the Company would have
experienced a consolidated operating loss of approximately
$51,000 during the three-month period ended March 31, 1997.
Results of Operations - Quarter Ended March 31, 1998 as Compared
to the Quarter Ended March 31, 1997
- ----------------------------------------------------------------
Total revenues for the Company decreased by 30% during the three
month period of 1998, after restatement of both periods to
reflect the plan to discontinue, through potential sale, the
operations of the Company's remaining operating subsidiary,
United Marketing. This decline reflects a reduction of
$251,643 in printing, advertising and design sales to third
parties and a $418,105 decline in other revenue as a result of
one-time income received during the first quarter of 1997 related
to write-off of approximately $403,000 of Cal-Central Marketing
obligations that management determined would not require ultimate
payment. These declines were partially offset by a $66,100
increase in franchise fee revenues during the 1998 period.
Overall, the decline in total revenue reflects the dilution of
management's efforts related to attempts to locate a suitable
purchaser for United Marketing and continuing limited working
capital availability.
Production Expenses, which include art development, printing,
bindery, delivery, product development, distributor support and
selling expenses, decreased by $191,618, during the 1998 quarter
in contrast to the same period in 1997. This decrease is
directly related to the decline in printing advertising and
design sales as well as tight cost containment actions.
General and Administrative Expense decreased by $5,083 over the
same period last year primarily as a result of lower overall
level of business and required administrative functions.
Franchise Development Cost, which includes the cost of
developing, advertising, selling, training and supporting United
Marketing franchises, was $50,694 higher than the prior year,
reflecting expanded sales efforts, including use of third party
franchise sales organizations.
Interest Expense decreased $37,750 over the same period last year
as a result of conversion of convertible debenture debt to equity
during the past year.
Consolidated Net Loss for the current quarterly period was
$60,117 compared to net income of $351,801 for the prior year.
As noted above, the 1997 period was aided by the recognition of
approximately $403,000 of non-recurring income related to the
write-off of Cal-Central obligations that were deemed
extinguished during the period.
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
- --------------------------
Omitted from this report as inapplicable.
Item 2. Changes in Securities
- ------------------------------
Omitted from this report as inapplicable.
Item 3. Default Upon Senior Securities
- ---------------------------------------
Omitted from this report as inapplicable.
Item 4. Submission of Matters to Vote of Securities Holders
- ------------------------------------------------------------
Omitted from this report as inapplicable.
Item 5. Other Information
- --------------------------
On May 12, 1998, 428,185 shares of the Company's Series C
Preferred Stock (the "Preferred Shares") were delivered to Shane
Sutton, Esquire, 689 Fifth Avenue - Sixth Floor, New York, New York
10022, as Escrow Agent (the "Escrow Agent"), for the
account of T.C. Equities, Ltd., a Bahamas corporation ("T.C. Equities"),
pursuant to a series of agreements between Renaissance Capital
Partners I, a Oklahoma Limited partnership, ("Renaissance"),
Duncan-Smith Company, a Oklahoma corporation ("Duncan-Smith")
and Next Generation Media Corporation, a Nevada
corporation ("NexGen"), between the Company and NexGen and
between NexGen and T. C. Equities. Pursuant to these agreements,
T. C. Equities, acquired effective control of the Company through
its ownership of the Preferred Shares, which represent 44% of
the total votes entitled to be cast by the holders of all classes
of the Company's capital stock, and the agreement of the
Company's current Board of Directors to resign from office,
appointing T. C. Equities nominees to fill the vacancies thereby
created, upon the consummation of the sale of the Company's sole
operating subsidiary, United Marketing Solutions, Inc., formerly
United Coupon Corporation, ("United") to NexGen (the "United
Acquisition"). The Preferred Shares were acquired from
Renaissance and Duncan-Smith by NexGen, simultaneously with its
acquisition of all of the Company's subordinated debt, in
exchange for an aggregate consideration to the holders of the
Preferred Shares and Subordinated Debt consisting of: (i)
cash in the amount of $100,000; (ii) 250,000 shares of NexGen
Series A Callable, Convertible Cumulative Preferred Stock; and
(iii) ten year warrants to purchase 166,667 shares of
NexGen's' common stock (subject to adjustment) at an exercise
price of $.16 per share. As part of that transaction, all of the
Company's subordinated debt obligations were forgiven and the
dividend preference of the Preferred Shares upon liquidation was
canceled. The source of the cash portion of the consideration
paid by NexGen for the Preferred Shares, was T. C. Equities, which
invested $350,000 in NexGen in exchange for: (x) 70,000 shares
of NexGen Series B Callable Convertible Cumulative Preferred
Stock; (y) five year warrants to purchase 250,000 shares of
NexGen's Common Stock (subject to adjustment) at an exercise
price of $.16 per share; and (z) an agreement to transfer and
deliver the Preferred Shares and certain shares of the Company's
Common Stock (and any options to purchase shares of the Company's
common stock) currently held by certain members of the Company's
Board of Directors (the "Director Shares") to T.C. Equities.
Pursuant to agreements between NexGen and directors, Leon Zadel,
Gerard R. Bernier and Gerald Bomstad, Jr., these individuals
agreed to surrender the Director Shares to be conveyed to T.C.
Equities (and in the case of director, Bomstad, a promissory note
from UNICO having a principal balance of $12,000, and accrued
interest of $1,400, to be forgiven by NexGen) to NexGen in
exchange for 8,747,806 and 37,600 shares of NexGen common stock,
respectively (and in the case of director, Bomstad, five year
options to purchase 1,787 shares of NexGen common stock at an
exercise price of $.16 per share). The Director Shares represent
103% of the total votes entitled to be cast by the holders
of all classes of the Company's capital stock. Accordingly, upon
the consummation of the sale of United to NexGen, T.C. Equities
will control 55% of the total votes entitled to be cast by
the holders of all classes of the Company's capital stock. Until
the United Acquisition is completed, after submission to and
approval by the Unico stockholders at a special meeting to be
called for such purpose, the Preferred Shares and the Director
Shares are held in escrow by the Escrow Agent who is required to
vote affirmatively therefor, but to otherwise refrain from any
other voting of such shares.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
A. Exhibits
27 Financial Data Schedule Pursuant to EDGAR filing requirements
for the period ending March 31, 1998, filed herewith this Form
10QSB dated May 15, 1998.
B. Reports on Form 8-K
There were no reports on Form 8-K filed during the three-
month period ended March 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the Undersigned.
UNICO, INC.
May 20, 1998
By: /s/Gerard R. Bernier
--------------------
Chief Executive Officer and President
May 20, 1998
By: /s/Subhash Ghei
---------------
Chief Financial Officer
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<RECEIVABLES> 493,516
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