UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-KSB
Annual Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended
December 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)
Harbor Park, 333 Ludlow Street, Stamford, CT 06902
(Address of principal executive offices ) (Zip Code)
(203) 323-6299
(Registrant's telephone no., including area code)
(Former name, former address and former fiscal year, if
changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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 [ ] No [X ]
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B not contained in this
form, and no disclosure will be contained, to the best of the
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. (X)
Revenues for year ended December 31, 1998. $ 175,500
Aggregate market value of the voting common stock held by non-
affiliates of the registrant as of December 31, 1998, was:
$137,500
Number of shares of the registrant's common stock outstanding
as of December 31, 1998 was: 5,636,395
Transfer Agent as of December 31, 1998:
Bank One
PO Box 25848
Oklahoma City, OK 73125
PART I
- -------
Item 1. Description of Business
- --------------------------------
General
- ----------
UNICO, Inc., (the "Company"), was incorporated on April 11,
1984 under the laws of the State of Delaware. Initial business
activities, associated with the sale and administration of
cooperative direct mail advertising franchises commenced in
May 1984. In September 1986, the Company filed an initial
registration statement with the Securities and Exchange
Commission and initiated a plan to expand Company operations
through the acquisition of existing businesses operating in
related fields.
The Company's Business
- ----------------------
As of December 31, 1998, the Company operated as a publicly-
owned holding company with one active wholly-owned subsidiary,
United Marketing Solutions, Inc., formerly United Coupon
Corporation, ("United Marketing"), involved in cooperative
advertising. United Marketing is involved in cooperative
direct mail advertising through franchising and production.
The Company also operated and owned a second subsidiary during
1996, Cal-Central Marketing Corporation ("Cal-Central"). Cal-
Central was discontinued during 1996 and was involved in
cooperative advertising distributed primarily through
supermarkets, pharmacies and restaurants. Management has
adopted a plan to sell United Marketing to a third party.
While a purchaser is sought, United Marketing continues its
regular operations including the granting of additional
franchises, opening of additional marketing centers and
introducing new products for use and sale by franchisees.
The Company's cooperative advertising and production business
involves the design, layout, printing, packaging and
distributing of public relations, marketing materials and
promotional coupons for private businesses, usually involved
in retailing goods or providing professional services. Cal-
Central's cooperative advertising process included sales of
advertising through independent sales representatives.
Franchising activities related to this business involve the
granting and administering of independent franchise operations
to conduct cooperative direct mail advertising sales. All
activities related to franchising are conducted through United
Marketing, which was acquired on July 17, 1987. At year-end,
December 31, 1998, United Marketing had approximately 65
active franchise operations.
On January 29, 1999, the shareholders of the Company approved
the sale of all the issued and outstanding common stock of
United Marketing to Next Generation Media Corp. ("NexGen").
The sale was effective April 1, 1999. NexGen paid the Company
the following: (i) $172,665 in cash; (ii) forgiveness of
indebtedness owed by the Company to NexGen in the amount of
$175,500; (iii) payment to the Company of approximately
$164,000 for payments of certain debts of the Company to
third-party creditors; and (iv) assumption of the Company's
debt to its primary lender of approximately $402,000.
As of June 25, 1999, the Company acquired Silver Valley
Energy, which includes the assets of the Glass Mountains "799"
property comprising oil and gas reserves located in Pecos
County, Texas in exchange for stock of the Company. On June
5, 1999, the Glass Mountains "799" property has been
independently valued at $40,027,951 by Joseph V. Rochefort, a
certified geologist.
The Company's Markets
- ---------------------
Cooperative Direct Mail Advertising
- ------------------------------------
The customer base of most local retailers and professionals
comes from within a three-mile radius of its location.
Therefore, it is difficult for them to advertise effectively
and economically. The Company believes that direct mail is an
effective advertising method for the local merchant and
professional since they can target a specific area and have
substantial saturation of their advertising message. Radio and
television advertising, in contrast, is costly to produce and
air. The advertiser is paying for broadcasting over a large
metropolitan area, much of which is not part of its customer
base. It may not be efficient or affordable unless the
advertiser has multiple locations. Major city newspapers are
also comparatively expensive since they, too, cover an entire
city and not just the specific area relevant to the local
retailer and professional. In addition, newspapers usually
contain large amounts of advertising, which may limit the
effectiveness of small ads.
Individual direct mail programs are also expensive, when the
cost of postage, design, envelopes, printing, and mailing
lists are considered. Cooperative direct mailing of
advertisements for several businesses in one mailing,
substantially reduces the advertisers' cost from the price of
an individual direct mail program.
The Company's franchisees sell cooperative direct mail
advertising to retailers and service organizations in a given
market area. They assist each business owner with the design
and content of advertisements or coupons. The Company produces
and mails a packet of coupons (usually consisting of fifteen
or more coupons) to thousands of homes in a targeted
geographic area. The Company receives a majority of its
revenue by providing, on a wholesale basis to its
distributors, a complete mailing service. Such services
include computerized design, typesetting, paste-up, proofing,
printing, inserting, addressing, and mailing, as well as
paper, envelopes, labels and postage.
The market segment targeted by the Company's franchisees
includes local retailers, service businesses and professional
organizations. In addition, specialty mailings are conducted
on a regular basis and major consumer products companies that
market on a national level are solicited to advertise in the
Company's mailings.
Franchising
- ------------
The Company targets the major markets of the United States
with a population of 500,000 or more. Each area franchise
territory can consist of 50,000 to 80,000 mailable homes.
Franchise prospects are located through the use of local and
national advertising, franchise shows and seminars, and a
network of franchise sales representatives. Sales tools
consist of Company brochures, a franchise sales booth, and a
video presentation.
The Company has also implemented a franchise sales program
whereby the Company assists existing franchisees in selling
parts of their respective territories. Generally, franchise
territories which would be involved in this program, are those
which have more than 150,000 mailable homes.
Each franchise consists of an independent operation in an
exclusive territory in which no competition from other Company
franchisees is allowed. The Company provides the franchisee
with a thorough, individually-oriented, two-week training
program covering all facets of the business. In addition, the
Company provides the franchisee with operation manuals, sales
support materials, market softeners (direct mailings to
potential customers), use of its trademarks and logos, WATTS
telephone and FAX service for transferring layouts, and
continuing management support.
Franchise fees are based upon the total number of mailable
homes in the exclusive territory. Area franchise fees are
$21,900 for 50,000 mailable-home territories plus $1,500 for
each additional increment of 10,000 mailable-home territories.
Generally, the franchise agreements are for a period of ten
years, and are renewable at the option of the franchisee, if
certain conditions are met. These agreements include a
performance clause, which is based upon a minimum distribution
standard and frequency of mailings over the term of the
franchise agreements.
Regional franchisees, in addition to operating an Area
franchise, are directly involved in recruiting and training
Area franchisees within their region. United Marketing
carefully designed the Regional franchising program to provide
substantial opportunity for the Regional franchisee, while
maintaining appropriate corporate control over the approval of
Area franchise grants and contractual agreements. A Regional
Franchisee also has an exclusive territory, comprised of
approximately 1,000,000 mailable homes, and supervises 15-18
Area Franchisees. The license fee for a Region is $51,000 to
$59,000. Regional Franchisees attend one additional week of
training at the corporate headquarters.
The Company retains the right to terminate a franchise for a
variety of reasons, including insolvency or bankruptcy,
failure to operate the business according to prescribed
standards, failure to pay fees, and material misrepresentation
on an application for a franchise.
Set forth below is the geographical location of the franchises
in operation as of December 31, 1998.
<TABLE>
<S> <C> <C> <C>
Alabama 2 Maryland 2 New York 8 Virginia 6
California 3 Massachusetts 11 North Carolina 3 Washington 2
Connecticut 2 Minnesota 2 Pennsylvania 6
Florida 2 New Hampshire 1 Texas 2
Georgia 2 New Jersey 6 Utah 2
</TABLE>
Acquisition of Cal-Central Marketing Corporation
- -------------------------------------------------
On October 21, 1993, the Company and AEC Acquisitions, Inc.
("AEC"), a wholly-owned subsidiary of the Company, entered
into a definitive agreement for the merger of Cal-Central
Marketing Corporation, a Florida Corporation ("Cal-
Central/Florida") into AEC. The merger was effected on October
27, 1993, through the issuance of 1,200,000 (300,000 after
giving effect to the one for four reverse split effective
December 30, 1997) shares of restricted Common Stock of the
Company, 600 shares of Redeemable Preferred Stock of the
Company and 1,000 shares of Convertible Preferred Stock of the
Company. The terms of the Redeemable Preferred Stock provided
that such shares be redeemed for $600,000 at the holders'
option after certain profit performance tests are met by Cal-
Central. The shares of Convertible Preferred Stock were
mandatorily convertible into Common Stock of the Company after
12 months, and after certain profit performance tests by Cal-
Central for such period. The Convertible Preferred Stock
expired in October 1994, with performance tests not achieved.
In March 1995, 320 shares of the Redeemable Preferred Stock
were converted into 355,556 (88,889 after giving effect to the
one for four reverse split effective December 30, 1997) shares
of Common Stock of the Company at a conversion price of $.90
per share, in lieu of cash redemption.
The acquisition was accounted for as a purchase with a price
of approximately $1,400,000. The operating results have been
included in the consolidated financial statements of the
Company since October 22, 1993 until closure of Cal-Central in
the fourth quarter of 1996. The Company acquired assets of
$1,887,242 and assumed liabilities of $2,687,824. The excess
purchase price over the fair value of the net assets acquired
was recorded as goodwill in the Company's balance sheet and
was amortized on the straight line method over forty years.
During 1996, the Company was forced to close the Cal-Central
business due to lingering operating losses and a shortage of
working capital. Remaining goodwill of $1,468,453 was written
off during the fourth quarter of 1996.
Cooperative Distribution Point Advertising
- ------------------------------------------
With the acquisition of Cal-Central in October 1993, the
Company acquired several new product lines including TV Sports
& Movies Previews, Video Previews, Family Health & Fitness,
bulletin board displays, cash register tape coupons and take-out
menus. The advertising products were distributed
primarily through supermarkets, pharmacies, restaurants and
other specialty retailers. Cal-Central operated a complete
art development and printing facility in Fort Lauderdale,
Florida until December 15, 1995. Cal-Central operations were
discontinued during 1996.
Trade Names, Service Marks and Logo Types
- -----------------------------------------
The United Coupon Corporation service mark was registered with
the United States Patent Office on Principal Register,
register number 1,310,366 on December 16, 1984. In addition,
the service mark was registered in the Commonwealth of
Virginia on April 27, 1984. Franchisees of United Marketing
are allowed to operate under the trade names of United
Marketing Solutions or United Coupon.
Pursuant to its License Agreement, United Marketing authorizes
franchisees to operate a cooperative direct mail, advertising
business under the name United Coupon or United Marketing
Solutions and in accordance with the United Marketing system.
In connection with the operation of a United Marketing
cooperative direct mail advertising business, franchisees are
authorized to use the name and service mark "UNITED COUPON" as
well as other such service marks or commercial symbols as
United Marketing from time to time adopts and makes a part of
the United Marketing system.
On January 29, 1999, the shareholders of the Company approved
the sale of all the issued and outstanding common stock of
United Marketing to Next Generation Media Corp. The sale was
effective April 1, 1999 and United Marketing is no longer a
wholly owned subsidiary of the Company.
Government Regulation
- ----------------------
The Company is subject to regulation under the rules of the
Federal Trade Commission regarding disclosure of certain
information for the sale of franchises as well as state
regulatory authorities in certain states where the Company
does business. Statutory provisions in certain states impose
certain substantive requirements on the relationship between
the franchiser and the franchisee. Management believes the
Company is in material compliance with such regulatory
requirements.
Competition
- -------------
The advertising industry is highly competitive with many firms
having vast resources competing for businesses' advertising
dollars. The Company's business, primarily cooperative
advertising delivered through direct mail or through
distributors, is a relatively small, but rapidly growing
segment of the advertising industry. The Company's major
competitors in direct mail cooperative advertising are Val-
Pak, Money Mailer and Super Coups. Management estimates the
Company has about 5% of that market segment. There are a large
number of small, independent businesses operating in each
market segment serviced by the Company.
Employees
- -----------
The Company had 92 employees as of December 31, 1998. The
Company also relies upon commissioned sales representatives
involved in the franchise sales operations and temporary
workers during peak production periods at United Marketing.
Item 2. Description of Property
- -------------------------------
As of December 31, 1998, the Company operated its corporate
headquarters and its coupon sales and franchise activities
through an office and production facility at 8380 Alban Road,
Springfield, Virginia 22150. This space is leased for a
monthly fee of approximately $38,000 covering approximately
63,000 square feet. As of September 23, 1999, the Company no
longer has any obligations under such lease. As of April 1,
1999, the responsibility of the lease was assumed by Next
Generation Media Corp. The Company's present headquarters are
located at Harbor Park, 333 Ludlow Street, Stamford,
Connecticut. Such space is being provided to the Company by
its Chairman, Mr. Weppler, at no cost to the Company.
Item 3. Legal Proceedings
- ---------------------------
The Company and its subsidiaries are not presently parties to
any litigation, nor to the Company's knowledge and belief is
any litigation threatened or contemplated.
Item 4. Submission of Matters to a Vote of Security
Holders
- ----------------------------------------------------
The Company did not hold a formal Annual Meeting of
Stockholders as of December 31, 1998. During 1998, Gerald
Bomstad, Jr. and Leon Zajdel both resigned as directors of the
Company. A shareholders meeting was held on January 29, 1999,
whereby Gerald Bernier resigned as the sole director of the
Company and Shane Sutton and Peter Barnes were nominated and
elected. In addition, thereafter, William D. Batts, Thomas
Philip Page, Jay R. Weppler and Ron Stoeppelwerth were
nominated and elected as directors. Each director was elected
for a term of two years each. Such persons continue to serve
as directors. Mr. Weppler was also nominated and elected as
Chairman, President and Chief Executive Officer, Mr.
Stoeppelwerth was also nominated and elected as Chief
Financial Officer and Mr. Page was nominated and elected as
Vice President - Natural Resources.
On January 29, 1999, the Company held a special meeting of
shareholders. At such meeting, the shareholders approved the
sale of all the issued and outstanding common stock of
United Marketing to Next Generation Media Corp. ("NexGen").
The sale was effective April 1, 1999. NexGen paid the Company
the following: (i) $172,665 in cash; (ii) forgiveness of
indebtedness owed by the Company to NexGen in the amount of
$175,500; (iii) payment to the Company of approximately
$164,000 for payments of certain debts of the Company to
third-party creditors; and (iv) assumption of the Company's
debt to its primary lender of approximately $402,000. In
addition, the shareholders voted to amend Section 3.16 of the
Company's Bylaws to permit stockholders to take action by
written consent signed by the holders of the Company's stock
having at least the minimum number of votes required to
approve such actions.
On June 25, 1999, the shareholders of the Company approved the
acquisition of Silver Valley Energy, which includes the assets
of the Glass Mountains "799" property comprising oil and gas
reserves located in Pecos County, Texas in exchange for stock
of the Company. On June 5, 1999, the Glass Mountains "799"
property has been independently valued at $40,027,951 by
Joseph V. Rochefort, a certified geologist.
PART II
- --------
Item 5. Market for Common Equity and Related Stockholder
Matters
- --------------------------------------------------------
On December 31, 1998, there were approximately 498
shareholders of record of the Company's common stock. Based on
information received from brokers and others in fiduciary
capacities, the Company estimates that the total number of
shareholders of the Company's common stock exceeds 500. The
Company's common stock was formerly traded on the National
Association of Securities Dealers Automated Quotation System
("NASDAQ"). During 1997, the Company no longer qualified for
this listing and is now available through electronic trading
services via the OTC Electronic Bulletin Board.
The following table sets forth, for the periods indicated, the
range of high and low closing bid prices for the Company's
common stock through July, 1999 and as available through
electronic trading services subsequent to such date.
<TABLE>
<S> <C> <C> <C>
Common Stock Bid
High Low
-------- --------
1995
----
First Quarter $.87 $.65
Second Quarter .87 .50
Third Quarter .75 .50
Fourth Quarter .56 .25
1996
----
First Quarter $.22 $.22
Second Quarter .34 .31
Third Quarter .38 .34
Fourth Quarter .25 .25
1997
----
First Quarter $.31 $.19
Second Quarter .19 .13
Third Quarter .07 .05
Fourth Quarter .05 .02
1998
----
First Quarter $.125 $.125
Second Quarter .125 .125
Third Quarter .0625 .0625
Fourth Quarter .0625 .0625
1999
----
First Quarter $.10 $.0625
Second Quarter .04 .04
</TABLE>
Dividends
- -----------
On January 29, 1999, the Company declared a cash dividend of
$.10 a share to shareholders of record as of December 31, 1998
in consideration for the sale of United Marketing Solutions,
Inc. The Company intends to retain future earnings to support
the Company's growth. Any payment of cash dividends in the
future will be dependent upon: the amount of funds legally
available therefore; the Company's earnings; financial
condition; capital requirements; and other factors which the
Board of Directors deems relevant.
Item 6. 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 and 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.
General
- ---------
The Company commenced operations in May 1984. During 1985,
the Company established its marketing office and began a
concentrated effort of developing sales tools, procedures, and
training sales personnel. The first six months of operation
in 1986 were devoted to packaging and preparing a franchise
system, developing a sales force and documenting procedures to
provide to franchisees. The actual implementation of the
operations as a franchiser commenced in October 1986.
In July 1987, the Company acquired United Coupon Corporation,
now United Marketing Solutions, Inc., ("United Coupon"), a
franchiser of cooperative direct mail advertising
distributorships. On October 21, 1993, the Company acquired
Cal-Central Marketing Corporation ("Cal-Central").
Liquidity and Capital Resources
- -------------------------------
Management views cash, certificates of deposit, and accounts
receivable as principle measures of liquidity. Management
also deems appropriately collateralized and managed bank lines
of credit as proper means for supplementing liquidity.
In August 1994, the Company renewed a revolving and term
credit facility with a bank, which had originally been secured
to consolidate existing debt and to provide supplemental
working capital for Company operations. This renewed credit
facility was a revolving note with a borrowing base of
$600,000 at inception and a reducing term note with an initial
borrowed amount of $500,000. The term facility required
monthly principal payments of $10,500 and both notes required
monthly interest payments. At December 31, 1995, the Company
had borrowed $934,433, the maximum available on the credit
facility. The interest rate on the term note was 1% over bank
prime and on the revolving note was 1.5% over bank prime. No
principal payments were required on the revolving note until
the funds advanced on the facility exceeded the available
borrowing base. The loan was secured by accounts and notes
receivable, inventory, equipment and other assets of the
Company. On March 4, 1996, the Company entered into an amended
and restated credit facility, which extended the amount owed
the bank through January of 1997. Under the terms of this
amended and restated agreement, the Company was required to
make semi monthly principal payments of $20,000 plus accrued
interest on the outstanding balance owed, beginning March 1,
1996. Additionally, principal payments were required to be
made on March 1, April 1, May 1, and June 1, 1996, in that
amount which is equal to 50% of certain Cal-Central accounts
receivable which were collected during such periods. For the
periods July 1, August 1, September 1, October 1, November 1,
and December 1, 1996, such additional principal payments would
be made from 100% of the certain Cal-Central accounts
receivable collected. The interest rate was 1% over bank prime
through June 30, 1996. On July 1, 1996, the rates increased to
3% over national prime for the remaining term of the
agreement. The Company was required to maintain a collateral
base equal to or greater than the balance outstanding on the
original term note. The Company was in compliance with this
collateral requirement at December 31, 1995. On August 15,
1996, the Company entered into a consolidated renewal
promissory note with BancFirst in the face amount of $721,425,
with interest at the prime rate plus 1%. The note is payable
in monthly installments, including interest, of $22,500
through January 15, 1997 and $27,500 through December 15,
1998. The note matures December 31, 1998. The note is
collateralized by substantially all assets of the Company. At
December 31, 1997, the Company is in default for nonpayment in
accordance with the terms of the loan. The balance outstanding
at December 31, 1997 was $530,940. As a result of on-going
negotiations, during 1997 the bank accepted payments at less
than the stated terms in the note.
On December 31, 1991, the Company entered into a $1,250,000
Convertible Debenture financing with Renaissance Capital
Partners, Ltd. The debenture was in the form of a seven-year
note with interest only payable quarterly during years one
through three. Beginning in 1995, unless waived, the Company
was to begin quarterly principal payments, plus interest, in
an amount sufficient to amortize 50% of the outstanding
principal balance over the final four years of the note. The
remaining principal amount was due and payable December 31,
1998. On March 4, 1996, Renaissance executed a subordination
agreement which deferred all principal and interest payments
regarding this debenture until July 1997 or until such time as
the current amount owed to the bank was extended under terms
which would allow such payments. During 1995, Renaissance and
Duncan-Smith Investment Co. loaned the Company an additional
$298,500 under several notes that were convertible into common
stock of the Company at $.25 per share. On July 12, 1996, the
Company, Renaissance and Duncan-Smith entered into a loan
conversion agreement whereby the debenture, notes and accrued
interest related thereto were exchanged for 1,712,739 (428,185
after giving effect to the one for four reverse split
effective December 30, 1997) shares of Series C Preferred
Stock of the Company. Each share of Series C Preferred Stock
is convertible into four shares of the Company's common stock
at any time, at the option of the Holder.
On October 21, 1993, the Company and AEC Acquisition, Inc.
("AEC"), a wholly-owned subsidiary of the Company, entered
into a definitive Agreement for the merger of Cal-Central
Marketing Corporation, a Florida Corporation ("Cal-
Central/Florida") into AEC. The merger was effected on
October 27, 1993, through the issuance of 1,200,000 (300,000
after giving effect to the one for four reverse split
effective December 30, 1997) shares of restricted Common Stock
of the Company, 600 shares of Redeemable Preferred Stock of
the Company, and 1,000 shares of Series A Convertible
Preferred Stock of the Company. The terms of the Redeemable
Preferred Stock provided that such shares be redeemed at any
time as an option of the Company or, at the holders' option
after certain profit performance tests were met by Cal-
Central. The shares of Series A Convertible Preferred Stock of
the Company were mandatorily convertible into Common Stock of
the Company after 12 months, and after certain profit
performance tests by Cal-Central for such period. The
conversion rights of the Series A Convertible Preferred Stock
expired in October 1994 with performance tests not achieved.
In March 1995, 320 shares of the Redeemable Preferred Stock
were converted to 355,556 (88,889 after giving effect to the
one for four reverse split effective December 30, 1997) shares
of Common Stock of the Company at a conversion price of $.90
per share. The terms of the remaining Redeemable Preferred
Stock of the Company provide that the shares are redeemable by
the Company at any time or by the holders after certain profit
performance tests are met by Cal-Central. Funds to be utilized
in redeeming the remaining Redeemable Preferred Stock were to
be provided through collection of existing notes receivable
from stockholders. During 1996, the collectibility of these
loans became doubtful and an allowance for the full amount of
the loans was recorded. These loans were charged off during
1997. The Redeemable Preferred Stock pledged as collateral for
the loans was reacquired and canceled.
As a result of the merger, the name of AEC, the surviving
corporation, was changed to Cal-Central Marketing Corporation
("Cal-Central").
In the fourth quarter of 1993, the Company received $250,000
in proceeds from the private offering of 400,000 (100,000
after giving effect to the one for four reverse split
effective December 30, 1997) shares of the Common Stock of the
Company and $435,000 from the private sale of five year
unsecured subordinated debentures with interest at 10.5%
through October 1996, and 12% from November 1996 through
October 1998. These proceeds were utilized to pay Cal-Central
acquisition costs of $52,552 to reduce debt of Cal-Central and
to provide working capital. Management believes it is in the
best interest of shareholders, lenders and the Company that
these debentures be converted in whole or in part to equity in
the Company. Discussions to effect such conversion, as a
component of the overall restructuring of all long term debt
for the Company, have been initiated. Also, the holders of
these debentures have been required, as a provision of the
amended and restated loan agreement with the bank, to defer
all requirements for receipt of principal and interest until
July 1997. Management believes that cash flow from operations
and from available borrowing capacity will not be sufficient
to pay the debentures upon maturity unless a significant
portion is converted to equity.
The acquisition of Cal-Central was accounted for as a purchase
with a price of approximately $1,400,000. The operating
results have been included in the consolidated financial
statements from October 22, 1993 through 1996 when the company
was dissolved. The Company acquired assets of $1,887,242 and
assumed liabilities of $2,687,824. The excess purchase price
over the fair value of the net assets acquired was recorded as
goodwill and was initially amortized on the straight line
method over a forty year life.
Several factors were considered in determining the purchase
price for Cal-Central which, in management's opinion,
supported a purchase price that was approximately $1,400,000
in excess of the fair value of the Cal-Central assets
acquired. These factors included opportunities to increase
profitability by reducing inordinately high interest rates
paid historically by Cal-Central on borrowed funds, reducing
high bank charges paid by Cal-Central due to limited cash
management practices, and reducing costs associated with
services performed by third parties for Cal- Central by
bringing these functions into the Company. Also, the
cooperative advertising products and distribution channels of
Cal-Central were logical compliments to those of the Company's
subsidiary, United Marketing.
The excess purchase price of $1,400,000 over the fair value of
the assets acquired is equal to the initial negative book
equity of Cal-Central of approximately $800,000 plus the value
of the restricted common stock provided of $600,000. Only the
par value of $16 was initially assigned to the Preferred Stock
proceeds provided in the purchase, due to the fact that
redemption of the preferred stock was at the Company's
discretion or dependent upon the achieving of pre-tax
operating profits of $500,000 by Cal-Central within a
consecutive twelve month period following the acquisition, in
order for the Redeemable Preferred Stock to be redeemed upon
demand from the holders. In February 1995, The Company
converted 355,556 shares of common stock for 320 shares of
redeemable preferred stock, in lieu of future redemption of
such stock for $320,000 in cash. This transaction resulted in
the addition of $124,441 of goodwill as contingent purchase
price proceeds related to the acquisition of Cal-Central. The
value of the remaining Redeemable Preferred Stock, 280 shares,
is also considered contingent purchase proceeds and will be
reflected at par value until the stock is redeemed or
otherwise retired. During 1996, the Cal-Central operation was
closed and the remaining unamortized goodwill was written off.
In February 1995, the Company exchanged 221,018 (55,255 after
giving effect to the one for four reverse split effective
December 30, 1997) shares of common stock at a market value of
$.90 per share, in full payment of $198,917 of amounts owed by
Cal-Central. These shares, along with 355,556 (88,889 after
giving effect to the reverse split) shares issued in exchange
for redeemable preferred stock, were subsequently registered
in April 1995 through a Form S-3 Registration Statement.
For the Period Ended December 31, 1998
- --------------------------------------
At December 31, 1998, the Company's working capital position,
current assets minus current liabilities, was a negative
$38,479, up $2,770,962 from a negative $2,809,441 at December
31, 1997. Working capital was improved by the $1,457,817 net
income from operating activities. Disbursements of $162,683
in cash and equivalents during the year to purchase property
and equipment related to the United Marketing Solutions, Inc.
("United Marketing") art and printing facility, $1,090,442
decrease in accrued liabilities and accounts payable and
$1,057,292 for net payment of notes payable consumed large
portions of working capital. In addition, short term notes
and accounts receivable increased by $112, as a result of
comparable business activity with 1997; inventories only
declined by $1,639 due to utilization of stocks built in prior
periods; and prepaid expenses and other assets declined by
$9,042 due to utilization of accrued expenses and amortization
of prepaid items. Also, deferred rent increased by $53,502 as
a result of accelerated recognition of deferred rental
payments as current period expenses and deferred revenue
decreased $17,509 as a result of the decrease in advanced
payments from franchisees.
Total assets for the Company increased $637,032 during 1998.
This change reflects the changes in current assets and
property noted above.
Long-term liabilities decreased by $1,057,292 during 1998 as
a result of net principal payments made of $1,257,280
and reclassification of items previously classified as long
term to short term.
Management has considered operating losses and acquisitions of
the past which have required substantial utilization of funds
during 1998, as well as anticipated operating and debt service
requirements for the near term, and believes that sufficient
liquidity should be available from the operations and ultimate
sale of United Marketing as well as from borrowings.
Therefore, working capital to support the requirements of
continuing operations are considered by management as adequate
for the present. As a result, management has taken steps to
assure continued operation. These actions include the
election to sell off United Marketing. Because of this
election, the accompanying financial statements reflect the
operations of United Marketing as a discontinued operation.
The sale of the Company's subsidiary, United Marketing was
agreed upon with the buyer, Next Generation Media Corporation,
a Nevada corporation ("NexGen") in May 1998. During 1998, the
Company received $1,106,399 proceeds from this sale, which was
finalized in April 1999. In December, 1998, the Company
declared a stock dividend of $172,665 to be disbursed in 1999
at or before the time the final proceeds of the sale
transpired. The stock dividend was earmarked for all
shareholders except those shareholders involved in the sale of
United Marketing to NexGen. Company stockholder approval was
received in January, 1999. The sale of United Marketing
became effective April 1, 1999. As of June 25, 1999, the
Company acquired Silver Valley Energy, including its assets of
the Glass Mountains "799" Property comprising oil and gas
reserves located in Pecos County, Texas for stock. The Glass
Mountains "799" Property was independently valued on June 5,
1999 for $40,027,951 by Joseph V. Rochefort, certified
geologist.
Results of Operations - Year Ended December 31, 1998 Compared
to the year ended December 31, 1997
- ----------------------------------------------------
Total Revenues for the Company increased by $121,326 during
1998, after reflecting the plan to discontinue the operations
of the Company's remaining operating subsidiary, United
Marketing. This increase reflects a net decline of $25,027 in
printing, advertising, franchise fees and other revenues, all
to third parties associated with United Marketing.
Total expenses decreased by approximately $2,253,157 during
1998 compared to 1997 after reflecting the plan to
discontinue United Marketing. Included in total expense as a
reduction of expenses is forgiveness of debt of $1,314,248,
or $1,008,362 less than it was for 1997, and net income
from the discontinued operations of United Marketing of
$557,386 in 1998 compared to a loss of $407,244 in 1997.
Regular expenses for 1998 of direct costs of sales, general
and administrative and franchise development as well as
interest expense were $1,516,570 less than they were for 1997
whereas the write down of long term assets impaired was
$309,207 less in 1997. The income tax benefit for 1998 was $0
while 1997 has a net-tax expense of $102,000. On the other
hand, the loss on the disposal of the subsidiary (United
marketing) for 1998 was $0 whereas 1997 had $139,432.
Operating results of United Marketing included $5,754,413 of
total revenue compared to $5,779,440 in 1997, or $25,027 less
in 1998. Total operating expenses for 1998 were $5,197,027
compared to $6,417,784 for 1997 or $1,220,757 less in 1998.
The decline in total revenue is related to an 8% decline in
the subsidiary's commercial printing, design and advertising
sales even though there was a 176% increase in franchise fee
and other revenue. The decline in total operating expenses in
1998 is related to a 30% decline in cost of sales and a 3%
decline in general and administrative expense. Interest
expense declined by 25% in 1998.
For 1998, the Company had a consolidated net income of
$1,457,817 compared to a net loss of $916,666 in 1997. This
marked improvement of $2,374,483 relates primarily to United
Marketing net income improvement of $946,630 (from a net less
of $407,244 in 1997 to a net income of $557,386 in 1998) and
the Company receiving a forgiveness of debt of $1,314,248, or
$1,008,362 more forgiven in 1998 than in 1997
Item 7. Financial Statements
- ----------------------------
The financial statements of the Company, together with the
report of auditors, are included in this report after the
signature pages.
Item 8. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure
- -------------------------------------------------------
None.
PART III
- --------
Item 9. Directors, Executive Officers, Promoters and
Control
Persons: Compliance With Section 16(a) of the Exchange
Act
- --------------------------------------------------------
The directors and officers of the Company and its
subsidiaries, as of September 22, 1999, are set forth below.
The directors hold office for their respective term and until
their successors are duly elected and qualified. Vacancies in
the existing Board are filled by a majority vote of the
remaining directors. The officers serve at the will of the
Board of Directors.
<TABLE>
<S> <C> <C> <C>
With Company
Name Age Since Director/Position
------ -------------------
Jay R. Weppler 56 1999 Chairman, President and
Chief Executive Officer
Ron Stoeppelwerth 52 1999 Chief Financial Officer and
Director
Thomas Philip Page 57 1999 Director, Vice President -
Natural Resources
Shane Sutton 50 1999 Director
Peter Barnes 51 1999 Director
William D. Batts 72 1999 Director
</TABLE>
Business Experience
- -------------------
JAY R. WEPPLER. Mr. Weppler was employed from 1994 through
1999 by Auerbach, Pollack & Richardson, an investment banking
firm, as Executive Vice President and a Director. He was
responsible for the overall strategic development of the
firm's various operations including all investment banking
activities, corporate finance, capital raising and investment
management, including opening offices in London, Paris and New
York. He successfully completed 43 syndications, 3 initial
public offerings, 6 private placements and 4 advisory
assignments. Prior to that time, he was a partner and co-
founder of Buckingham Partners, a merchant banking boutique
formed to undertake and manage mezzanine and equity capital
investments in private United States companies. The company
raised $30 million, successfully invested in 5 companies and
completed 4 merger and acquisition assignments totaling $62
million. From 1988 to 1993, Mr. Weppler worked as Senior Vice
President and Manager of the Merchant Banking Group at GE
Capital Corporation, closing 9 transactions resulting in $487
million of new investments and advised and structured 6
strategic acquisitions in aggregate value of $230 million for
an affiliated GE company. Prior to that, he spent 16 years at
Chemical Bank in general management positions in New York,
London, Hong Kong, Sydney and San Francisco. He received his
bachelor of Science Degree from Johnson State College,
completed post-graduate work at Harvard Business School and
served as a Lieutenant in the United States Navy. He serves
as a director of numerous financial services related
companies.
RON STOEPPELWERTH. Mr. Stoeppelwerth is a corporate finance
executive and corporate tax executive. From March 1995 to the
present, he has served as a corporate finance/mergers and
acquisitions/ and investment banking consultant for Somerset
Financial Group, Inc. in Norwalk, Connecticut and Capital
International Securities Group, Inc. in Miami, Florida. Prior
to such time, from October 1989 through May 1995, he served as
a Vice President in corporate taxation for Aetna Life &
Casualty. His other positions include the following: Vice
president PaineWebber Group, Inc.; Chief Operating Officer and
Chief Financial Officer of Paramount Group, Inc.; Partner for
Touche Ross & Co. and Coopers & Lybrand (now known as
PriceWaterhouseCoopers). He graduated from the University of
Florida with High Honors in April 1973.
THOMAS PHILIP PAGE. Mr. Page has been an independent
consultant and a geological engineer to companies drilling in
North Central and West Texas. From 1971 to 1990, he worked in
geological exploration, drilling, completion engineering and
production supervision with H.J. Hughes Oil Service, Perman
Corporation, Grimm Oil Company and Frontier Operating, Inc.
He has worked on more than 285 wells in drilling, completion
or re-entry. Mr. Page earned a Bachelor of Science degree in
geological engineering from Abilene Christian University,
Texas in 1983.
SHANE H. SUTTON is an attorney and was admitted to private law
in Victoria, Australia in 1974. He built the law firm Henty
Sutton and Kelly, which developed its expertise in real estate
and commercial law. While continuing to practice law, he ran
several successful real estate joint ventures, as well as
being legal advisor during the setting up the First Australian
Fund in conjunction with Bear Stearns. Mr. Sutton is also
admitted to practice law in the State of New York and is a
principal in the law firm Shane Hanty Sutton, P.C. with
offices in New York City, New York, and Sydney, Australia. In
the United States, Mr. Sutton and his law firm have
successfully initiated or advised many domestic and
international public companies on general corporate and SEC
matters. Mr. Sutton also serves as a director on the boards
of several public companies.
PETER BARNES is a graduate from Scots College, Sydney,
Australia and has extensive hands-on consulting experience in
successful development of new products, strategic planning
techniques and marketing communication for a broad range of
clients including Brown Forman Beverages, Colgate Palmolive,
IBM Hospitals Marketing, SOLA Optical and Conde Nast. During
1984-1998, Mr. Barnes was President and CEO of American
Venture Marketing Inc., which is involved in consulting to
major United States marketing companies. They have also
undertaken strategic planning for clients such as Brown Forman
Beverages, SOLA International, Meredith Corporation,
Metropolitan Museum of Art, PPG Industries, Prudential
Securities, IBM Hospitals Marketing. During 1986 and 1987, Mr.
Barnes was instrumental in setting up the First Australia
Fund, Inc. First Australia Fund went public and raised $60
million as one of the first of the new country funds that
subsequently spawned The First Australia Prime Income Fund in
a $1.2 billion initial public offering. During 1987-1989, Mr.
Barnes was Chairman of NovaCom Inc., New York, a joint venture
company with Time Inc., which business was to develop
interactive marketing and communication techniques. The
business was eventually sold to News America Corp. During
1978-1984, Mr. Barnes was the President, Chief Operating
Officer and a director of Geers Gross PLC, a publicly listed
company in London and New York. Mr. Barnes built United
States businesses from $40 million to $220 million through
business acquisitions and new client development. Clients
included: Brown Forman Beverages, NatWest Bank, Ralph Lauren,
Kraft Foods, Hearst Corp., National Car Rental and Welch's.
During 1974-1977, Mr. Barnes was Senior Vice President of
D'Arcy McManus & Masius, New York, New York. Primary
responsibility was as follows: Colgate Palmolive Company -
increased billings to $35 million from $20 million and
relationship status to #1 vendor from #5. Other clients:
Wilkinson Sword, ITT and Scripto. During 1968-1974, Mr.
Barnes was an International Director/Managing Director with
Grey Advertising, New York and Australia. Mr. Barnes
introduced one of the most successful new dentrifice products
for Carter Wallace: Pearl Drops.
WILLIAM D. BATTS. Since 1978, Mr. Batts has held various
positions with Petroleum Information, Inc. a large oil and gas
data gathering firm in Texas. Most recently, Mr. Barnes was
the manager of the South Texas Region for such company. Mr.
Batts graduated from the University of Texas in 1950 with a
Bachelor of Science degree in mechanical engineering.
Certain Legal Proceedings
- --------------------------
No director, nominee for director, or executive officer of the
Company has appeared as a party in any legal proceeding
material to an evaluation of his ability or integrity during
the past five years.
Item 10. Executive Compensation
- -------------------------------
The following information relates to compensation received by
the Chief Executive Officer of the Company in 1997 and 1998,
and, to executive officers who were serving as of December 31,
1998, whose salary and bonus during fiscal 1998 exceeded
$100,000.
Summary Compensation Table
<TABLE>
<S> <C> <C> <C> <C>
Annual Compensation
- -------------------
Restricted
Stock
Name and Principal Position Year Salary Bonus(l) Award
----- ------- -------- -----------
1998 $0 $0
1997 $0 $0
Gerald R. Bernier 1996 $0 $0 250,000(2)
Chief Executive Officer and
President, Unico, Inc.
1998 $ 125,000 $ 7,643 0
1997 $ 117,428 $30,000 0
Gerald R. Bernier 1996 $ 125,000 $ 0 0
Chief Executive Officer and 1995 $ 124,403 $50,347 0
President, United Coupon
Corporation
</TABLE>
(1) Bonus amounts are reflected in the year received by the
employee. All bonus payments relate to services performed, and
incentive goals met by the employee during the prior year.
Expenses for such compensation are accrued and reflected in
the operating statements of the year such services are
performed.
(2) Stock issued as compensation for services during initial
two year term of appointment as President and Chief Executive
Officer of Unico. Shares subject to forfeiture of a ratable
amount of such shares if officer does not serve full two years
of initial term.
Aggregated Option Exercises in Fiscal Year Ending
December 1998
and Fiscal Year-End Option Values
---------------------------------
<TABLE>
<S> <C> <C> <C> <C>
In-the-Money
Options at Options at
12-31-98(1) 12-31-98(2)
Shares Acquired Value Exercisable/ Exercisable/
on Exercise (#) Realized Unexercisable Unexercisable
---------------- --------- ------------- -------------
None
</TABLE>
(1) There were no options granted to Officers or Directors
during fiscal year 1998.
(2) This amount reflects the difference between the market
value of the Company's Common Stock on December 31, 1998 and
the exercise price.
Compensation Pursuant to Plans - Omnibus Equity Compensation
Plan. The Company entered into agreements
with those individuals who had held stock options in the
Company at the beginning of 1998 (no options were granted
during 1998). The agreement provided that all holders of
stock options received incentives in the merger of Nexgen
into the Company whereby all stock options were canceled.
Consequently, the Company had no outstanding stock options
at December 31, 1998 that were exercisable or unexercisable.
Employment Agreements. The Company's previously wholly-owned
subsidiary United Marketing Solutions, Inc. entered into an
Employment Agreement with Gerard R. Bernier to serve as the
Chief Executive Officer and President of that Company. The
major terms of such Agreement provided for a base salary of
$125,000 plus a company provided automobile or monthly
allowance, and an incentive bonus based upon the pre-tax
profitability of United Marketing. The Agreement provides for
an annual cost of living increase based upon annual increases
in the Consumer Price Index of the general area surrounding
the home office of United Marketing. The Agreement was entered
into on April 1, 1996 and extended through March 31, 1999. As
of January 29, 1999, Mr. Bernier resigned as an officer and
director of the Company. Therefore, his employment agreement
terminated.
Item 11. Security Ownership of Certain Beneficial Owners
and
Management
- ----------
The following table sets forth as of December 31, 1998,
information with respect to the beneficial ownership of the
Company's Common Stock by (i) each person known by the Company
to own beneficially 5% or more of such stock, (ii) each
Director of the Company who owns any Common Stock, and (iii)
all Directors and Officers as a group, together with their
percentage of beneficial holdings of the outstanding shares.
<TABLE>
<S> <C> <C>
Number of Shares of
Name of Beneficial Owner/ Common Stock %of Beneficial
Identity of Group Beneficially Owned Ownership (1)
-------------------- ----------------
T. C. Equities, Ltd. 3,512,740 62.32%
PO Box SS 19032
Nassau, Bahamas
Shane Sutton 50,000 (2) Less than 1%
Peter Barnes 50,000 (2) Less than 1%
Officers and Directors As a Group 100,000 Less than 1%
</TABLE>
(1) Percent is rounded to one decimal place.
(2) Such shares were issued on May 4, 1999.
Item 12. Certain Relationships and Related Transactions
- -------------------------------------------------------
Transactions with Management and Others
- ---------------------------------------
No business relationship between the Company and any business
or professional entity, for which a director of the Company
has served during the last fiscal year or currently serves as
an executive officer of, or has owned a 10% record or
beneficial interest in, has existed since the beginning of the
Company's last fiscal year, or currently exists, which
represented or will represent payments for property or
services in excess of 5% of the Company's gross revenues for
its last full fiscal year or of the other entity's
consolidated gross revenues for its last full fiscal year.
In addition, except as noted below, the Company did not owe,
at the end of its last fiscal period, to any business or
professional entity for which a director of the Company has
served during the last fiscal year or currently serves as an
executive officer, or has owned during the last fiscal year or
currently owns a 10% record or beneficial interest in, an
aggregate amount in excess of 5% of the Company's total assets
at the end of its last fiscal period. No director of the
Company has served as a partner or executive officer of any
investment banking firm that performed services for the
Company during the last fiscal year or that the Company
proposes to have performed services during the current year,
except as noted below.
At the end of the 1997 fiscal year and at April 13, 1998, the
Company has 397,305 shares of Series C Preferred Stock issued
to Renaissance Capital Partners, Ltd. Russell Cleveland, who
served as a Director of the Company until the Annual Meeting
of Shareholders on December 2, 1996, is a major owner and
Managing General Partner of Renaissance Capital Partners, Ltd.
The Series C Preferred Stock was issued to Renaissance upon
conversion of a $1,250,000 Convertible Debenture entered into
with Renaissance in 1991 and a Subordinated Convertible Note
in the amount of $149,250 entered into with Renaissance during
1995. Mr. Cleveland did not serve as a Director of the
Company at the time that the Convertible Debenture was issued.
Mr. Cleveland was a director in 1995, when the Company entered
into the Subordinated Convertible Note with Renaissance, to
provide interim financing to support the working capital
requirements. This note was deemed to be in the best
interests of the Company and its shareholders and was entered
into on an arms length basis, at the request of Company
management.
The Company advanced $280,000, in prior periods, to two former
officers of its subsidiary, Cal- Central Marketing
Corporation, Jack Brown, formerly President, and Gerald
Bomstad, Jr., formerly Executive Vice President. These
advances were evidenced by notes which were payable on demand
by the Company. These notes originally bore interest at 4%,
but subsequent to October 26, 1995, bore an annual interest
rate of 10%. Redeemable preferred stock, with cash redemption
value of an amount equal to the principal value of these
advances, was pledged as security for the advances. These
notes were deemed uncollectible and were fully reserved during
1996. They were charged off during 1997.
The Company believes the terms of these transactions are as
favorable as it might have obtained from unaffiliated parties.
PART IV
- ---------
Item 13. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) The following documents are filed as part of this
report: (7)
1. Financial statements; see index to financial statement and
schedules immediately following the signature pages of this
report. (7)
2. Financial statement schedules; see index to financial
statements and schedules immediately following the signature
pages of this report. (7)
3. Exhibits:
The following exhibits are filed with this Form 10-KSB and are
identified by the numbers indicated; see index to exhibits
immediately following financial statements and schedules of
this report.
2 Plan of Reorganization and Agreement of Merger among UNICO,
Inc., AEC Acquisitions, Inc. and Cal-Central Marketing
Corporation (1)
3.1 Certificate of Incorporation, as amended (2)
3.2 Bylaws, as amended (2)
3.3 Amendment to the Certificate of Incorporation to
increase the authorized shares of Common Stock (3)
3.4 By-laws, as amended. (Corrected Version)
4.1 Form of Common Stock Purchase Warrant, dated
September 11, l986 (4)
4.2 Form of Class B Common Stock Purchase Warrant dated
November 1, 1993 (3)
4.3 Form of Subordinated Debenture dated October 26,
1993, offered through Duncan Smith Co. (3)
4.4 Certificate of Designations, Preferences, and Rights
of Series A Convertible Preferred Stock (3)
4.5 Certificate of Designations, Preferences, and Rights
of Series A Redeemable Preferred Stock (3)
4.6 Certificate of Designations, Preferences, and Rights
of Series B Redeemable Preferred Stock (3)
4.7 Certificate of Designations, Preferences, and Rights
of Series C Preferred Stock. (3)
10.1 Employment Agreement between Cal-Central Marketing
Corporation and Jack Brown. (1)
10.2 Employment Agreement between Cal-Central Marketing
Corporation and Gerald Bomstad, Jr. (1)
10.3 Lease of executive offices at 1101-B Sovereign Row,
Oklahoma City, OK 73108. (3)
10.4 Form of Common Stock Purchase Warrant dated October
26, 1993 offered through Duncan-Smith Co. (3)
10.5 Second Amendment to Lease Agreement Cal-Central
Marketing Corporation. (3)
10.6 United Coupon Corporation Franchise Agreement. (2)
10.7 Employment Agreement between United Coupon
Corporation and Gerard R. Bernier, as amended
January 1, 1995. (5)
10.8 Employment Agreement between UNICO, Inc. and
W. Douglas Frans. (2)
10.9 Credit Agreement by and Between UNICO, Inc., and
its subsidiaries and BancFirst. (2)
10.10 Purchase Agreement with Concord Video. (2)
10.11 Omnibus Equity Compensation Plan. (2)
10.12 Convertible Debenture Loan Agreement by and
between UNICO, Inc. and its subsidiaries, United
Coupon Corporation and AEC Acquisitions, Inc. and
Renaissance Capital Partners, Ltd. Dated December
31, 1991. (2)
10.13 Amended and Restated Loan Agreement by and between
UNICO, Inc. and its subsidiaries and BancFirst as
amended August 31, 1994. (5)
10.14 Promissory Note of Jack Brown. (3)
10.15 Promissory Note of Gerald Bomstad, Jr. (3)
10.16 Novation (3)
10.17 Restructure Agreement Among UNICO, Inc., Cal-
Central Marketing Corporation, and The American
Education Corporation, dated as of December 31,
1993. (3)
10.18 United Coupon Corporation Lease Agreement. (5)
10.19 Master Agreement and Schedules of Indebtedness 1
and 2 between CIT Group and United Coupon
Corporation. (5)
10.20 Machinery Contract between MAN Roland, Inc. and
Cal- Central Marketing Corporation. (5)
10.21 Exchange Agreement between Gerald Bomstad and
the Company dated February 22, 1995. (6)
10.22 Exchange Agreement between Jack Brown and the
Company dated February 22, 1995. (6)
10.23 Debt Exchange Agreement between Graphic Rolls
Unlimited and the Company dated
February 22, 1995. (6)
10.24 Debt Exchange Agreement between McCollum & Bunch
and the Company dated February 22, 1995. (6)
10.25 Debt Exchange Agreement between Walter Rose and
the Company dated February 22, 1995. (6)
10.26 Debt Exchange Agreement between Ronald Martin and
the Company dated February 22, 1995. (6)
10.27 Subordinated Loan Agreement dated June 30, 1995,
among UNICO, Inc. and Cal-Central Marketing
Corporation and the Harlon Morse Fentress Trust,
Philip M. Stevenson, Jr., RHOJOAMT Partnership,
Ltd., CITCAM Stock Co., Barbara T. Grinnan, and
Goose Creek. (7)
10.28 Form of Common Stock Purchase Warrant, dated
June 30, 1995. (7)
10.29 Subordinated Convertible Debt Loan Agreement
dated October, 1995, and schedule of advances,
among UNICO, Inc., United Coupon Corporation,
and Cal-Central Marketing Corporation and
Renaissance Capital Group, Inc. and Duncan-Smith
Company. (7)
10.30 Third Restated Loan Agreement dated March 4, 1996,
among UNICO, Inc., United Coupon Corporation,
Cal-Central Marketing Corporation and BancFirst.
(7)
10.31 Debt Exchange Agreement among UNICO, Inc.,
Renaissance Capital Partners, Ltd. and Duncan-
Smith Investment Co., dated July 1996. (8)
10.32 Employment Agreement Between United Coupon
Corporation and Gerard R. Bernier dated April 1,
1996. (10)
10.33 Modification and Extension to the Third Restated
Loan Agreement between UNICO, Inc., United Coupon
Corporation, Cal- Central Marketing Corporation
and BancFirst dated August 15, 1996. (10)
10.34 Consolidated Renewal Promissory Note between
UNICO, Inc., United Coupon Corporation, Cal-
Central Marketing Corporation and BancFirst dated
August 15, 1996. (10)
10.35 Loan Conversion Agreement between UNICO, Inc.
and Kurt H.C. Bottcher dated
September 30, 1996. (10)
16 Letter from Arthur Andersen, LLP to Securities &
Exchange Commission dated December 3, 1996. (9)
21 List of Subsidiaries (3)
27 Financial Data Schedule
(b) Reports on Form 8-K. - Form 8-K was filed during the last
quarter of the Registrant's fiscal period ending December 31,
1996 describing the change in independent accountants and
auditors and Chief Financial Officer.
(1) Incorporated by reference to the Registrant's Form 8-K,
October 27, 1993 (SEC File No. (0-15303).
(2) Incorporated by reference to the Registrant's Form 10-K
for the fiscal year ending December 31, 1992 (SEC File No. 0-15303).
(3) Incorporated by reference to the Registrant's Form 1O-KSB
for the fiscal year ending December 31, 1993 (SEC File No. 0-
15303).
(4) Incorporated by reference to the Registrant's Form S-18
registration statement (SEC File No. 33-73 10-FW).
(5) Incorporated by reference to the Registrant's Form 10-KSB
for the fiscal year ended December 31, 1994, (SEC File No. 0-
15303).
(6) Incorporated by reference to the Registrant's Form S-3
dated April 28, 1995 (SEC File No. 33-91270).
(7) Incorporated by reference to the Registrant's Form 10-KSB
dated April 15, 1996 (SEC File No. 0-15303).
(8) Incorporated by reference to the Registrant's Form 8-K
dated July 30, 1996 (SEC File No. 0-15303).
(9) Incorporated by reference to the Registrant's Form 8-K/A
dated December 12, 1996 (SEC File No. 0-15303).
(10) Incorporated by reference to the Registrant's Form 10-
KSB dated April 15, 1997 (SEC File No. 0-15303).
SIGNATURES
- -----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNICO, Inc.
September 22, 1999
By:/s/ Jay R. Weppler
------------------
Chairman, Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<S> <C> <C>
Name Title Date
- ------------------ --------------------------------- ------------------
/s/Jay R. Weppler Chairman, Chief Executive Officer,
President and Director September 22, 1999
/s/Ron Stoeppelwerth Chief Financial Officer and
Director September 22, 1999
/s/Peter Barnes Director September 22, 1999
/s/William D. Batts Director September 22, 1999
/s/Thomas Philip Page Director September 22, 1999
/s/Shane Sutton Director September 22, 1999
</TABLE>
UNICO, INC. AND SUBSIDIARY
TABLE OF CONTENTS
<TABLE>
<S> <C>
TITLE PAGE
- ---------------------------- ------
INDEPENDENT AUDITOR'S
REPORT..................................................... ......1
AUDITED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION.................2-3
CONSOLIDATED STATEMENT OF OPERATIONS......... ..................4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY..................5
CONSOLIDATED STATEMENT OF CASH FLOWS............................6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...................7-19
</TABLE>
INDEPENDENT AUDITOR'S REPORTS
Board of Directors and Stockholders
UNICO, INC. AND SUBSIDIARY
Springfield Virginia
We have audited the accompanying Consolidated Statement of
Financial Condition of UNICO, INC. AND SUBSIDIARY, as of
December 3l, 1998, and the related Consolidated Statements of
Operations, Stockholders' Equity and Cash Flows for the year
then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the statements are free or material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statement referred
to above presents fairly, in all material respects, the
consolidated financial position of UNICO, INC. AND SUBSIDIARY,
as of Decernber3l1 1998 and the consolidated results of their
operations and cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 8 to the financial statements, the Company
is disposing of all of its assets and will end up with no
liabilities, and will be left without a business activity.
These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans
regarding these matters are also described in Note 8. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
March 19, 1999
Except for Notes 5, 6, 8 and 13 dated April 16, 1999
Ogden, Utah
UNICO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
AS OF DECEMBER 31, 1998
ASSETS
------
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 105,404
Accounts and notes receivable - trade (net
of allowance for uncollectible accounts
or $4,638 306,469
Sales tax receivable 43,885
Receivable from NexGen 834,665
Inventory 117,564
Prepaid expenses 28,379
------------
Total current assets 1,436,366
PROPERTY AND EQUIPMENT, AT COST
Furniture, fixtures and equipment 4,354,072
Leasehold improvements 81,029
(Less) Accumulated depreciation and
amortization (2,602,599)
-----------
Net property and equipment 1,832,502
-----------
OTHER ASSETS 8,105
-----------
TOTAL ASSETS $3,276,973
-----------
</TABLE>
See Notes to Financial Statements
UNICO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
AS OF DECEMBER 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 531,983
Sales tax liability 127,578
Accrued liabilities 42,628
Line of credit 74,988
Current portion of long-term liabilities 594,668
Deferred revenue 103,000
------------
Total current liabilities 1,474,845
LONG-TERM LIABILITIES
Notes payable 83,053
Deferred rent 374,376
-----------
Total long-term liabilities 457,434
-----------
Total liabilities 1,932,279
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, Series A, C & Redeemable
All recalled and retired
Common stock
$.01 par value, 20,000,000 shares authorized,
5,631,817 shares issued and outstanding 56,318
Additional paid-in capital 7,883,393
Stock dividend declared 172,665
Retained earning (deficit) (6,768,187)
-----------
Total stockholders' equity 1,344,694
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 3,276,973
-----------
See Notes to Financial Statements
</TABLE>
UNICO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
REVENUE
Printing, design and advertising sales
net of discounts and allowances $ -
Franchise fees -
Other 175,500
--------
Total revenue 175,500
--------
EXPENSES
Direct cost of sales -
General and administrative and
franchise development 247,206
Interest expense 32,904
-------
Total expenses 280,110
-------
INCOME (LOSS) FROM OPERATIONS (104,610)
Write (down) of long-term assets impaired (309,207)
Income from forgiveness of debt 1,314,248
Income from discontinued operations 557,386
---------
NET INCOME $1,457,817
BASIC NET INCOME (LOSS) PER COMMON SHARE
Weighted average common shares outstanding 2,915,924
---------
(Loss) from continuing operations (0.03)
(Loss) from write (down) of long-term
assets impaired (0.11)
Income from forgiveness or debt 0.45
Income from discontinued operations 0.19
---------
NET INCOME PER COMMON SHARE $0.50
---------
See Notes to Financial Statements
</TABLE>
UNICO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,457,817
Adjustments to reconcile net income
to net cash provided (used) by
Operating activities
Depreciation and amortization 398,917
Provision for bad debts (55,362)
Deferred compensation 4,557
Changes in assets and liabilities
Inventory 1,639
Accounts, notes, and sales tax receivable (112)
Receivable from NexGen (834,665)
Prepaid expenses (19,239)
Other assets 10,197
Accounts payable (775,215)
Accrued liabilities & sales liability (315,227)
Deferred rent 53,502
Deferred revenue (17,509)
------------
Net cash (used) by operating activities (90,700)
------------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property (162,863)
-----------
Net cash (used) by investing activities (162,863)
-----------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from notes payable 199,988
Payment of notes payable (1,257,280)
Proceeds stock sale of subsidiary (USMI) 1,106,399
Proceeds sale common stock of the Company 180,000
----------
Net cash provided by financing activities 229,107
----------
(DECREASE) IN CASH AND CASH EQUIVALENTS (24,456)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 129,860
---------
CASH AND CASH EQUIVALENTS, END OF YEAR 105,404
---------
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest 56.974
---------
</TABLE>
See Notes to Financial Statements
UNICO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(A) Nature of operation
UNICO, Inc. (The "Company") was incorporated on April 11,
1984 in the State of Delaware. The Company's primary business
cooperative direct mail advertising, involves the designing,
printing, packaging, and distributing of public relations and
marketing materials and coupons for retailers who provide
goods and services. Sales are conducted primarily through
franchise operations- The Company's customers are primarily
located in the eastern, southeastern, midwestern and western
United States. During 1998, the Company entered into an
agreement to dispose or its only remaining operating
subsidiary. United Marketing Solutions, Inc. (UMSI), formerly
United Coupon Corporation. The activities of this subsidiary
are presented as discontinued operations in the Statement of
Operations and detailed in Note 16).
(B) Basis of consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, United Marketing
Solutions, Inc. All material intercompany accounts and
transactions have been eliminated in consolidation.
(C) Use of accounting estimates
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.
(D) Property and equipment
Property is recorded at cost and is depreciated over the
estimated useful lives often years using the straight-line
method. Leasehold improvements are
UNICO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE I - ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
- ------------------------------------------------
amortized over their estimated useful life or the term of the
lease, whichever is shorter.
(E) Revenue recognition
The Company recognizes revenue from the design,
production and printing of coupons on a percentage of
completion basis as stages of the production process are
completed. Revenue from initial franchise fees are recognized
when substantially all services or conditions relating to the
sale have been substantially performed. Franchise support and
other fees are recognized when billed to the franchisee.
Amounts billed or collected in advance or final delivery or
shipment are reported as deferred revenue.
(F) Inventory
Inventory consists primarily of paper, envelopes and
printing materials and is stated at the lower of cost or
market, with cost determined on the first-in, first-out
method.
(G) Cash and cash equivalents
The statements of cash flows are prepared on the basis of
cash on hand and in banks which are subject to withdrawal on
demand. The Company considers all investments that have an
original maturity of three months of less to be cash
equivalent.
The Company maintains cash balances which may exceed
Federally insured limits. The Company does not believe that
this results in any significant credit risk.
(H) Income taxes
The Company filed a consolidated federal income tax
return with its
UNICO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE I - ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
- -------------------------------------------------
subsidiary through 1997. For 1998 management is considering
not filing a consolidated return.
(I) Fair value of financial instruments
The fair value of the financial instruments included in
the financial statements, except as otherwise discussed in the
notes to financial statements approximates their carrying
value.
(J) Impairment of long-lived assets
It is the Company's policy to periodically evaluate the
economic recoverability of all of its long-lived assets. In
accordance with that policy, when the Company determines that
an asset has been impaired, it recognizes the loss on the
basis of the discounted future cash flows expected from the
asset.
(K) Earnings per common share
Earnings per share is computed by dividing the net income
by the weighted average number of common shares outstanding
during the year
UNICO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 2 - NOTES PAYABLE
<TABLE>
<S> <C>
Notes payable at December 31, 1998 consisted of
the following:
BancFirst - consolidated renewal promissory note
dated August 15,1996 in the face amount of $721,425 with
Interest at the prime rate plus 1%. The note is
collateralized by substantially all assets of the
Company. The note is payable in monthly installments of
$27,500 through December 15,1998, including interest,
with the entire unpaid balance due on December 31, 1998.
As a result of ongoing negotiations, during 1998 the bank
accepted payments at less than the stated terms in the
note. At December 31, 1998, the Company is in default for
nonpayment In accordance with the terms of the loan. See
Notes 5,6,8 and 12 for debt assumption by NexGen.
$ 402,000
CIT Group - two installrnent notes bearing Interest at
10% and requiring monthly payment's, In aggregate of $8989.
Including interest. The two notes are scheduled for final
payment In 1999 and 2000. The proceeds of these loans
were used to purchase specific equipment and are
collatorized by the equipment.
172,411
Teachers Insurance and Annuity Association
of America Settlement agreement of prior unpaid building
lease assessment for use of common are, payable $6,945
monthly over 18 months. Non interest bearing unless paid
late, then 5% late charge plus 10% per annum Interest
charge. Final payment due February 2000. Payment one
month in arrears. (See Note 3)
97,222
First Virginia Bank - Installment loan for the purchase of
an automobile, collaterized by the automobile, payable
$589 per month, including Interest at 8.76% over 36
months; final payment due December 1999.
6,092
------
Total notes payable 677,725
(Less): Current portion (594,668)
---------
Long-term portion 83,057
</TABLE> ---------
Scheduled future maturities or notes payable at December
31, 1998, are as follows:
Year Ending
December Amount
----------- ------
1999 $ 594,668
2000 83,057
--------------
Total $ 677,725
UNICO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 3- LEASES
The Company leases its main office and printing facility
under an agreement last amended by settlement agreement and
release in 1997. The lease has a term of 10 years and requires
payment or base rent which includes scheduled increases plus
increases in the annual operating costs and real estate taxes
applicable to the property. The lease provides for an eighteen
month abatement of rent during the initial period for a
portion or the space leased. The Company has an option to
renew the lease for a five year period at the end of the base
term at the then current fair rental value of the property.
The minimum payments required under the lease, which takes
into account the rent abatement and scheduled increases in
base rent, are recognized on the balance sheet to the extent
that expense to date exceeds the minimum lease payments to
date.
Scheduled future minimum payments required under the
lease are as follows:
Year Ending
December 31 Amount
1999 $415,088
2000 444,290
2001 474,534
2002 505,823
2003 529,289
Thereafter 769,163
Rent expense for the year ended December 31, 1998 was
$531,697.
The Company settled a dispute over what the assessment
was on the use of common area. The Company had expensed, but
not paid, over the years $437,860 for the use of common area.
In the settlement $125,000 was agreed to be paid. This reduced
the rental costs of the prior years, upon settlement, by
$312,860, which is included in "other revenue- on the
statement of operations. The $125,000 settlement is reported
under term debt. See also Note 2.
UNICO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 4- PROFIT SHARING PLAN
The Company has a defined contribution plan that is
qualified under 401(k) of the Internal Revenue Code. Employees
may elect to contribute up to 12% of their salary before
income taxes subject to an annual limit provided for in the
Code, which was $10,000 for 1998. The Company matches employee
contributions up to 3% of gross wages. All employees who are
at least 18 years of age are eligible to participate in the
plan. Contributions to the plan by the Company were $37,200 in
1998.
NOTE 5 - RELATED PARTY TRANSACTIONS AND WRITE DOWN OF
INTERCOMPANY PAYABLE
The Company received administrative support from its
subsidiary, United Marketing Solutions, Inc. (UMSI). During
1998, UMSI incurred costs that were charged back to the
Company or $359,473 for administrative services and debt
service (interest and principal).
In May 1998, the Company entered into an agreement with
Next Generation Media Corporation (NexGen) to buy all the
issued and outstanding stock of UMSI from
the company. Although the agreement was not finalized as of
December 31, 1998, closing on the sale of the stock of UMSI to
NexGen occurred in April of 1999.
During 1998 and 1999 throughout the pendency of the
NexGen acquisition, monies were advanced by NexGen to the
Company. A portion of these advances were, in turn. paid by
the Company to UMSI to reduce the inter-company receivable due
by the Company. As of December 3l, 1998, the inter-company
debt was reduced with these and other payments by
approximately $345,500.
As of December 31, 1998, management anticipated paying
only an additional $260,000 to UMSI in payment of the
outstanding inter-company debt. Consequently, management has
chosen to write-off the amount excess of such inter-company
paynbies to UMSI over the anticipated payment of $260,000. The
net write off of $l,042,073 is reported as income on the
statement of operations. Through inter-company eliminations,
these amounts are offset leaving nothing to report.
During 1998, the Company's President, Gerard R. Bernier,
and certain other former members of the Company's Board of
Directors became stockholders in NexGen, having exchanged
their interest in the Company for shares of NexGen common
stock
UNICO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
Upon consummation of the UMSI stock sale by the Company,
Mr. Bernier will become a Director, as well as President and
Chief Executive Officer of NexGen (See Note 13).
Additionally, Mr Bernier served as a consultant to NexGen
during the pendency of the UMSI stock sale.
The Board of Directors of the Company controlled by
nominees of its majority shareholder, T.C. Equities, Ltd., is
or the view that notwithstanding the interest of certain of
the Company's and UMSI's former officers and directors in
connection with the UMSI stock sale of UMSI would present such
officers and directors with actual or potential conflicts of
interest, the consideration received by the Company in
exchange for the sale of the stock of UMSI and the terms of
the Stock Purchase Agreement are favorable to the Company and
its non T. C. Equities, Ltd. Stockholders.
NOTE 6- RECEIVABLE FROM NEXGEN
As discussed in greater derail in Notes 5, 8 and 13, the
Company entered into an agreement to sell its stock in its
subsidiary UMSI to NexGen. The closing occurred in April 1999.
At December 31,1998 Management determined the following
amounts were yet unpaid in the stock sale agreement:
<TABLE>
<S> <C>
Funds to pay for the stock dividend declared $172,665
Funds to pay UMSI intercompany account from 260,000
the Company - actual amount will vary
Assumption of debt owed Bankfirst, which is secured 402,000
by a significant portion or the assets of UMSI ---------
Total $834,665
</TABLE>
NOTE 7 - INCOME TAXES
The Company accounts for income taxes in accordance with the
provisions of Financial Accounting Standards No.109,
"Accounting for Income Taxes" ("SFAS 109"), which requires an
asset and liability approach to accounting for income taxes.
UNICO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
Under SFAS 109, deferred tax assets or liabilities are
computed on the difference between the financial statement and
income tax basis or 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.
The Company filed consolidated income tax returns with
its subsidiary, UMSI, through December 31, 1997 but may or may
not file a consolidated return for December 31, 1998. In
addition, the ownerships of the Company and its subsidiary,
UMSI, changed. Management has concluded the method of changes
in ownership have precluded any use of the otherwise available
federal income tax net operating losses for both companies.
Consequently, no income tax benefits are recognized or
deferred.
NOTE 8- FINANCIAL CONDITION
As explained in Notes 5, 6, 8 and 13, the Company has
effectively sold the stock of UMSI, its only subsidiary to
NexGen as of December 3l, 1998. NexGen has agreed to assume
the $402,000 debt of the Company, which is secured by a
significant portion of the assets of UMSI.
In separate, but related transactions, the Company was
relieved of the following:
- - All but $260,000 of intercompany debt due to UMSI was
forgiven, or $1,042,073. This is reported on the consolidated
statement of operations. However, through intercompany
eliminations for the consolidated statement of operations, the
intercompany debt owed by the Company to UMSI is offset by the
loss UMSI recognized. Thus, nothing is left to report in the
consolidated statement of operations.
- - All other third party creditors, except the $402,000
debt NexGen assumed, were forgiven, in the amount $I,314,248.
This is reported in the consolidated statement of operations.
- - All preferred stock of all classes were returned to the
Company and cancelled, along with the rights to ownership and
claims of any kind against the Company. No amounts were
involved, as noted in the consolidated statement of
stockholders' equity (deficiency).
UNICO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1998
- - All stock options and warrants were waived by the parties
involved and the Company cancelled out the plans that had
otherwise not expired. No amounts were involved, as noted in
the consolidated statement of stockholders' equity
(deficiency).
The assets of the Company (not those of UMSI) were
primarily long-lived assets including goodwill, funding, and
registration costs, all being amortized. Management evaluated
and concluded they were impaired as there was little, if any,
economic recoverability in the long-lived assets. So, these
assets were written off, the net amount of which is $309,207
and is reported in the consolidated statement of operations.
With the sale of the stock of UMSI, the Company will have
no business activity, and there will be no assets or
liabilities in the Company.
New management, T.C. Equities, Ltd., is searching for new
business opportunities to acquire. However, unless additional
funding is obtained, it is doubtful the Company will be
successful to continue as a going concern.
NOTE 9 - LINE OF CREDIT
During 1998, the Company obtained a $100,000 line of
credit from a bank that expires in September 1999. Borrowings
on the line bear interest at the prime rate. The President of
the Company has pledged as collateral a $75,000 certificate of
deposit that is personally held, and he and his spouse have
executed a personal guarantee for the remaining $25,000 on the
line. At December 31, 1998 there is $74,938 in borrowings on
the line of credit.
NOTE 10- SALES TAX RECEIVABLE AND LIABILITY
Virginia has taken the position that the Company products
sold and distributed in Virginia are subject to sales tax.
Management has challenged this position and refused to pay the
proposed assessment of Virginia. However, in the event it does
become taxable, the Company has charged salts tai as
applicable to the franchisees in the amount of $117,564 as of
December 31, 1998 and the franchisees have paid $83,693. Thus,
if Virginia concedes that sales tax does not apply, then the
Company owes the franchisees back the $83,693 collected. Or,
if Virginia prevails, then the Company owes Virginia $117,564
with $42,628 remaining due from the franchisees.
UNICO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 3I, 1998
NOTE 11-OTHER COMMITMENTS NND CONTINGENCIES
The Company has an employment agreement with an officer
which provides for approximately $130,000 in base annual
compensation, plus incentive compensation based upon the
earnings of the Company.
The Company is party to various legal matters encountered
in the normal course of business. In the opinion of management
and legal counsel, the resolution of these matters will not
have a material adverse effect on the Company's financial
position or the future results of operations.
NOTE 12 - DISCONTUNUED OPERATIONS OF SUBSIDIARY
During 1998, the Company entered into an agreement to
sell its principal operating subsidiary United Marketing
Solutions, Inc. (UMSI), formerly United Coupon Corporation.
Accordingly, the results of operations for 1998 are presented
showing the results of continuing operations and discontinued
operations net of applicable income taxes (income tax
benefits).
UNICO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
A summary of the subsidiary's operations for 1998,
exclusive of intercompany accounts are as follows:
<TABLE>
<S> <C>
REVENUE
Printing, design and advertising sales
Net of discounts and allowances $ 5,095,414
Franchise fees 192,808
Other 466,191
------------
Total revenue 5,754,413
------------
EXPENSES
Direct cost of sales 2,708,955
General and administrative and
Franchise development 2,464,002
Interest expense 24,070l
Total expenses 5,197,027
-----------
INCOME FROM OPERATIONS $ 557,386
-----------
A summary of the subsidiary's balance sheet to
be discontinued, exclusive of intercompany accounts follows:
ASSETS
Cast: and cash equivalents $ 105,404
Accounts and notes receivable, net 350,354
Inventory 117,564
Prepaid expenses 28,379
------------
Total current assets 601,701
Property and equipment, net 1,832,502
Other assets 8,105
Total assets $ 2,442,308
------------
UNICO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued liabilities $ 625,317
Line of credit 74,988
Current portion or long term liabilities 192,668
Deferred revenue 103,000
Total current liabilities 995,973
Long-term liabilities 457,434
Stockholder's equity 988,901
--------------
Total liabilities and stockholder's equity $2,442,308
</TABLE>
NOTE 13- SUBSEQUENT EVENT
In May 1998 the Company entered into an agreement,
subject to stockholder approval, to sell the Common Stock of
UMSI, representing 100% of the issued and oustanding capital
stock of UMSI to Next Generation Media Corporation (NexGen).
On January 28, 1999, the terms of the agreement was approved
by the Company's stockholders at a special meeting held for
this and other purposes. Closing on the sale occurred in April
of 1999 and effectively moved UMSI out of the hands of the
Company and into the hands of NexGen as a wholly owned
subsidiary of NexGen, the reporting company under the
Securities and Exchange Act of 1934. Pursuant to the agreement
to sell the stock of UMSI, NexGen:
Paid to the Company $172,664.50 in cash
to be used as a dividend to stockholders of the Company.
(ii) Forgave indebtedness owed by the Company to
NexGen in the amount of $175,500;
UNICO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(iii) Paid to the Company for its creditors an
additional amount of approximately $164,400 for the payment of
certain debts or the Company to third-party creditors; and
(iv) Assumed debt of approximately $402,000 to
the Company's primary secured Lender.
During the pendency of the stock sale, the Company, UMSI,
NerGen and certain former officers and directors of the
Company and UMSI engaged in certain related party transactions
described in this note and in notes 5, 8 and 12.
During 1999 the Company received and paid to UMSI against
the inter-company debt due from the Company, approximately
$345,500.
On April 1, 1999, the final transaction occurred in which
Unico finalized the sale of UMS. Funds were placed into escrow
to be disbursed.
After disbursement and stock dividend declared is paid,
the Balance Sheet of Unico is as follows:
Assets
------
<TABLE>
<S> <C>
Assets $ -
--------
Total Assets $ -
Liabilities & Stockholders' Equity
----------------------------------
Liabilities $ -
--------
Total Liabilities -
Stockholders' Equity
Common Stock - 5,631,817
Shares Issued, Par $.01 56,318
Additional Paid in Capital 7,501,669
Retained Earnings (Deficit) (7,557,987)
----------
Net Stockholders Equity -
Total Liabilities &
Stockholders Equity -
----------
</TABLE>
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
- ------------------------------------
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-END] DEC-31-1998
[CASH] 105,404
[SECURITIES] 0
[RECEIVABLES] 1,189,657
[ALLOWANCES] 4,638
[INVENTORY] 117,564
28,379
[CURRENT-ASSETS] 1,436,366
[PP&E] 4,435,101
[DEPRECIATION] 2,602,599
[TOTAL-ASSETS] 3,276,973
[CURRENT-LIABILITIES] 1,474,845
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 39,191
[OTHER-SE] 1,305,503
[TOTAL-LIABILITY-AND-EQUITY] 3,276,973
[SALES] 175,500
[TOTAL-REVENUES] 175,500
[CGS] 0
<OPERATING COSTS> 247,206
[OTHER-EXPENSES] 309,207
<OTHER INCOME> 1,314,248
<LOSS-OPERATIONS> <104,610>
[INTEREST-EXPENSE] 32,904
[INCOME-PRETAX] 1,457,817
[INCOME-TAX] 0
[INCOME-CONTINUING] 900,431
[DISCONTINUED] 557,386
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 1,457,817
[EPS-BASIC] .67
[EPS-DILUTED] .67
</TABLE>
