[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended November 30, 2008
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to ________________
Commission file number 000-30239
UNICO, INCORPORATED (Exact name of registrant as specified in its charter)
Arizona
86-0205130
(State or other jurisdiction of incorporation or
organization)
(I.R.S. Employer
Identification No.)
8880 Rio San Diego Drive, 8th Floor, San Diego, California 92108
(Address of principal executive offices)
(619) 209-6124
(Issuer's telephone number)
N/A
(Former Name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [ X ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of January 12, 2009, the issuer had outstanding 23,679,981 shares of its common stock, $0.001 par value per share.
Transitional Small Business Disclosure Format Yes [ ] No [X ]
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
UNICO, INCORPORATED AND SUBSIDIARIES
FINANCIAL STATEMENTS
November 30, 2008
UNICO, INCORPORATED
Consolidated
Balance Sheets
November 30,
February 29,
2008
2008
ASSETS
(Unaudited)
(Audited)
Current Assets
Cash
$
7,947
$
-
Accounts receivable
-
1,420
Prepaid expense
-
20,000
Total Current Assets
7,947
21,420
Fixed Assets
Equipment, furniture, etc. net of depreciation (Note 1)
4,280,271
4,167,132
Construction in progress
2,324,005
2,174,952
Total Fixed Assets
6,604,276
6,342,084
Other Assets:
Cash- reclamation bonds
218,698
215,799
Deposit
20,947
8,947
Total Other Assets
239,645
224,746
Total Assets
$
6,851,868
$
6,588,250
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Bank overdraft
$
-
$
3,142
Accounts payable
1,015,054
785,427
Wages payable
15,391
27,196
Accrued expenses
400
400
Reclamation obligations
154,805
144,862
Accrued interest payable
31,417
24,510
Accrued interest payable - related party (Note 2)
697,696
355,845
Taxes payable
13,607
17,369
Derivative liability
10,802,891
8,311,182
Debentures payable, (Note 3)
226,044
75,000
Debentures payable-related party net of discount (Note 2)
7,150,326
5,496,821
Total Current Liabilities
20,107,631
15,241,754
Total Liabilities
20,107,631
15,241,754
Stockholders' Deficit
Preferred Stock, authorized 20,000,000 shares, $0.001 Par Value, 9,800,000 shares issued and outstanding
9,800
9,800
Common Stock, authorized 5,000,000,000 shares, $0.001 Par Value,21,980,607 and 9,880,726 shares issued and outstanding, respectively
21,981
9,881
Stock payable
999,000
999,000
Additional paid in capital
51,600,331
51,252,507
Accumulated deficit
(65,886,875)
(60,924,692)
Total Stockholders' Deficit
(13,255,763)
(8,653,504)
Total Liabilities and Stockholders' Deficit
$
6,851,868
$
6,588,250
.
The accompanying notes are an integral part of these consolidated financial statements
3
UNICO, INCORPORATED
Consolidated
Statements of Operations
(Unaudited)
For the Nine Months Ended
For the Three Months Ended
November 30,
November 30,
2008
2007
2008
2007
Total Revenues
$
-
$
-
$
-
$
-
Operating Expenses
Drilling, exploration and maintenance expense
228,811
331,616
58,475
142,786
Depreciation and accretion
179,919
115,774
61,834
40,835
Professional fees
312,013
261,628
108,243
5,645
Salaries/wages
619,596
233,563
221,718
81,934
General and administrative expense
320,014
357,460
90,371
128,563
Total Operating Expenses
1,660,353
1,300,041
540,641
399,763
Net Operating Loss
(1,660,353)
(1,300,041)
(540,641)
(399,763)
Other Income (Expense)
Interest expense
(2,388,614)
(4,372,702)
(693,466)
(1,737,742)
Interest income
2,969
5,878
-
475
Derivative gain (loss) on debentures
(916,223)
(634,217)
(638,405)
(844,553)
Other income (expense)
36
11,406
36
11,206
Loss on settlement of debt
-
(7,929,184)
-
-
Total Other Expense
(3,301,832)
(12,918,819)
(1,331,835)
(2,570,614)
LOSS FROM CONTINUING OPERATIONS
(4,962,185)
(14,218,860)
(1,872,476)
(2,970,377)
Income Tax Expense
-
(350)
-
(350)
Net Loss
$
(4,962,185)
$
(14,219,210)
$
(1,872,476)
$
(2,970,727)
Net Loss Per Share
$
(0.44)
$
(2.57)
$
(0.14)
$
(0.31)
Weighted Average Shares Outstanding
11,258,656
5,532,707
13,858,419
9,630,726
The accompanying notes are an integral part of these consolidated financial statements
4
UNICO, INCORPORATED
Consolidated
Statements of Cash Flows
(Unaudited)
For the Nine Months Ending
November 30,
2008
2007
Cash Flows from Operating Activities:
Net Loss
$
(4,962,185)
$
(14,219,210)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operations:
Depreciation and accretion expense
179,919
115,774
Loss on settlement of debt
-
7,997,184
Derivative/Interest related to convertible debentures
2,860,286
4,748,900
Changes in Operating Assets and Liabilities:
(Increase) Decrease in:
Reclamation deposit
(2,899)
(1,734)
Prepaid expense
8,000
-
Deposits
-
1,513
Accounts receivable
1,420
(1,420)
Increase (Decrease) in:
Accrued expenses
429,656
211,932
Accounts payable and other liabilities
214,061
545,665
Net Cash Used by Operating Activities
(1,271,742)
(601,396)
Cash Flows from Investing Activities:
Purchase of fixed assets- Construction in progress
(149,053)
(946,562)
Purchase of fixed assets
(283,116)
(3,093,204)
Sale of fixed assets
-
-
Net Cash Used by Investing Activities
(432,169)
(4,039,766)
Cash Flows from Financing Activities:
Decrease in cash overdraft
(3,142)
-
Issuance of convertible debentures
1,715,000
4,690,100
Net Cash Provided by Financing Activities
1,711,858
4,690,100
Net Increase (Decrease) in Cash
7,947
48,938
Cash at Beginning of Period
-
7,194
Cash at End of Period
$
7,947
$
56,132
Cash Paid For:
Interest
$
14,897
$
21,922
Income Taxes
$
-
$
-
Non-Cash Financing Activities:
Common stock issued for services
$
-
$
-
Common Stock issued for debt extinguishments
$
220,410
$
3,809,944
.
The accompanying notes are an integral part of these consolidated financial statements
5
UNICO, INCORPORATED
Notes to the Consolidated Financial Statements
November 30, 2008
NOTE 1 – NATURE OF ORGANIZATION AND SIGNIFICANT ACCOUNTING PRINCIPLES
This summary of significant accounting policies of Unico, Incorporated is presented to assist in understanding the Company's consolidated financial statements. The consolidated financial statements and notes are representations of the Company's management who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the consolidated financial statements. The information furnished in the interim financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements.
a.
Organization and Business Activities
Unico, Incorporated was formed as an Arizona corporation on May 27, 1966 under the name of Red Rock Mining Co., Incorporated. It was later known as Industries International, Incorporated and I.I. Incorporated before the name was eventually changed to Unico, Incorporated in 1979.
The Company presently has three wholly-owned subsidiaries: Deer Trail Mining Company, LLC, Silver Bell Mining Company, Inc., and Bromide Basin Mining Company, LLC. As a result, the accompanying consolidated financial statements are those of the Company and its wholly owned subsidiaries, Deer Trail Mining Company, LLC, Silver Bell Mining Company, Inc. and Bromide Basin Mining Company, LLC.
b.
Fixed Assets
The Company’s property consists of mining equipment, vehicles, office furniture and computer equipment. The property is depreciated in a straight-line basis over three, five, and ten years. Fixed assets are recorded at cost. Major additions and improvement are capitalized. The cost and related accumulated depreciation of equipment retired or sold are removed from the accounts and any differences between the undepreciated amount and the proceeds from the sale are recorded as gain or loss on sale of assets. Mineral rights are recorded at cost of acquisition. When there is little likelihood of a mineral right being exploited, or the value of mineral rights have diminished below cost, a write-down is affected against income in the period that such determination is made.
Fixed Asset Schedule
November 30,
2008
November 30,
2007
Fixed Assets:
Furniture & Equipment
$
2,092,549
1,157,963
Land
200,000
200,000
Patented mining claims
640,000
640,000
Mining Claim
2,360,000
2,360,000
Autos
65,814
65,814
Total
5,358,363
4,423,777
Less Depreciation
(1,078,092)
(853,175)
Net Equipment
$
4,280,271
3,570,602
The Company exercised its option to purchase the claims covered by the Deer Trail lease and paid the balance of $1,700,000 that was owed on the purchase option agreement in the quarter ended August 31, 2007. A total of $4,000,000 was paid to purchase the Deer Trail Claim over a period of approximately three years. The initial $1,000,000 that was paid towards the lease purchase was expensed in the 2004 fiscal year based on the fact that the Company did not have independent third party verification of the mineable assets at the time. As a result, only $3,000,000 of the total acquisition of $4,000,000 is being capitalized.
The purchase of the Deer Trail mines claims is comprised of 32 patented mining claims and 170 unpatented mining claims. The patented claims comprise 16% of the total claims purchased. As a result, $640,000 ($4,000,000 x 16% = $640,000) will be treated as a purchase of land based on the fact that patented claims give the Company title to the use of the land. The balance of the capitalized amount of $2,360,000 is for the unpatented claims and is subject to be amortized over the life of the mineable assets.
6
UNICO, INCORPORATED
Notes to the Consolidated Financial Statements
November 30, 2008
NOTE 1 – NATURE OF ORGANIZATION AND SIGNIFICANT ACCOUNTING PRINCIPLES – cont.
c.
Accounting for Derivatives
Convertible debentures, the Company’s sole derivative instruments, are accounted for under EITF 00-27 unless liability classification of the derivative is more appropriate. Where the embedded conversion option appears to qualify for liability classification, derivatives are accounted for under EITF 00-19.
Under EITF 00-27, the Company records a beneficial conversion cost associated with the convertibility feature of the security that equals the value of any discount to market available at the time of conversion. This beneficial conversion cost is recorded at the time the convertible security is first issued. If the debenture is subsequently converted into stock, the liability is reduced and common stock is increased.
EITF 00-19 is applicable to debentures issued by the Company in instances where the number of shares into which a debenture can be converted is not fixed. For example, when a debenture converts at a discount to market based on the stock price on the date of conversion. In such instances, EITF 00-19 requires that the embedded conversion option of the convertible debentures be bifurcated from the host contract and recorded at their fair value. In accounting for derivatives under EITF 00-19, the Company records a liability representing the estimated present value of the conversion feature considering the historic volatility of the Company’s stock and a discount representing the imputed interest associated with the beneficial conversion feature. The discount is then amortized over the life of the debentures and the derivative liability is adjusted periodically according to stock price fluctuations. At the time of conversion, any remaining derivative liability is charged to additional paid-in capital. For purposes of determining derivative liability, the Company uses Black-Scholes modeling for computing historic volatility.
d.
Accounting Method
The Company's consolidated financial statements are prepared using the accrual method of accounting. The Company has elected a February 28th year-end. The Company reports the operations of itself and its wholly owned subsidiaries on a consolidated basis.
e.
Significant Accounting Policies
The Company files income tax returns in the U. S. federal jurisdiction, and in the following state jurisdictions: California, Arizona, and Utah. With few exceptions, the Company is no longer subject to U. S. federal, state and local, or non-U. S. income tax examinations by tax authorities for years before 2000. The company has not filed tax returns since the year 2000 and is therefore subject to examination by the IRS under the rules of the statute of limitations.
The Company adopted the provisions of the FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes, on January 1, 2007.
The Company’s policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
f.
FIN 48 – Accounting for Uncertainty in Income Taxes
In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 contains a two step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. This provision is effective for fiscal years beginning after December 15, 2006, which will be the Company’s fiscal year 2008. The Company is evaluating the impact, if any; the adoption of this statement will have on its results of operations, financial position, or cash flows. Given the Company’s substantial loss carry-forward, it does not, in the near term, expect to have any impact of the Company’s tax position with the adoption of FIN 48.
7
UNICO, INCORPORATED
Notes to the Consolidated Financial Statements
November 30, 2008
NOTE 1 – NATURE OF ORGANIZATION AND SIGNIFICANT ACCOUNTING PRINCIPLES – cont.
g. Recent Accounting Pronouncements
In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115” (FAS 159). FAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The provisions of FAS 159 become effective as of the beginning of our 2009 fiscal year. We are currently evaluating the impact that FAS 159 will have on our financial statements.
In March of 2008, the FASB issued statement 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB statement no. 133” (FAS 161). FAS 161 requires companies to enhance disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. The provisions of FAS 161 become effective as of November 15, 2008. We are currently evaluating the impact that FAS 161 will have on our financial statements.
In May of 2008 the FASB issued statement 162, “The Hierarchy of Generally Accepted Accounting Principles” (FAS 162). FAS 162 addresses the principles used in the preparation of financial statements that are presented in conformity with GAAP. FAS 162 concludes that the GAAP hierarchy should reside in the accounting literature established by FASB thereby directing accounting principles directly to the entity and not to the auditors as has been done in the past with GAAP literature. The provisions of FAS 162 become effective 60 days following the SEC’s approval. The Company believes that FAS 162 will have no effect on its financial statements.
NOTE 2 – RELATED PARTY DEBENTURES
The Company previously issued convertible debentures of $645,132 to Ray Brown, a member of the board of directors. Ray Brown assigned $114,466 of his outstanding convertible debenture to Joseph Lopez, father of the Company’s Chief Executive Officer, Mark Lopez, as satisfaction on a personal loan. These debentures bear interest at 10% per annum and were due September 2005, and December 25, 2004, respectively. The debentures are convertible into common stock of the Company at a discount of 20% off the closing bid price of the common stock on the date of conversion. During the quarter ending November 30, 2008 the Company paid Ray Brown $3,690 in cash for interest owed and issued 324,803 shares of common stock for the conversion of $13,987 of interest and $558 of principal due Ray Brown. The Company has recorded an accrued interest payable of $3,690 for Ray Brown’s debenture and $47,825 for Joseph Lopez’s debenture as of November 30, 2008. As of the quarter ended November 30, 2008, the Company owes Mr. Brown $448,956 in principal and $3,690 in interest, and it owes Joseph Lopez $114,466 in principal and $47,825 in interest.
In January of 2008 all of the debentures issued to Compass Capital Corporation, Blue Marble Investments and Reef Holdings totaling $5,179,954 that remained unpaid by Unico were purchased by and assigned to Moore Investment Holdings, LLC (“Moore Investment Holdings”). Moore Investment Holdings is controlled by Joseph Lopez, the father of CEO Mark Lopez. The Company also issued convertible debentures of $500,000 to Moore Investment Holdings during the fiscal year ending February 29, 2008 for a total due Moore Investment Holdings of $5,679,954. During the quarter ending May 31, 2008 the Company issued an additional $660,000 of convertible debentures to Moore Investment Holdings and during the quarter ending August 31, 2008 the Company issued an additional $630,000 of convertible debentures. During the quarter ending November 30, 2008 the Company issued an additional $425,000 of convertible debentures to Moore Investment Holdings. The debentures were issued with terms of 180 days, accrued interest at 8% per annum, and convertible at a discount of 50% of the closing bid for the Company’s common stock on the date of conversion. Moore Investment Holdings has assigned four debentures, one in the quarter ending August 31, 2008 that was originally issued on February 2, 2007 in the amount of $200,000 to Tuxedo Holdings and three in the quarter ending November 30, 2008 that were originally issued on (a) June 20, 2007 in the amount of $50,000, (b) January 4, 2008 in the amount of $25,000, (c) January 15, 2008 in the amount of $15,000 to Patrick Davis, a principal shareholder of Unico.
The summary of outstanding related party debt of $7,668,376 of which $6,049,954 is in default as of November 30, 2008 is as follows:
8
UNICO, INCORPORATED
Notes to the Consolidated Financial Statements
November 30, 2008
NOTE 2 – RELATED PARTY DEBENTURES – cont.
Moore Investment Holdings
$7,104,954
Ray Brown
$ 448,956
Joseph Lopez
$ 114,466
Total
$7,668,376
Less: Discount on debt
$ 518,050
Net related part debt
$7,150,326
As of November 30, 2008 the Company has accrued $697,696 for interest due to related parties in regard to these outstanding debentures. This is net of a $28,800 reduction of interest for the issuance of 1,200,000 shares of common stock to Moore Investment Holdings.
NOTE 3 – CONVERTIBLE DEBENTURES
In January of 2008 all of the debentures issued to Compass Capital Corporation, Blue Marble Investments and Reef Holdings totaling $5,179,954 that remained unpaid by Unico were assigned to Moore Investment Holdings, a related party. During the quarters ended May 31, 2008, August 31, 2008 and November 30, 2008 the Company issued $1,715,000 of convertible debentures to Moore Investment Holdings that were used primarily to support subsidiary operations. The debentures were issued with terms of 180 days, accrued interest at 8% per annum, and convert at a discount of 50% of the closing bid for the Company’s common stock on the date of conversion. During the quarter ended August 31, 2008 Moore Investment Holdings assigned a debenture that was originally issued on February 2, 2007 in the amount of $200,000 to Tuxedo Holdings of which $48,956 of the principal has been converted leaving a balance on the debenture of $151,044 as of the quarter ended November 30, 2008. During the quarter ended November 30, 2008 Moore Investment Holdings assigned three debentures totaling $90,000 to Patrick Davis all of which were converted to 8,963,075 shares of common stock by Dr. Davis during the quarter. The Company recorded interest expense of $2,388,614 during the 1st three quarters of fiscal year 2009 associated with the debentures and recorded a loss of $916,223 on the derivative portion of the debentures. The net derivative liability as of November 30, 2008 was $10,802,891. As of November 30, 2008 the Company had $226,044 in non-affiliate and $7,668,376 of affiliated convertible debentures issued and outstanding less discounts of $518,050.
NOTE 4 –STOCKHOLDER’S EQUITY
Common Stock
As of November 30, 2008, the Company had 21,980,607 post reverse shares of common stock issued and outstanding with 4,978,019,393 post reverse shares authorized but unissued. On June 30, 2008 the Company effected a reverse split of its issued and outstanding common stock on the basis of one share of common stock to be issued for each 500 shares issued and outstanding. As a result of this reverse split all share figures appearing in this report are generally expressed in numbers of post-reverse split shares, unless otherwise noted.
During the quarter ended November 30, 2008 the Company issued 1,000,000 shares of common stock on the conversion of $43,430 of principal and $1,070 of interest payable to Tuxedo Holdings
During the quarter ended November 30, 2008 the Company issued 1,200,000 shares of its common stock on the conversion of interest to Moore Investment Holdings totaling $28,800.
During the quarter ended November 30, 2008 the Company issued 324,803 shares of common stock on the conversion of $558 of principal and $13,987 of interest payable to Ray Brown.
During the quarter ended November 30, 2008 the Company issued 8,963,075 shares of its common stock on the conversion of $90,000 principal and $79 of interest to Patrick Davis for debentures that were assign to him during the quarter ending November 30, 2008 from Moore Investment Holdings.
9
UNICO, INCORPORATED
Notes to the Consolidated Financial Statements
November 30, 2008
NOTE 4 –STOCKHOLDER’S EQUITY – cont.
Stock Options
During the year ended February 28, 2007, all stock options expired unexercised. As of November 30, 2008, there were no stock options outstanding.
Preferred Stock
As of November 30, 2008, the Company had 9,800,000 shares of preferred stock issued and outstanding, all of which is Series A preferred stock.The Series A Preferred Stock entitle the holder to elect two of the Company’s directors and is convertible into shares of common stock on a 1:1 basis.
Stock Payable
During the year ended February 28, 2007, the Company sold a total of 152,238 shares of restricted common stock to a third party for total consideration of $999,000. As of November 30 2008, these shares had not been issued, resulting in a stock payable of $999,000.
Convertible Debentures
The Company has $7,330,998 of convertible debentures outstanding that are convertible at a rate of 50% discount of the closing bid for the Company’s common stock on the date of conversion, and it has $563,422 of convertible debentures outstanding that are convertible at a rate of 20% discount of the closing bid for the Company’s common stock on the date of conversion.
NOTE 5 – LEGAL MATTERS
On August 14, 2008, Unico shareholders Randall Sullivan, Barry Raykoske, and Jack Reilly filed a derivative lawsuit on behalf of Unico against Ray C. Brown, Kenneth C. Wiedrich, Mark A. Lopez, Shane Traveller, Javelin Advisory Group, Inc., and Unico (as a nominal defendant) in the Superior Court of the State of California, San Diego County Central Division (Case No. 37-2008-0008901-CU-PN-CTL). The plaintiffs allege that the named defendants breached fiduciary duties owed to Unico, and were negligent in the approval of certain financing transactions entered into on behalf of Unico. The plaintiffs seek no less than $20 million in damages from the named defendants, as well as injunctive relief, interest, attorney's fees, and court costs. Plaintiffs are seeking a determination that they are appropriate representatives of Unico shareholders to bring a derivative suit, which is a prerequisite to bringing such a claim under California Corporations Code section 800. The defendants deny any liability, and are defending the lawsuit.
On September 30, 2008, a lawsuit was filed by Cache Valley Electric Company against Unico, Incorporated in the Third Judicial District Court for Salt Lake County, State of Utah (Case No. 080921346) in which the plaintiff alleges that it provided goods and services to Unico in the amount of $191,615.82, for which it has not received payment. The plaintiff alleges that Unico breached the contract by failing to pay for the goods and services, and is seeking a money judgment against Unico in the amount of $191,615.82 together with interest thereon at the statutory rate and court costs. Unico intends to negotiate a settlement of the lawsuit.
On or about January 5, 2009, a lawsuit was filed by Atlas Mining Company, an Idaho corporation, dba Atlas Fausett Contracting against Deer Trail Mining Company, LLC in the Sixth Judicial District Court for Piute County, State of Utah (Case No. 0090600001) in which the plaintiff alleges that it provided certain mine rehabilitation services and materials with respect to the Deer Trail Mine pursuant to a written contract for which it has not been paid. The plaintiff alleges that Deer Trail Mining Company, LLC breached the contract by failing to pay for the services and materials, and is seeking a money judgment against Deer Trail Mining Company, LLC for at least $182,144.25 plus interest at 18% per annum, plus costs. Plaintiff is also seeking a court order adjudging a mining lien filed by the plaintiff against the Deer Trail Mine on or about July 9, 2008 to be a good and sufficient lien on the Deer Trail Mine securing payment of the obligations under its contract with Deer Trail Mining Company, LLC, and ordering that the Deer Trail Mine be foreclosed and sold by the sheriff of Piute County, with the sales proceeds being applied against the amount due and owing to plaintiff from the Deer Trail Mining Company, LLC and to the foreclosure costs. Deer Trail Mining Company, LLC intends to negotiate a settlement of the lawsuit.
10
UNICO, INCORPORATED
Notes to the Consolidated Financial Statements
November 30, 2008
NOTE 6 – SUBSEQUENT EVENTS
Subsequent to the quarter ending November 30, 2008, the Company received $160,000 through the issuance of new convertible debentures. The new debentures were issued with terms of 180 days, bear interest at the rate of 8% per annum, and are convertible by the holder into shares of the Company’s common stock at a discount of 50% of the closing bid price on the date of conversion.
Subsequent to the quarter ended November 30, 2008 the Company issued 419,324 shares of common stock on the conversion of $3,690 interest payable to Ray Brown.
Subsequent to the quarter ended November 30, 2008 the Company issued 600,000 shares of common stock on the conversion of interest payable for Moore Investment Holdings
Subsequent to the quarter ended November 30, 2008 Moore Investment Holdings assigned a debenture that was originally issued on August 29, 2007 in the amount of $50,000 to Paul Goetowski.
Subsequent to the quarter ending November 30, 2008 the Company issued 680,050 shares of common stock to a third party consultant under an S- 8 registration statement in exchange for services valued at $64,605.
NOTE 7 – GOING CONCERN
The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred losses of $65,886,875 from its inception through November 30, 2008. It has not established any revenues with which to cover its operating costs and to allow it to continue as a going concern.
During the next 12 months, the Company’s plan of operation is to raise approximately $3,500,000 for investment into its subsidiary companies: Deer Trail Mining Company and Silver Bell Mining Company. The funds are intended for the following purposes during the next twelve months:
§
Continue sampling and analyzing mineralized rock samples, stockpiles and dump material from the Deer Trail Mine to evaluate the most efficient means to conduct future mining and milling activities;
§
Expand metallurgical research department at the Deer Trail Mine and Mill Facility;
§
Purchase additional lab equipment for metallurgical purposes;
§
Upgrade mine infrastructure and begin underground mining activities including maintenance and rehabilitation work at the Deer Trail Mine;
§
Continue to upgrade and complete the re-construction project on the existing mill at the Deer Trail Mine;
§
Begin milling and processing activities at the Deer Trail Mill and Processing Facility;
§
Acquire new mining equipment to improve operations at the Deer Trail Mine;
§
Conduct additional survey and mapping work on the Clyde and Crown Point mining claims including improvements to the property and potentially underground and surface exploratory drilling on the claims; and
§
Commence a feasibility study on the potential of the mining claims at the Silver Bell Mine beginning in theSpring of 2009.
Accomplishing the 12-month plan of operations is dependent on: (a) the Company raising approximately $3,500,000 in equityand/or debt financing during the next 12 months to be used for the Company’s operations, of which approximately $2,500,000 is needed in the next 120 days. Subsequent to the quarter ending November 30, 2008, the Company received $160,000 through the issuance of new convertible debentures to Moore Investments. The new debentures were issued with terms of 180 days, bear interest at the rate of 8% per annum, and are convertible by the holder in shares of the Company’s common stock at a discount of 50% of the closing bid price on the date of conversion. The Company intends to raise approximately an additional $3,500,000 during the next 12 months to fulfill the 12-month plan.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements.
When used in this Form 10-Q, the words "expects", "anticipates", "estimates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These forward-looking statements speak only as of the date hereof. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based. ANY FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-Q REFLECT MANAGEMENT'S BEST JUDGMENT BASED ON FACTORS CURRENTLY KNOWN AND INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY VARY MATERIALLY.
General Information Regarding Unico and its Operations.
Unico, Incorporated (“the Company”, “Unico” or “UNCN”) an Arizona corporation, was formed as an Arizona corporation on May 27, 1966. It was incorporated under the name of Red Rock Mining Co., Incorporated. It was later known as Industries International, Incorporated and I.I. Incorporated before the name was eventually changed to Unico, Incorporated in 1979.
On July 12, 2004, Unico filed an election with the U.S. Securities and Exchange Commission to become a business development company (“BDC”) pursuant to Section 54 of the Investment Company Act of 1940. On August 1, 2005, the Board of Directors unanimously approved a proposal to withdraw the Company’s election to be treated as a business development company as soon as practicable so that Unico could begin conducting business as an operating company rather than as a business development company subject to the Investment Company Act. On October 11, 2005, a Special Meeting of the Unico shareholders was held to consider and vote upon a proposal to authorize the Company’s Board of Directors to withdraw the Company’s election to be treated as a BDC and the proposal was approved. On October 12, 2005 a Notification of Withdrawal was filed with the Securities and Exchange Commission so that Unico could begin conducting business as an operating company rather than as a BDC subject to the Investment Company Act.
The mining operations at the Deer Trail Mine have been conducted through Unico's subsidiary, Deer Trail Mining Company, LLC (“Deer Trail Mining Company” or “DTMC”) since soon after DTMC was formed in late June, 2004. The mining operations at the Bromide Basin Mines have been conducted through Unico's subsidiary, Bromide Basin Mining Company, LLC (“Bromide Basin Mining Company” or "BBMC") since soon after BBMC was formed in late June, 2004. Future mining operations at the Silver Bell Mine will be conducted through Unico's subsidiary, Silver Bell Mining Company, Inc. ("SBMC").
Deer Trail Mining Company, LLC
On March 30, 1992, Unico, Incorporated entered into a Mining Lease and Option to Purchase agreement with Deer Trail Development Corporation, with headquarters in Dallas, Texas. Deer Trail Development Corporation is now known as Crown Mines, L.L.C. The lease was to run for a period of 10 years, and cover 32 patented claims (including mill sites) and 170 unpatented claims located approximately 5 miles South of Marysvale, Utah. It includes mine workings known as the Deer Trail Mine, the PTH Tunnel and the Carisa and Lucky Boy mines. There are no known, proven or probable reserves on the property. Effective December 1, 2001, a new lease agreement was entered into between the parties (“Deer Trail Lease”) covering the same property for a period of thirty (30) months. It was subsequently extended through a series of amendments.
In July 2007, Deer Trail Mining Companycompleted the purchase of the claims covered by the Deer Trail Lease. A total of $4,000,000 was paid to purchase the property over a period of approximately three years. The purchase of the claims also included the purchase of a fifty percent (50%) interest in Water Right No. 63-37, said fifty percent (50%) portion including a maximum flow of 0.125 cubic feet of water per second and a maximum annual diversion of 90.5 acre feet of water from Three Mile Spring for year-round mining purposes. The purchase of the claims also included a fifty percent (50%) interest in a contractual right to use water diverted under Water Right No. 63-3043 as evidenced and described in the Agreement between Cottonwood Irrigation Company and Deer Trail Development Corporation dated July 28, 1977. The fifty percent (50%) interest in the contractual water right allows Deer Trail Mining Company to truck not more than 2,500 gallons of water per week from the Cottonwood Creek to the Deer Trail Mine for mining activities during the irrigation season (April 15 to October 15), and possibly more during the remaining portion of each year.
12
Deer Trail Mining Company also obtained a lease from Crown Mines, L.L.C. of the remaining fifty percent (50%) interest in Water Right No. 63-37 and the remaining 50% interest in the contractual water right (Water Right 63-3043. The lease is for an initial term of 5 years for no rent. The lease may be terminated by Crown Mines, L.L.C. upon 12 months’ written notice if Crown Mines determines that the water rights covered by the lease are necessary for the operation and development of any of Crown Mines’ mining claims or for other permitted uses. The lease may be extended if Crown Mines determines that the water rights covered by the lease are not required for the operation and development of any of Crown Mines’ mining claims or for other permitted uses during the extension period, provided that the parties can agree on other terms including a price or rent for the extended term.
Crown Mines, L.L.C. retained a perpetual royalty interest on minerals taken from the claims purchased by Deer Trail Mining Company. The perpetual royalty is three percent (3.0%) of net smelter returns on minerals other than gold. The royalty rate for gold is three percent (3.0%) when the price of gold is less than or equal to $500 per troy ounce, four percent (4.0%) when the price of gold is more than $500 and less than or equal to $600 per troy ounce, and five percent (5.0%) when the price of gold is greater than $600 per troy ounce. Crown Mines, L.L.C. also retained an undivided three percent (3.0%) interest in any oil and gas and associated hydrocarbons produced from the claims.
Crown Mines, L.L.C. also retained an access easement and a water line pipeline easement across the claims sold to Deer Trail Mining Company.
Deer Trail Mining Company has agreed to provide Crown Mines, L.L.C. with information obtained as a result of Deer Trail Mining Company’s exploration activities on the claims, and Deer Trail Mining Company granted to Crown Mines, L.L.C. a right of first refusal to repurchase the claims or any portion thereof.
In August 2006, Deer Trail Mining Company entered into a Mining Lease with Joel Johnson covering the Clyde, Clyde Intermediate and Crown Point claims. These claims are located near the Deer Trail Mine. Deer Trail Mining Company has leased the claims for the purpose of conducting mine exploration, evaluation, and possible mining activities on the claims. The Mining Lease is for two years, with options to extend the lease for 50 additional one year periods. Under the terms of the Mining Lease, Deer Trail Mining Company paid initial down payments totaling $31,000 with $4,000 due in the second year of the lease. If Deer Trail Mining Company elects to extend the lease, it must pay $3,000 for the first extension year, and the annual lease extension payment increases ten percent (10%) per year thereafter. Additionally, Deer Trail Mining Company will pay three percent (3%) of the gross sale proceeds from the sale of any ore concentrates, or other mineral resources extracted from the claims.
In September 2006, Deer Trail Mining Company entered into a Non-Patented Mining Claims Lease covering approximately 70 additional claims covering approximately 1,500 acres in Piute County Utah for the purpose of exploration, evaluation and mining activities. In consideration for the rights under the agreement, the Deer Trail Mining Company agreed to pay the lease holders $7,000 per year for each of the first three years. Deer Trail Mining Company has the right to extend the lease for 50 additional one year periods. If extended by Deer Trail Mining Company, the annual lease payment is $10,000 in each of years four and five, and thereafter the annual lease payment increases by ten percent (10%) per year. In addition to the annual lease payments, Deer Trail Mining Company has also agreed to pay an amount equal to three percent (3%) of the gross sales proceeds from all ore, concentrates, and all other productions of mineral resources extracted from the claims. The agreement contains an option to purchase the claims exercisable at $350,000 during the five first years of the lease. The exercise price increases $50,000 per year thereafter. It may only be exercised while the lease is effective.
Following the formation of the Deer Trail Mining Company in June 2004, Unico assigned all of the various assets, liabilities and operations associated with the Deer Trail Mine to Deer Trail Mining Company which assumed responsibility for making payments under the Deer Trail Lease.
Since June 2004 Deer Trail Mining Company has assumed operations, ownership and management control of the Deer Trail Mine. Deer Trail Mining Company presently has 14 full time employees, 1 part time employee and 4 consultants. The necessary permits to commence mining activities at the Deer Trail Mine have been acquired, provided that the surface disturbance from the mining activities does not exceed 10 acres for both mine and mill. In early 2005, Unico and Deer Trail Mining Company, received approval of the company's Large-Scale Mining Permit for the Deer Trail Mine in Marysvale, Utah. The State of Utah's Division of Oil, Gas and Mining granted approval of the company's application to expand its existing small mining project to a large mining operation, which is expected to significantly increase the area of mining activity and the capacity of the company's mill at the Deer Trail Mine. This Large-Scale permit takes the place of the previous two Small-Scale permits described above. In 2004, Unico filed to obtain a construction permit with the State of Utah Department of Environmental Quality (both the Utah Division of Air Quality and the Utah Division of Water Quality) for the Deer Trail Mine tailings impoundment pond no. 2.
13
Prior to June 2004, Unico worked to reopen the Deer Trail Mine. Unico commenced limited mining activities in late March 2001 on the Deer Trail Mine. There were between 2 and 5 miners at various times working full time in the Deer Trail Mine both on mine development work and production work until approximately October 2003. Their efforts were concentrated in the 3400 Area of the mine, from which they removed approximately 1,000 tons of ore per month. The ore was stock-piled and some of it has been crushed. Some of the employees have worked on mine maintenance.
Unico completed a mill on site at the Deer Trail Mine. In November 2001, Unico began milling activities. Shortly thereafter, operations were suspended to accommodate a plan to reconstruct the entire facility. Currently the Deer Trail Mining Company is reconstructing the mill and processing facility to enhance both productivity and efficiency. The reconstruction project is now in its final stages of completion. In July 2006, Deer Trail Mining Company completed the upgrades to the screening plant and began screening the ore dumps at the upper Deer Trail Mine. Once screened, the material is moved to the mill facility and stockpiled for further processing. The Company anticipates running this material through its mill once reconstruction is complete.
On August 31, 2005, Deer Trail Mining Company entered into a five-year purchase contract with PGM, LLC of Los Angeles under which PGM will purchase precious metal bearing concentrates from the Deer Trail processing center. Most sales will not occur until the mill processing center is complete at the Deer Trail Mine. PGM has advanced Deer Trail Mining Company $25,000 for an initial shipment of concentrates that will be produced on a pilot plant basis.
The Company is currently in contact with several smelters and a trading company to determine how best to sell the lead concentrates, and zinc concentrates which will be produced by the Deer Trail Mine mining and milling operations. The concentrates can be transported by either rail or truck, and there are a variety of trucking companies that are willing and able to transport concentrates to smelters or other places designated by purchasers.
In September 2004, Deer Trail Mining Company completed its first phase of exploratory drilling at the Deer Trail Mine. The Deer Trail Mining Company contracted Lang Exploratory Drilling to complete the phase of drilling. Lang completed a total of 3,653 feet of reverse circulation drilling and finished 28 drill holes at specified targets located on the Upper Deer Trail Mine. 741 samples were safeguarded by Lang Exploratory Drilling during this phase and shipped to ALS Chemex at its Elko, Nevada facility for independent lab verification and analysis.
The first phase of exploration drilling was designed to identify near surface deposits, determine potential resources and define limits of mineralization south of the main ore channel mined at the Upper Deer Trail Mine. Historical data of the workings was sufficient to delineate the grade of mineralization remaining in the stopes, but no data was available to delineate the grade of mineralization outside the workings or how far that mineralization flowed into the surrounding formations. The initial phase of reverse circulation drilling serves as an adequate means to define the limits of mineralization south of the main ore channel, which is situated in the lower Toroweap formation, along the crest and down the northeast limb of the Deer Trail anticline.
This phase of drilling was accomplished with lower cost reverse circulation drill holes in order to establish the presence of mineralization at the Upper Deer Trail area. Once the limits of mineralization are established, work can begin to further define those zones by diamond core drilling. This initial phase of drilling is considered merely a starting point in generating data for pre-feasibility and feasibility studies for the Deer Trail Mine operations.
The most upper holes RC-1 through RC-7 were placed well above the elevation of the known workings of the No. 2 Tunnel and slightly south of the northwesterly trending ore channel. Significant mineralization was intercepted in holes RC-1 and RC-2, which were drilled in the area closest to the main ore channel.
Drill holes RC-5, 6, 8, 9, 13 and 14 were all drilled well south of the historically delineated mineralization, and on the southern most up-side of a post mineral fault. It can be concluded that mineralization intercepted in these holes is not directly related to the mineralization of the main Upper Deer Trail ore channel.
14
Hole
Interval
from - to (ft)
Gold
(grams/troy oz.)
Silver
(grams/Troy oz.)
Lead
(%)
Zinc
(%)
RC-1
190 – 230 40
0.207
10.98
0.355
0.205
RC-2
40 - 45 5
0.364
95.36
3.61
0.390
Includes
175 - 180 5
0.369
45.71
2.87
1.41
RC-10
65 - 95 30
0.363
16.48
0.086
0.022
RC-11
60 - 70 10
1.36
52.25
0.758
0.191
Includes
65 - 70 5
2.26
32.69
0.961
0.289
RC-12
85 - 90 5
0.460
137.14
3.94
1.00
RC-17
55 - 65 10
0.799
13.02
0.033
0.012
RC-18
45 - 50 5
1.54
40.77
0.154
0.018
RC-19
0 – 140 140
0.527
14.65
0.116
0.107
Includes
35 - 45 10
2.64
14.11
0.840
1.26
Includes
35 - 40 5
4.66
21.15
1.30
2.14
Includes
75 - 120 45
0.930
34.86
0.135
0.021
Includes
95 - 105 10
3.17
88.63
0.303
0.019
Includes
100 - 105 5
4.78
151.02
0.682
0.008
RC-20
95 – 100 5
1.92
62.02
0.218
0.030
RC-21
95 - 110 15
0.899
74.29
0.145
0.014
RC-22
110 - 120 10
1.77
18.14
0.074
0.024
Includes
115 - 120 5
3.25
27.52
0.079
0.014
In early 2005, Deer Trail Mining Company contracted with Connors Drilling to commence an underground diamond core drill program. This 2nd phase of exploratory drilling inside the PTH Tunnel of the Deer Trail Mine has been completed. The Phase II underground diamond core drilling program was primarily designed to target known horizons of mineralization and identify new mineralized horizons throughout the main ore channel of the Deer Trail Mine. The Company completed 7,235 feet of diamond core drilling and finished 13 underground drill holes. According to preliminary reports by the Company’s geologist, all of the holes drilled were reported to intersect mineralization within their designated targets. That report states that a total of approximately 514 feet of mineralization was intersected and consisted mostly of sulfide minerals (e.g. tetrahedrite, galena, pyrite, chalcopyrite and sphalerite). Other intercepts were encountered through oxidized mineral not reported in this total, as well as zones of subtly altered rock that may contain high mineral values and offer significant potential. The Company is now working on final independent core logging and splitting verification, and plans to ship its core samples to an independent lab for analysis.
In March 2006, Deer Trail Mining Company, LLC entered into an agreement with Behre Dolbear and Company (USA), Inc. to conduct geological services and consulting at Unico’s Deer Trail Mine in Marysvale, Utah. A report titled: “RELATIONSHIP OF STRATIGRAPHY AND MINERALIZATION AT THE LOWER (NEW) DEER TRAIL MINE,
15
PIUTE COUNTY, UTAH (BEHRE DOLBEAR PROJECT 06-034)”was submitted by Behre Dolbear as final to the Company on September 18, 2008 and the report summary is included here as follows:
UNICO, Inc. (UNICO) engaged Behre Dolbear & Company (USA), Inc. (Behre Dolbear) as of 15 March 2006 to lithologically log 7,235 feet of drill core at the Deer Trail Mine, select samples for analysis, submit those samples to a laboratory for analyses, and evaluate and interpret those logs and analyses. Deer Trail Mining Company, LLC (Deer Trail Mining), and Behre Dolbear agreed to a revised and expanded work scope in Work Change Order No. 1 in a letter dated 7 November 2006. That Work Change Order stated that Behre Dolbear’s ongoing work must have the primary objective of adding value to the Deer Trail Mine and related project assets in the short term. The work change order included provisions for completing the logging, correlating, and summarizing the results of the logging and analyses, and correlating that data with data from past drilling and mining to locate and model, to the extent possible, potentially mineable mineralization. The work change order also included provisions for evaluating the volume, tons, and grade of a tailings deposit at the mine. The tailings evaluation is the subject of a separate report.
Under a contract with Deer Trail Mining, Connors Drilling, LLC drilled 7,235 feet of BQ diameter (1.433 inches) core in 13 holes (UDDH #1-13) at various inclinations and azimuths from three drill stations in the Patrick Thomas Henry (PTH) Tunnel (actually an adit) in the Lower Deer Trail Mine which concluded in October 2005. This is the core that Behre Dolbear was engaged to log, analyze, and evaluate.
Table 1 summarizes the drilling statistics. The station locations are defined based on the approximate footage from the PTH adit portal.
Table 1
Unico Phase II Drill Holes
UDDH Drill
Hole #
Station
Location
Inclination
(in degrees)
Azimuth
Total Length
(Feet)
1*
4400
-45
102
740
2
4400
-40
102
648
3*
4400
-42
92
782
4*
4400
-42
150
554
5*
4400
-55
102
664
6
4400
-45
21
409
7
4400
-58
298
733
8
4400
-75
300
565
9*
4700
-45
116
460
10
4900
-75
0
460
11*
3400
+45
258
454
12*
3400
+45
162
355
13*
3400
-65
125
420
Total Footage
7,235
*Logged by Behre Dolbear
The Deer Trail Mine is situated on 3,275 acres of patented and unpatented claims located in the Deer Trail Mountain-Alunite Ridge area of Piute County, Utah, approximately 5 miles south-southwest of the town of Marysvale. The Deer Trail Mine consists of the Upper Deer Trail Mine and the Lower Deer Trail Mine. The Upper Deer Trail Mine is hosted by the Permian Toroweap Sandstone and lies about 800 stratigraphic feet above the Lower Deer Trail Mine. The Lower Deer Trail Mine is hosted by the Pennsylvanian Callville Limestone.
At the Deer Trail Mine, the Callville Limestone is an approximately 1,000-foot thick sequence of sandy to very sandy limestone, dolomite, and sandstone. Two separate stratabound, manto-type deposits were developed and mined in the Lower Deer Trail from about 1945 to 1980. The locations of the deposits are referenced based on their distance from the portal of the PTH Tunnel. One is hosted by the Callville Limestone, was mined in the 3400 Area of the mine, and is known as the 3400 East Stope. The 3400 East Stope deposit extends northwestward a minimum of 1,000 feet along strike from the mined area to at least the 4400 Area and at least 400 feet further southeastward to what would be the 3000 Area. The other deposit mined from the PTH Tunnel occurs in the 8600 Area of the mine and is the down-faulted portion of the Toroweap Sandstone deposit mined in the Upper Deer Trail Mine.
Behre Dolbear’s work yielded three targets within the PTH Tunnel of the Lower Deer Trail Mine thatmaymerit further exploration. Behre Dolbear believes that there is thepossibilitythat with additional successful follow-up drilling, a resource
16
basemay eventuallybe established within the PTH Tunnel. The components of this potential resource base are composed of stratabound, multiple thin (<10 feet), moderate- to high-grade zones as well as lower-grade (10 to 30 foot) zones and horizons of base and precious metals mineralization. Two of these are hosted by the Callville Limestone and one occurs in the Toroweap Sandstone.
Behre Dolbear’s field work on the project took place between 23 March 2006 and 3 March 2007 and resulted in the generation of a large amount of stratigraphic and analytical data. That data were compiled and evaluated by Behre Dolbear at the Deer Trail Mine and in Denver, Colorado. This report is based on the following:
·
on-site logging of 7,235 feet of underground core
·
evaluation of 978 individual sample analyses and assays from 2,021.5 feet of the above core
·
development of a detailed stratigraphic succession for the Pennsylvanian Callville Limestone and its integration with the mineralized intercepts from the core drilling
·
review of all pertinent reports and other data related to past exploration at the mine by other companies since 1945
·
meetings and discussions with and data from the Unico, Inc. and Deer Trail Mining personnel; and
·
a limited review of the published literature on the geology of the region, district, and the Marysvale, Utah, area.
Following logging, sample selection, and splitting of the core by sawing at the Deer Trail Mine the samples were sent to the ALS Chemex (Chemex) laboratory in North Vancouver, British Columbia, for sample preparation, analyses, and assays.
Table 2 shows that significant mineralization in most of the holes is confined to relatively narrow intervals ranging from 1.0 feet to 10.6 feet. The thickest intercept with significant mineralization is in UDDH 12 at 55.2 feet. The intervals are uncorrected for the true widths of the intercepts and will all be thinner than stated, some possibly as much as fifty percent thinner. Overall, silver contributes the most value of the metals in Table 2 with zinc second and gold, copper, and lead contributing subordinate values. In some of the intervals, the silver and gold are high but the base metals are low. Copper contributes more value than zinc in some of these intervals. Only one of the intervals (UDDH 11 at 105.0 to 110.6 feet) has high values in all of the metals. The highest gold and silver values are in UDDH 1 (5.273 ppm Au=0.167oz/t Au; 366.9 ppm Ag= 10.71 oz/t Ag), and UDDH 11 (4.564 ppm Au= 0.133 oz/t Au; 585.1 ppm Ag= 17.08oz/t Ag).
Table 2
Best Interval from Each Analyzed Hole
UDDH
Analyzed
From
Analyzed
To
Interval
(Feet)
Au
(ppm)
Ag
(ppm)
Cu
(%)
Pb
(%)
Zn
(%)
1
365.5
370.4
4.9
5.723
366.9
0.01
0.16
0.42
406.6
417.2
10.6
1.062
177.6
0.11
0.58
1.58
456.0
462.5
6.5
0.350
156.4
0.24
1.38
2.08
5
322.0
327.0
5.0
0.870
164.1
0.25
2.09
1.27
419.0
419.9
0.9
1.510
116.0
0.27
0.35
0.18
9
293.7
300.1
6.4
0.372
46.8
0.15
1.28
1.78
434.6
435.6
1.0
0.310
102.0
0.39
5.20
6.59
11
7.7
13.4
5.7
4.564
585.1
0.45
0.71
0.83
105.0
110.6
5.6
1.600
550.6
0.96
2.0
2.43
12
5.8
61.0
55.2
0.608
183.1
0.44
0.40
0.67
220.0
221.9
1.9
2.170
128.0
0.01
0.01
3.32
13
77.9
78.9
1.0
0.380
188.0
0.60
3.10
3.89
Detailed logging of the holes developed a coherent stratigraphic succession consisting of multiple readily recognizable gross units. Behre Dolbear defined nine provisional members and three sub-members (facies) of the Callville Limestone based on their lithologic character, accessory components, and color in the immediate vicinity of the Deer Trail Mine. The provisional members are called Informal Members of the Pennsylvanian Callville Limestone.
17
The names and letter codes of these Informal Members from youngest to oldest are:
·
Orange and Gray Sandy Informal Member (OGS) (which may be basal Toroweap Sandstone);
·
Upper White Ann and Quartzite Informal Member (UWAQ);
·
Cherty Black Ann Informal Member (CBA);
·
Upper Division of Lower White Ann and Quartzite Informal Member (UD-LWAQ);
·
Upper Dark Lentil Informal Member (UDL);
·
Lower Division of Lower White Ann and Quartzite Informal Member (LD-LWAQ);
·
Lower Dark Lentil Informal Member (LDL);
·
Major Quartzite/Big Sandy Zone Informal Member (MQ/BSZ ); and
·
Lower Carbonate and Quartzite Informal Member (LCAQ).
The grades of the five precious and base metals (gold, silver, copper, lead, and zinc) vary considerably among the analyzed intervals. In order to compare intervals, Behre Dolbear used average metal prices over the past 12 quarters (3 years) from the second quarter of 2004 through the first quarter of 2007 to calculate equivalent grades of silver (opt equiv. Ag) and zinc (percent equiv. Zn), the dominant metals in the deposit. A dollar value was also calculated. The average metal prices used are:
·
gold, $503 per ounce
·
silver, $9.02 per ounce
·
copper, $2.12 per pound
·
lead, $0.51 per pound
·
zinc, $0.95 per pound
Behre Dolbear did not use the grades or the dollar values for an economic evaluation of the Deer Trail deposit. Behre Dolbear divided the composited analyses and assays of significant mineralization into two classes, Potentially Mineable Intercepts and Significantly Mineralized Intercepts. Behre Dolbear developed two figures showing the frequency of these intercepts in the Informal Members of the Callville Limestone stratigraphy and in various mineralized horizons. The two classes of intercepts are tabulated by area in the mine and by stratigraphic Informal Member in Tables 1.1 and 1.2.
The thickest Potentially Mineable Intercepts are in UDDH #12 in the 3400 Area and in UDDH #1, 2, and 10 in the 4400 Area (Table 1.1). The interval in UDDH # 3 from 395.0 to 476.7 is shown because of its thickness (69.9 feet true thickness). Behre Dolbear does not classify that intercept as a Potentially Mineable Intercept because its equivalent grades and dollar value do not reach the levels of the other intervals in that classification. UDDH #11 (3400 Area) has two widely separated intervals with true thicknesses of 3.7 feet and 7.5 feet. Although these intervals are relatively thin, the silver and gold grades are high. The 3.7 foot interval has the highest weighted average silver and gold grades in any of these Potentially Mineable Intercepts at 19.0 troy ounces per ton (opt) Ag and 0.15 opt Au.
UDDH # 1, 2, 10, and 12 have one to two moderately thick Potentially Mineable Intercepts in addition to the thicker intercepts cited above. These moderately thick intercepts range from approximately 5 to 10 feet in true thickness. UDDH # 5, 6, 7, and 13 have single thinner intercepts, ranging from approximately 3 to 7 feet in true thickness. Thicker intervals are needed for these intervals to be actually mineable.
POTENTIALLY MINEABLE INTERCEPTS BY AREA AND STRATIGRAPHIC HORIZON
TABLE 1.2
Drill Hole
Number
(UDDH#)
Area
Stratigraphic
Horizon
From
(feet)
To
(feet)
Thickness
(feet)
True
Thickness
(feet)
Ag. Equiv.
(opt)
Zn Equiv.
(%)
Dollar
Value
($)
12
3400
UD-LWAQ
194.0
195.3
1.3
0.7
9.57
4.54
$86.28
1
4400
UD-LWAQ
276.8
277.3
0.5
0.4
23.19
11.01
$209.15
1
4400
LCAQ
545.0
546.9
1.9
0.9
45.73
21.71
$412.44
3
4400
LCAQ
588.6
590.6
2.0
1.5
16.30
7.74
$147.00
4
4400
MQ/BSZ
337.6
338.6
1.0
0.6
185.4
88.08
$1,673.57
4
4400
LCAQ
532.7
533.7
1.0
0.6
16.14
7.66
$145.57
6
4400
UD-LWAQ
184.0
185.0
1.0
0.8
22.49
10.68
$202.89
6
4400
MQ/BSZ
374.0
378.5
4.5
3.2
6.91
3.28
$62.30
7
4400
MQ/BSZ
389.0
390.0
1.0
0.5
6.55
3.11
$59.13
7
4400
MQ/BSZ
401.4
402.8
1.4
0.9
14.58
6.92
$131.49
8
4400
UD-LWAQ
223.3
224.3
1.0
0.8
25.78
12.24
$232.57
8
4400
MQ/BSZ
252.3
254.4
2.1
1.8
162.03
76.92
$1,451.49
8
4400
LCAQ
538.9
539.9
1.0
0.8
10.89
5.17
$98.24
9
4400
UDL
293.7
294.3
0.6
0.4
36.63
19.42
$256.41
9
4400
MQ/BSZ
434.6
435.6
1.0
0.8
23.13
12.27
$161.93
10
4400
LCAQ
377.7
379.7
2.0
1.8
11.02
5.23
$99.40
Significantly Mineralized Intercepts (Table 1.2) are intercepts of higher grade, but not of potentially mineable thickness. Thus they do not represent mineralization that can be mined, milled, and refined at a profit. True thicknesses of these intercepts range from 0.4 to 1.8 feet. Grades range from 185.4 opt equiv. Ag and 88.08% equiv. Zn in UDDH #4 to 6.55 opt equiv. Ag and 3.11% equiv. Zn in UDDH #7 (Table 1.2).
Summary graphic logs of each of the 13 UDDH drill holes are in Appendix 6.0. These logs show the Informal Members of the Callville Limestone and histograms of the silver and zinc equivalent thicknesses and grades. Along with Appendix 7.0, the graphic logs clearly show and summarize the overall relationship of stratigraphy and mineralization.
Behre Dolbear believes that the thickness and permeability of the Major Quartzite/Big Sandy Zone Informal Member (MQ/BSZ) have played a major role in the localization of three of the four most vertically and laterally persistent mineralized zones in the Lower Deer Trail Mine. These three zones occur within the MQ/BSZ Informal Member and straddle its contacts with the overlying Lower Dark Lentil Informal Member (LDL) and the underlying Lower Carbonate and Quartzite Informal Member (LCAQ). Behre Dolbear calls this horizon the MQ/BSZ Horizon.
19
The zones within the MQ/BSZ Horizon are named the 3400 East Stope Zone, the DeBie Zone, and the Rosa de Marcos Zone. These zones extend from the 3400 to the 4400 Areas and arguably possess the highest overall average base and precious metal grades present in the Callville Limestone. The only major mineralized horizon that has been mined that does not occur in the MQ/BSZ Horizon is in the UDL Member in the 200 Level workings.
All samples were analyzed for a 34-element suite of major and potentially significant trace elements that may serve as pathfinders to the metals of economic interest. These trace pathfinder elements are part of the alteration and mineralizing process but may be more wide-spread than gold, silver, copper, lead, and zinc and therefore may serve as guides to valuable mineralization. Anomalous levels of the five base and precious metals are the best pathfinders for those same metals. The pathfinder trace elements at the Deer Trail Mine include arsenic, barium, bismuth, fluorine, manganese, mercury, molybdenum, tungsten, and yttrium. Manganese is the most significant pathfinder, and there is a strong association between manganese-rich lithologies and significant- to high-grade base and precious metal intercepts.
In the “SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS,”the report states thatBehre Dolbear’s work yielded three targets within the PTH Tunnel of the Lower Deer Trail Mine that maymerit exploration. Two of these are hosted by the Callville Limestone and one occurs in the Toroweap Sandstone.
The 3400 Area is the most prospective of the three potential exploration targets. Behre Dolbear defines the 3400 Area as encompassing the 3400 East Stope, the approximately 200 horizontal feet between it and UDDH #11 and #12 and the immediate environs of the latter 2 holes. The target is the MQ/BSZ Member of the Callville Limestone, particularly the mineralized zones occurring at the MQ/BSZ’s upper and lower extremities that respectively correspond to the 3400 East Stope and Rosa de Marcos Zones. That span of mineralized strata is called the MQ/BSZ Horizon.
The potential of the 3400 Area is suggested by the following:
·
Weighted average grades calculated from all the Potentially Mineable Intercepts are 0.033 opt Au, 4.99 opt Ag, 0.22% Cu, 0.72% Pb, and 1.01% Zn. The preceding are suggestive of the tenor of mineralization thatmightbe extracted from zones in the 3400 and 4400 Areas;\
·
The preceding grades are similar to but lower than the reported grades from the 3400 East Stope bulk sample (0.055 opt gold, 8.40 opt silver, 0.289% copper, 1.58% lead, and 1.65% zinc) and lower than the grades from both the bulk sample and the combined past mining at all levels within and below the PTH Tunnel in the 3400 Area (0.19 opt Au, 13.62 opt Ag, 0.61% Cu, 2.96% Pb, and 7.21% Zn);
·
Although the weighted average grades of all the Potentially Mineable Intercepts are lower than the grades from past mining and the bulk sample, the three individual intercepts in UDDH #11and #12 in the 3400 Area have Potentially Mineable grades and thicknesses; and
·
Underground workings already exist in the favorable MQ/BSZ Horizon in the 3400 Area. The favorable horizon can be drilled with relatively short holes, making the 3400 Area a more prospective exploration target than the 4400 Area.
To decide if exploration in the 3400 Area mineralization is warranted, initial attention should focus on determining if the intercepts in UDDH #11 and #12 within the Rosa de Marcos Zone, the DeBie Zone, and the 3400 East Stope Zone are economic. If they are, follow-up drilling should initially key in on those two holes, preceded by underground surveying, mapping and sampling and development of cross sections at right angles into a three-dimensional model.
The 4400 Area is the second of the potential exploration targets. The main targets are hosted by the MQ/BSZ Horizon. These targets are located approximately 200- to 300-feet below the main level of the PTH Tunnel. Specific exploration targets in the MQ/BSZ Horizon are shown by holes UDDH #1, #2, and #3. In addition to the Potentially Mineable Intercepts located here, many of the Significantly Mineralized intercepts drilled at this location may be laterally correlative with thicker intercepts, thus expanding the zones where Potentially Mineable mineralization may exist. Exploration in the 4400 Area would be contingent upon developing mineral resources and mineral reserves in the 3400 Area and successfully mining them.
20
If expanded work in the 4400 Area is justified, it should focus on the MQ/BSZ Horizon and entail the same surveying, mapping, sampling, and development of a three-dimensional model as recommended in the 3400 Area. In particular, the Noranda drill logs should be reinterpreted and correlated with the Callville Limestone stratigraphy defined by Behre Dolbear. Deeper mineralization in the CBA Informal Member of the Callville Limestone is another potential exploration target in the 4400 Area.
The 8600 Area is the third potential exploration target. Mineralization is hosted by the Toroweap Sandstone rather than the Callville Limestone. Features recommending the target include:
·
All tonnage (about 66,000 tons) mined here between 1963 to late 1980 averaged 0.099 opt Au, 10.80 opt Ag, 12.76% Zn, 7.47% Pb, and 0.21% Cu ; and
·
The grades for the last mining during 1980 were slightly lower but still potentially economic (0.032 opt Au, 4.60 opt Ag, 5.30% Zn, 4.10% Pb, and 0.15% Cu).
Access to the 8600 Area is poor, and federal regulations would require additional connections to the surface before mining could be resumed. Behre Dolbear recommends that UNICO should first determine current mining and milling costs for the 8600 Area mineralization before estimating the size and grade potential in that area.
Behre Dolbear points out that there are mitigating factors that UNICO/Deer Trail should take into account in making its exploration decisions on the targets located in the 3400, 4400, and 8600 Areas. The most significant of these include the following:
·
Behre Dolbear cannot predict whether additional exploration will find grades similar to those in UDDH #1-13, the bulk sample, or past mining;
·
The silver and zinc equivalent grades and the associated dollar values of the Potentially Mineable Intercepts are calculated from highly variable amounts of gold, silver, and base metals in the different intervals;
·
Silver and zinc equivalent grades do not indicate the variability of the five metals;
·
Given the variability of the five potentially valuable metals, it may be difficult to maintain a uniform mill feed of these five metals in a mining operation;
·
• Noranda Exploration, Inc. concluded that milling followed by a cyanide vat-leach process to recoveronlygold and silver would be marginally more economic than recovering the gold, silver, and base metals in a flotation concentrate to be smelted and refined, further indicating the variability and generally low grades of the base metals over mineable widths; and
·
Behre Dolbear has not estimated tonnages of mineralized material or mining and processing costs.
TABLE 7.1
STRATIGRAPHIC TOPS (BOLD) AND UNCORRECTED THICKNESSES (PARENTHESES) OF INFORMAL MEMBERS OF THE PENNSYLVANIAN CALLVILLE LIMESTONE, DEER TRAIL MINE, PIUTE COUNTY, UTAH
Hole #
OGS
UWAQ
CBA
UD-LWAQ
UDL
LD-LWAQ
LDL
MQ/BSZ
LCAQ
UDDH #1
-45º/102º
740 ft
0 ft*
(44.8 ft)
44.8 ft
(65.0 ft)
109.8 ft
(77.7 ft)
187.5 ft
(103.2 ft)
290.7 ft
(17.1 ft)
307.8 ft
(26.2 ft)
334.0 ft
(19.0 ft)
353.0 ft
(64.2 ft)
417.2 ft
(322.9 ft)
21
TABLE 7.1 – Cont.
STRATIGRAPHIC TOPS (BOLD) AND UNCORRECTED THICKNESSES (PARENTHESES) OF INFORMAL MEMBERS OF THE PENNSYLVANIAN CALLVILLE LIMESTONE, DEER TRAIL MINE, PIUTE COUNTY, UTAH
Hole #
OGS
UWAQ
CBA
UD-LWAQ
UDL
LD-LWAQ
LDL
MQ/BSZ
LCAQ
UDDH #2
-40º/102º
654 ft
0 ft*
(50.5 ft)
50.5 ft
(63.8 ft)
114.3 ft
(82.2 ft)
196.5 ft
(112.3 ft)
308.8 ft
(9.4 ft)
318.2 ft
(29.6 ft)
347.8 ft
(17.3 ft)
365.1 ft
(65.0 ft)
430.1 ft
(217.9 ft)
UDDH #3
-42º/92º
782 ft
0* ft
(58.4 ft)
58.4 ft
(65.3 ft)
123.7 ft
(78.0 ft)
201.7 ft
(127.2 ft)
328.9 ft
(11.7 ft)
340.6 ft
(28.5 ft)
369.1 ft
(24.3 ft)
393.4 ft
(67.4 ft)
460.8 ft
(321.2 ft)
UDDH #4
-42º/150º
554 ft
0 ft*
(63.3 ft)
63.3 ft
(69.3 ft)
132.6 ft
(80.1 ft)
212.7 ft
(59.1 ft)
271.8 ft
(11.6 ft)
283.4 ft
(26.9 ft)
310.3 ft
(19.3 ft)
329.6 ft
(84.1 ft)
413.7 ft
(140.3 ft)
UDDH #5
-55º/102º
664 ft
0 ft*
(40.6 ft)
40.6 ft
(63.6 ft)
104.2 ft
(66.1 ft)
170.3 ft
(78.2 ft)
248.5? ft
(9.0 ft)
257.5? ft
(34.0 ft)
291.5 ft
(35.5 ft)
327.0 ft
(76.1 ft)
403.1 ft
(260.9 ft)
UDDH #6
-45º/21º
409 f t
0 ft*
(75.2 ft)
75.2 ft
(56.9 ft)
132.1 ft
(6.9 ft)
139.0 ft
(94.7 ft)
233.7 ft
(7.7 ft)
241.4 ft
(27.6 ft)
269 ft
(42.6 ft)
311.6 ft
(71.7 ft)
383.3 ft
(25.7 ft)
UDDH #7
-58º/298
733 ft
0 ft*
(42.6 ft)
42.6 ft
(56.1 ft)
98.7 ft
(43.8 ft)
142.5 ft
(125.1 ft)
267.6 ft
(13.8 ft)
281.4 ft
(54.9 ft)
336.3 ft
(32.9 ft)
369.2 ft
(106.5 ft)
457.7? ft
(257.3 ft)
UDDH #8
-75º/298º
565 ft
0 ft*
(40.9 ft)
40.9? ft
(15.4 ft)
56.3? ft
(47.7 ft)
104.0 ft
(82.3 ft)
186.3 ft
(8.4 ft)
194.7 ft
(33.6 ft)
228.3 ft
(11.8 ft)
240.1 ft
(82.8 ft)
322.9 ft
(242.1 ft)
UDDH #9
-45º/116º
460 ft
0 ft*
(73.4 ft)
73.4 ft
(28.6 ft)
102.0 ft
(46.3 ft)
148.3 ft
(138.4 ft)
286.7 ft
(11.2 ft)
297.9 ft
(17.7 ft)
315.6 ft
(8.5 ft)
324.1 ft
(115.1 ft)
439.2 ft
(20.8 ft)
UDDH #10
-75º/0º
459 ft
0 ft*
(47.8 ft)
47.8 ft
(48.9 ft)
96.7 ft
(39.3 ft)
136.0 ft
(77.6 ft)
213.6 ft
(9.3 ft)
222.9 ft
(33.6 ft)
256.5 ft
(32.6 ft)
289.1 ft
(67.1 ft)
356.2 ft
(102.8 ft)
UDDH #11
+45º/258º
454 ft
454.9 ft***
(90.6 ft)
363.4 ft
(27.7 ft)
335.7 ft?
(71.7 ft)
264.0 ft
(104.6 ft)
159.4? ft
(9.8 ft)
149.6? ft
(29.2 ft)
120.4? ft
(16.3 ft)
104.1 ft**
(104.1 ft)
CAH
UDDH #12
+45º/162º
355 ft
355.0 ft***
(28.5 ft)
326.5 ft
(30.9 ft)
295.6??
(7.7 ft)
287.9?? ft
(157.9 ft)
130.0?? ft
(7.8 ft)
122.2?? ft
(26.7 ft)
95.5?? ft
(108.0 ft)
77.5 ft**
(77.5 ft)
CAH
UDDH #13
-65º/125º
420 ft
CBH
CBH
CBH
CBH
CBH
CBH
CBH
CBH
0 ft*
(420.0 ft)
*True stratigraphic top lies above drill collar.
**True stratigraphic top lies below drill collar.
*** True stratigraphic top lies above end of “up-hole.”
CBH – “Down-hole” drilled at negative angle collared stratigraphically below base of horizon or Informal Member.
CAH – “Up-hole” drilled at positive angle collared stratigraphically above top of horizon or Informal Member.
22
TABLE 7.2
POTENTIALLY MINEABLE INTERCEPTS
Drill Hole
Number
From
To
Thick-ness
True
Thick-ness
Gold
(opt)
Silver
(opt)
Copper
(opt)
Lead
(%)
Zinc
(%)
Silver
Equiv-
alent
(opt)
Zinc
Equiv-
Alent
(%)
Dollar
Value ($)
UDDH01
365.5
377.2
11.7
10.3
0.072
4.96
0.01
0.07
0.14
9.37
4.45
$84.50
406.6
417.2
10.6
9.6
0.031
5.14
0.11
0.68
1.55
11.4
5.41
$192.83
442.2
462.5
20.3
17.2
0.011
2.93
0.17
1.09
1.74
9.23
4.38
$83.23
UDDH02
378.0
385.0
7.0
6.6
0.084
17.02
0.54
0.37
0.36
25.39
12.06
$229.06
417.9
425.5
7.6
6.8
0.049
14.08
0.01
0.07
0.05
17.05
8.10
$153.83
540.3
564.0
23.7
22.1
0.014
2.57
0.11
1.18
1.18
7.70
3.66
$69.50
UDDH03
395.0
410.7
15.7
13.4
0.051
4.35
0.04
0.19
0.19
7.97
3.78
$71.85
UDDH05
322.0
325.3
3.3
3.2
0.038
6.82
0.36
2.92
1.60
17.27
8.20
$155.75
UDDH06
374.0
378.5
4.5
3.2
0.011
1.52
0.13
0.84
1.54
6.91
3.28
$62.30
UDDH07
616.3
624.7
8.4
7.3
0.005
1.42
0.35
1.93
3.22
12.33
5.85
$111.18
UDDH10
96.7
135.4
38.7
30.5
0.043
2.19
0.14
0.56
0.69
7.37
3.50
$66.48
283.7
295.0
11.3
9.8
0.037
3.54
0.02
0.46
0.55
7.33
3.48
$66.14
UDDH11
8.6
13.4
4.8
3.7
0.146
19.02
0.50
0.75
0.91
32.26
15.32
$290.99
103.3
112.0
8.7
7.5
0.032
11.14
0.68
1.34
1.74
21.30
10.11
$192.14
UDDH12
5.8
61.0
55.2
33.0
0.018
5.37
0.44
0.41
0.77
10.54
5.00
$95.08
220.0
230.3
10.3
5.2
0.016
2.00
0.05
0.17
1.65
6.79
3.22
$61.21
UDDH13
77.9
82.6
4.7
4.4
0.008
2.89
0.35
1.42
1.86
10.49
4.98
$94.65
A report titled: “Evaluation of the Deer Trail Tailings at the Deer Trail Mine, Piute County, Utah”was submitted by Behre Dolbear as final to the Company on September 18, 2008 and the report summary is included here as follows:
Behre Dolbear & Company (USA), Inc. (Behre Dolbear) has evaluated the Upper Tailings Dump at the Deer Trail Mine for UNICO, Inc. (UNICO) and the Deer Trail Mining Company, LLC (Deer Trail). The study estimates the tonnage of material and the average grades and contained ounces of gold and silver in the Upper Tailings Dump. Deer Trail personnel provided data from two different drilling programs to Behre Dolbear. The two programs covered the same area and were performed in 1990 by Energy Fuels Nuclear, Inc. (Energy Fuels) and in 1993 by Ecology Mining Company (Ecology Mining). In both programs, the drill holes were spaced approximately 50 feet apart.
The 1990 Energy Fuels drilling program consisted of 64 drill holes along with assays for gold and silver at approximately 5-foot intervals down the hole. In addition to samples taken within the tailings dump, all but two of the holes penetrated the soil below the tailings. Only 39 of the sub-soil locations were assayed, and one location had no silver assay.
The 1993 program by Ecology Mining consisted of at least 51 drill holes in the Upper Tailings Dump. A memo from Lionel Koon to Hal Cooper dated February 10, 1994 contains assays for some of the drill holes through DH51. Gold and silver analyses were performed for selected intervals down the holes, but were not performed on each interval. Because of the incompleteness of the data available, Behre Dolbear made no grade estimates for the 1993 program. Tonnages of tailings material were calculated based on the 51 drill holes recorded by Ecology Mining in 1993.
The calculation of volumes, tonnages, and gold and silver average grades and contained ounces for the 1990 data can only be considered approximate and for reference only because origins of the input data available are not substantiated in any
23
other way than appearance on a printed table of unknown origin. No reports, chain of sample custody, original sample remains, or any other information is available for these samples. Therefore, Behre Dolbear cannot verify either the 1990 or the 1993 data.
Behre Dolbear’s evaluation focused only on the tonnage of the tailings dump and associated gold and silver grades. The results of the Behre Dolbear evaluation and the two drilling programs performed in 1990 and 1993 are shown in Table 1.1.
TABLE 1.1
SUMMARY OF TONNAGES, GRADES, AND CONTAINED OUNCES OF BEHRE
DOLBEAR EVALUATION AS COMPARED TO PREVIOUSLY REPORTED QUANTITIES
Source
Tonnage
(short
tons)
Average
Gold
Grade
(opt)
Average
Silver
Grade
(opt)
Contained
Golda
(ounces)
Contained
Silvera
(ounces)
BD 2007 – 1990 data, Lowerb
(Natural Neighbor Method)
80,300
0.032
2.62
2,500
218,300
BD 2007 – 1990 data, Higherb
(Minimum Curvature Method)
102,500
0.031
2.70
3,100
294,000
BD 2007 – 1993 data, Lowerc
(Natural Neighbor Method)
82,400
NA
NA
NA
NA
BD 2007 – 1993 data, Higherc
(Minimum Curvature Method)
103,400
NA
NA
NA
NA
1990 Energy Fuels, Pratt Memo
to Andrus
132,540d
0.031
2.66
--
--
1990 Energy Fuels Data, Sub-soil
(39 samples)
--
0.015
0.989
--
--
1993 Ecology Mining Map
76,836e
--
--
--
--
1993 Ecology Mining Grades
From Several Sources
(51 drill holes)
--
0.030
to
0.045
2.416
to
3.710
--
--
2004 Ash Reportf
105,000
0.031
2.85
--
--
aNo recoveries were applied . Contained ounces are obtained by summing gridded values, not by
multiplication of ounces and tons.
b 1990 Energy Fuels data obtained from printed spreadsheet.
c 1993 Ecology Mining data obtained from map.
dTonnage reported by Deer Trail (Ash Report, 2004), attributed to J.M. Pratt (original report not
available). Some tonnage may have come from other mines that were milled at Deer Trail.
eFrom map: 62,980 cu. yd. converted to tons using a tonnage factor of 1.22 tons/cu. yd.
f Estimate compiled by Wayne Ash from all available sources.
The evaluation of tonnage and grade was made using two different methods; the Natural Neighbor method and the Minimum Curvature method (see Appendix 3.0 for more explanation of these methods). The Natural Neighbor method calculates a grid only within the boundaries of the drill holes and is a most conservative estimate compared to other methods. The Minimum Curvature method is less conservative than Natural Neighbor, and produces a higher result, primarily because more area is included in the estimate. The estimates produced with this study are within the same ranges as the estimates in earlier studies.
Behre Dolbear used a tonnage factor of 1.22 tons per cubic yard for the tonnage estimates in this report. The tonnage factor was determined by Deer Trail in recent tests, but was not confirmed by Behre Dolbear. Details explaining the determination of the tonnage factor are included in Appendix 1.0.
A report of results about the 1990 Energy Fuels drilling program is not available, but the Ash 2004 deposit assessment report refers to a tonnage estimate of 132,540 tons by J.M. Pratt in a memo written to J.R. Andrus. This is about 28% higher tonnage than the other reports and the calculations done by Behre Dolbear. The Ash 2004 report speculates that the tonnage estimate was probably generated with a computer from drill hole data and a topographic survey. The report also speculates that ore from other mines was milled at Deer Trail.
24
Fire assay grades from the 1993 drilling project were reported in a memo from Lionel Koon to Hal Cooper (Ecology Mining). Because of uncertainties about origins of the analyses and because continuous intervals down the hole were not assayed, only tonnages were calculated for the 1993 data. Behre Dolbear observes that the grades from all the sources other than the Koon memo differ by less than 5%.
The 1990 drilling penetrated the soil below the original tailings level with the expectation that gold and silver from the tailings could have leached into the soil below (sub-soil). The drilling and subsequent assays of the soils did result in measurable gold and silver grades. Sub-soil assays were not available for all drill holes, so no estimate was made of the possible quantity of gold and silver or tonnage in the sub-soil.
Although Behre Dolbear cannot verify either the 1990 or the 1993 data, it is reasonable to use the averages of those tonnage and grade estimates as an approximation of the actual tonnage and grades of the material in the Upper Tailings Dump. Those averages are 92,150 tons at grades of 0.03 ounces per ton (opt) gold and 2.66 opt silver. Behre Dolbear has also not verified the tonnage factor provided by Deer Trail to calculate tonnages from estimates of volumes.
The United States Securities and Exchange Commission (SEC) in its requirements for information disclosure for the mining industry does not recognize the term “resource”. Mineralization that is classified as a resource in some other jurisdictions is called mineralized material by the SEC. Mineralized material is defined asa mineralized body, which has been delineated by appropriately spaced drilling and/or underground sampling to support a sufficient tonnage and average grade of metals. Such a deposit does not qualify as a reserve until a comprehensive evaluation based upon unit cost, grade,
recoveries, and other material factors conclude legal and economic feasibility.The SEC allows companies to publish tonnage and grade estimates of mineralized material but not estimates of contained metal.
Based on this definition and the above calculated averages, Behre Dolbear classifies the tailings material in the Upper Tailings Dump as Mineralized Material estimated to contain approximately 92,150 tons at grades of 0.03 opt gold and 2.66 opt silver. Additional drilling and an economic analysis would be required to classify the tailings as a Reserve. To verify the data, Behre Dolbear recommends that UNICO drill ten to fifteen holes distributed throughout the deposit, sample, and assay the drilled material for gold and silver, statistically analyze the data, and compare the results with the results from the 1990 and 1993 drilling programs. Behre Dolbear also recommends that UNICO produce a new surface contour map of the tailings as erosion subsequent to the 1990 and 1993 contour maps may have removed and/or redistributed some of the tailings. In addition, UNICO should determine a more accurate tonnage factor. All the resulting data, if sufficiently comparable with the 1990 and 1993 data, should be used to estimate tons, grades, and contained ounces of gold and silver. If not sufficiently comparable, the entire tailings deposit should be re-drilled.
An economic analysis using the estimates of tons, grades, and contained metals must be carried out to produce an SEC-compatible Reserve.
Table 1.1 summarizes the results of Behre Dolbear’s evaluation of the two drilling programs performed in 1990 and 1993. The table also shows the results of estimates from others based on those two drilling programs.
Behre Dolbear cannot verify either the 1990 or the 1993 data. However, the four tonnage estimates by Behre Dolbear and the two grade estimates for gold and silver (Table 9.1) are not significantly different from each other. In addition, those estimates are not widely different from the other estimates cited in that table. Therefore, it is reasonable to use the average of the Behre Dolbear tonnage and grade estimates as an approximation of the actual tonnage and grades in the Upper Tailings Dump. Behre Dolbear has used but has not verified the tonnage factor estimated by Deer Trail to calculate the tonnages from its estimates of volumes. The calculated averages are 92,150 tons of tailings at grades of 0.03 opt gold and
2.66 opt silver.
UNICO has requested that Behre Dolbear classify the tailings in accordance with the mining disclosure policy of the United States Securities and Exchange Commission (the SEC). Additional drilling and an economic analysis would be required to classify the tailings as a Reserve. That work is beyond the scope of the current project. The SEC does not recognize the term “resource” to classify mineralization for investor information purposes. Mineralization classified as resources in some other jurisdictions, including Canada, is called mineralized material by the SEC. “Mineralized material” is defined asa mineralized body which has been delineated by appropriately spaced drilling and/or underground sampling to support a sufficient tonnage and average grade of metals. Such a deposit does not qualify as a reserve until a comprehensive evaluation based upon unit cost, grade, recoveries, and other material factors conclude legal and economic feasibility.Based on this definition and the calculated tonnages and grades cited above, Behre Dolbear classifies the Upper Tailings Dump as containing approximately 92,150 tons of Mineralized Material averaging 0.03 opt gold and 2.66 opt silver.
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As pointed out above, Behre Dolbear cannot verify the data used to estimate the tons and grades. To verify the data, Behre Dolbear recommends that UNICO drill ten to fifteen holes distributed throughout the tailings pile. That number of holes is approximately 20% of the holes drilled by Energy Fuels in 1990. The drilled material should be sampled in five-foot intervals and assayed for gold and silver. The resulting data should be statistically analyzed and compared with the results from the 1900 and 1993 drilling programs. Behre Dolbear also recommends that UNICO produce a new contour map of the surface of the tailings pile. As pointed out in Section 5.2, erosion subsequent to the 1990 and 1993 contour maps used by Behre Dolbear may have removed and/or redistributed some of the tailings. In addition, UNICO should determine a more accurate tonnage factor. All the resulting data, if sufficiently comparable to the1990 and 1993 data should be used to estimate tons and grade and contained ounces of gold and silver. If not sufficiently comparable, additional drilling should be performed to completely redrill the tailings.
An economic analysis using the estimates of tonnage, grade, and contained metals must be carried out to produce an SEC-compatible Reserve. That analysis must consist of a determination of mining, processing, and general and administrative costs to mine. Since the material will be processed by the Deer Trail mill, the recoveries of gold and silver in that mill must be determined as a part of that analysis.
In September 2007, Deer Trail Mining Company completed the construction of a new electrical substation that will supply power to the reconstructed mill and processing facility. The substation is designed to supply up to 2.5 megawatts of electrical power well beyond the estimated 1.5 megawatts estimated to run the mill and processing facility. Additional power is expected to be used for future mining activities and expansion plans on site. The Company recently completed the construction of a secondary substation to interface directly with the mill and processing facility and it is now energized.
In February, 2008, the Deer Trail Mining Company completed underground rehabilitation work up through to the 3400 level of the PTH tunnel of the Deer Trail Mine. The work was contracted through Atlas Mining Company to conduct initial underground maintenance including the replacement of timber sets, clean up of the main haulage way and installation of ground support where needed to the main PTH haulage tunnel.
The Deer Trail Mining Company has completed the reconstruction work of the floatation circuit at the mill and processing facility at the Deer Trail Mine. Testing of the floatation circuit is currently underway utilizing screened material from the stockpiles on site of ore that was mined in 2001.
Silver Bell Mining Company, Inc.
Silver Bell Mining Company, Inc. was incorporated in the State of Utah on April 26, 1993. It has acquired 26 patented mining claims located in American Fork Canyon, Utah County, Utah, which is organized into three separate parcels. The claims contain mining properties that have not been mined for production since 1983. The properties were mined primarily for silver, lead and zinc. There are no known, proven or probable reserves on the property.
Silver Bell Mining Company conducted some exploration work on the Silver Bell Mine through 2004. Silver Bell Mining Company plans to conduct a feasibility study in order to analyze the claims prior to commencing any future mining activities on the claims. Silver Bell Mining Company anticipates that any future ore mined from the Silver Bell Mine will be transported to the Deer Trail Mine site where it can be further processed. Silver Bell Mining Company may also seek a joint venture mining partner to jointly develop the Silver Bell Mine. Silver Bell Mining Company anticipates that any ore mined from the Silver Bell Mine will be transported to the Deer Trail Mine site where it will be crushed and milled.
In August 2006, Silver Bell Mining Company reached a preliminary agreement for a joint venture with the Polymet Company, LLC for mining at the Silver Bell Mine and executed a letter of intent. A subsequent definitive agreement to finalize the details of the joint venture was expected to be signed by August 31, 2006. However, the parties failed to reach a definitive agreement, and the parties are no longer involved in negotiations.
Bromide Basin Mining Company, LLC
On July 20, 2001, Unico entered into a Mining Lease and Option to Purchase with Kaibab Industries, Inc., an Arizona corporation. The lease was renewed multiple times and assigned to Unico’s subsidiary, Bromide Basin Mining Company, LLC. The lease expired October 31, 2007, and the Company chose not to extend it or exercise the purchase option.
26
The primary purpose of the agreement was to allow Bromide Basin Mining Company access to the claims to conduct an extensive preproduction feasibility study prior to any additional mining production and to analyze the potential of the claims before exercising the purchase option from Kaibab Industries. The Company concluded its evaluation of the property, and determined that the leased premises under the Kaibab Mining Lease is not feasible for large scale mining activities by Bromide Basin Mining Company.
Plan of Operation
During the next 12 months, the Company’s plan of operation is to raise approximately $3,500,000 for investment into its subsidiary companies: Deer Trail Mining Company and Silver Bell Mining Company. The funds are intended for the following purposes during the next twelve months:
§
Continue sampling and analyzing mineralized rock samples, stockpiles and dump material from the Deer Trail Mine to evaluate the most efficient means to conduct future mining and milling activities;
§
Expand metallurgical research department at the Deer Trail Mine and Mill Facility;
§
Purchase additional lab equipment for metallurgical purposes;
§
Upgrade mine infrastructure and begin underground mining activities including maintenance and rehabilitation work at the Deer Trail Mine;
§
Continue to upgrade and complete the re-construction project on the existing mill at the Deer Trail Mine;
§
§
Begin milling and processing activities at the Deer Trail Mill and Processing Facility;
§
Acquire new mining equipment to improve operations at the Deer Trail Mine;
§
Conduct additional survey and mapping work on the Clyde and Crown Point mining claims including improvements to the property and potentially underground and surface exploratory drilling on the claims; and
§
Commence a feasibility study on the potential of the mining claims at the Silver Bell Mine beginning in the Spring of 2009.
Accomplishing the 12-month plan of operations is dependent on: (a) the Company raising approximately $3,500,000 in equity and/or debt financing during the next 12 months to be used for the Company’s operations, of which approximately $2,500,000 is needed in the next 120 days. Subsequent to the quarter ending November 30, 2008, the Company received $160,000 through the issuance of new convertible debentures to Moore Investments. The new debentures were issued with terms of 180 days, bear interest at the rate of 8% per annum, and are convertible by the holder in shares of the Company’s common stock at a discount of 50% of the closing bid price on the date of conversion. The Company intends to raise approximately $3,500,000 during the next 12 months to fulfill the 12-month plan.
Reverse Stock Split
Effective June 30, 2008 the Company’s common stock underwent a 1 for 500 reverse stock split. As a result, the number of outstanding shares of the Company’s common stock as of June 30, 2008 decreased from 4,940,363,072 pre-reverse split shares to 9,880,727 post-reverse split shares. Share figures appearing in this report are generally expressed in numbers of post-reverse split shares, unless otherwise noted. As of November 30, 2008, the Company had 21,980,607 post reverse shares of common stock issued and outstanding.
Results of Operations
For the three months ended November 30, 2008 and November 30, 2007, Unico reported no revenues. For the nine months ended November 30, 2008 and November 30, 2007, Unico reported no revenues.
During the three months ended November 30, 2008 the Company incurred total operating expenses of $540,641, an increase of $140,878 from the $399,763 of total operating expenses incurred in the three months ended November 30, 2007. The increase is due primarily to an increase of $20,999 in depreciation and accretion, an increase of $139,784 in salaries and wages at the mill incurred primarily for test runs of product in the three months ended November 30, 2008, and $102,598 in professional fees partially offset by a decrease of $38,182 in general and administrative expense, and a decrease of $84,311 in drilling, exploration and maintenance expense. During the nine months ended November 30, 2008 the Company incurred total operating expenses of $1,660,353, an increase of $360,312 from the $1,300,041 of total operating expenses incurred in the nine months ended November 30, 2007. The increase is primarily attributed to a $386,033 increase in salaries/wages, a $50,385 increase in professional fees, and a $64,145 increase in depreciation and accretion, partially offset by a $37,446 decrease in general and administrative expenses, and a $102,805 decrease in drilling, exploration and maintenance expense from the comparative period in 2007. The increase in total operating
27
expenses for the nine months ended November 30, 2008 is largely attributable to the increase in milling activities associated with testing of the mill and production of concentrates.
During the three months ended November 30, 2008, interest expense was $693,466, a decrease of $1,044,276 from the $1,737,742 of interest expense recorded in the three months ended November 30, 2007. During the three months ended November 30, 2008, the Company recorded a derivative loss on debentures of $638,405 as compared to a derivative loss on debentures of $844,553 that was recorded in the three month period ended November 30, 2007. During the nine months ended November 30, 2008, interest expense was $2,388,614, a decrease of $1,984,088 from the $4,372,702 of interest expense recorded in the nine months ended November 30, 2007. During the nine months ended November 30, 2008, the Company recorded a derivative loss on debentures of $916,223 as compared to a derivative loss on debentures of $634,217 that was recorded in the nine month period ended November 30, 2007. Loss on settlement of debt was $0.00 in the nine months ended November 30, 2008, a decrease of $7,929,184 from the $7,929,184 loss on settlement of debt incurred during the nine months ended November 30, 2007. The Company attributes the decrease in interest expense in the nine month period ended November 30, 2008 to a decrease in the amount of debentures issued in the current nine month period compared to the same period a year ago. The Company attributes the increase in the derivative loss in the nine months ended November 30, 2008 to the larger increase in the defaulted debt in the nine month period ended November 30, 2008 compared to the nine month period ended November 30, 2007. The Company attributes the substantial decrease in the loss on settlement of debt in the nine month period ended November 30, 2008 to the fact that no debentures were converted to common stock through litigation settlements during the nine months ended November 30, 2008 while a substantial amount of debentures were converted to common stock through litigation settlements during the nine month period ended November 30, 2007.
During the three months ended November 30, 2008, Unico experienced a net loss in the amount of $1,872,476 or approximately ($0.14) per share, compared to a net loss of $2,970,727 or approximately ($0.31) per share for the same period in 2007. During the nine months ended November 30, 2008, Unico experienced a net loss in the amount of $4,962,185 or approximately ($0.44) per share, compared to a net loss of $14,219,210 or approximately ($2.57) per share for the same period in 2007.
Unico attributes the $1,098,251 decrease in net loss for the three month period ended November 30, 2008 largely to the decrease in interest expense in the later period. Unico attributes the $9,257,025 decrease in net loss for the nine month period ended November 30, 2008 primarily to a decrease in loss on settlement of debt and also to a decrease in interest expense in the later period.
Liquidity and Capital Resources
The Company’s financial statements present an impairment in terms of liquidity. As of November 30, 2008 the Company had a deficit in working capital of $20,099,684 The Company has accumulated $65,886,875 of net operating losses through November 30, 2008, of which approximately $13,000,000 may be used to reduce taxes in future years through 2028. The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the net operating loss carry-forwards. The potential tax benefit of the net operating loss carry-forwards have been offset by a valuation allowance of the same amount. Under continuing operations the Company has not yet established revenues to cover its operating costs. Management believes that the Company will soon be able to generate revenues sufficient to cover its operating costs through the operations of its subsidiaries. In the event the Company is unable to do so, and if suitable financing is unavailable, there is substantial doubt about the Company’s ability to continue as a going concern.
The Company’s stockholders’ deficit increased $4,602,259 in the nine month period ended November 30, 2008, from a deficit of ($8,653,504) as of February 29, 2008 to a deficit of ($13,255,763) as of November 30, 2008.
The Company’s cash as of November 30, 2008, when combined with $160,000 additional cash the Company received in December 2008 and January 2009, will sustain operations for approximately 30 days. The Company needs to raise approximately $3,500,000 in equity and/or debt financing during the next 12 months to be used for the Company’s operations, of which approximately $2,500,000 is needed in the next 120 days. The Company has effected a reverse stock split of its issued and outstanding shares so that the Company will have sufficient authorized, but unissued, shares of its common stock available to provide for the conversion of the Company’s existing $7,894,420 of convertible debentures into shares of the Company’s common stock. These additional authorized, but unissued, shares will also allow the Company to raise additional capital through the sale of shares of restricted common stock.
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Our auditors have issued a "going concern" opinion in note 7 of our February 29, 2008 financial statements, indicating we do not have established revenues sufficient to cover our operating costs and to allow us to continue as a going concern. If we are successful in raising an additional $3,500,000 in equity, debt or through other financing transactions in the next 12 months (of which $2,500,000 is needed in the next 120 days), we believe that Unico will have sufficient funds to meet operating expenses until income from future mining operations are sufficient to cover operating expenses.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
A “smaller reporting company” (as defined by Item 10 of the Regulation S-K) is not required to provide the information required by this Item.
Item 4T.Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, our principal executive officer and principal financial officer, Mark A. Lopez and Kenneth C. Wiedrich, respectively, evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”), as of November 30, 2008. Based on this evaluation, our principal executive officer and our principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective and adequately designed to ensure that the information required to be disclosed by us in the reports we submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms and that such information was accumulated and communicated to our chief executive officer and chief financial officer, in a manner that allowed for timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the last fiscal quarter ended November 30, 2008, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On August 14, 2008, Unico shareholders Randall Sullivan, Barry Raykoske, and Jack Reilly filed a derivative lawsuit on behalf of Unico against Ray C. Brown, Kenneth C. Wiedrich, Mark A. Lopez, Shane Traveller, Javelin Advisory Group, Inc., and Unico (as a nominal defendant) in the Superior Court of the State of California, San Diego County Central Division (Case No. 37-2008-0008901-CU-PN-CTL). The plaintiffs allege that the named defendants breached fiduciary duties owed to Unico, and were negligent in the approval of certain financing transactions entered into on behalf of Unico. The plaintiffs seek no less than $20 million in damages from the named defendants, as well as injunctive relief, interest, attorney's fees, and court costs. Plaintiffs are seeking a determination that they are appropriate representatives of Unico shareholders to bring a derivative suit, which is a prerequisite to bringing such a claim under California Corporations Code section 800. The defendants deny any liability, and are defending the lawsuit.
On September 30, 2008, a lawsuit was filed by Cache Valley Electric Company against Unico, Incorporated in the Third Judicial District Court for Salt Lake County, State of Utah (Case No. 080921346) in which the plaintiff alleges that it provided goods and services to Unico in the amount of $191,615.82, for which it has not received payment. The plaintiff alleges that Unico breached the contract by failing to pay for the goods and services, and is seeking a money judgment against Unico in the amount of $191,615.82 together with interest thereon at the statutory rate and court costs. Unico intends to negotiate a settlement of the lawsuit.
On or about January 5, 2009, a lawsuit was filed by Atlas Mining Company, an Idaho corporation, dba Atlas Fausett Contracting against Deer Trail Mining Company, LLC in the Sixth Judicial District Court for Piute County, State of Utah (Case No. 0090600001) in which the plaintiff alleges that it provided certain mine rehabilitation services and materials with respect to the Deer Trail Mine pursuant to a written contract for which it has not been paid. The plaintiff alleges that Deer Trail Mining Company, LLC breached the contract by failing to pay for the services and materials, and is seeking a money judgment against Deer Trail Mining Company, LLC for at least $182,144.25 plus interest at 18% per annum, plus costs. Plaintiff is also seeking a court order adjudging a mining lien filed by the plaintiff against the Deer Trail Mine on or about July 9, 2008 to be a good and sufficient lien on the Deer Trail Mine securing payment of the obligations under its contract
29
with Deer Trail Mining Company, LLC, and ordering that the Deer Trail Mine be foreclosed and sold by the sheriff of Piute County, with the sales proceeds being applied against the amount due and owing to plaintiff from the Deer Trail Mining Company, LLC and to the foreclosure costs. Deer Trail Mining Company, LLC intends to negotiate a settlement of the lawsuit.
Item 1A. Risk Factors.
A “smaller reporting company” (as defined by Item 10 of Regulation S-K) is not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
From March 1, 2008 through November 30, 2008 Unico issued convertible debentures (“Debentures”) aggregating approximately $1,715,000 to Moore Investment Holdings that were unpaid as of November 30, 2008. All of the outstanding Debentures issued by Unico before June 1, 2008 which aggregate approximately $6,839,420 are in default. The Debentures are due in 180 days from their issuance dates, bear interest at 8% per annum, and provide that the principal amount and accrued interest are convertible, at the option of the holders of the Debentures, into Unico’s common stock at a price per share equal to 50% of the closing bid price of Unico’s common stock as quoted on the OTC Bulletin Board on the immediately preceding trading day prior to delivering the notice of conversion.
Subsequent to the quarter ending November 30, 2008, Unico received $160,000 through the issuance of new convertible debentures containing the same terms.
Unico issued 12,099,881 shares of Unico’s common stock for conversion of $80,897 of interest and $139,514 of principal of outstanding debentures in the nine month period ended November 30, 2008. Subsequent to the quarter ended November 30, 2008 the Company issued 600,000 shares of Unico’s common stock for conversion of $4,500 of interest of an outstanding debenture. These shares were issued without registration in reliance on Section 4(2) of the Securities Act of 1933 for transactions not involving any public offering.
As of November 30, 2008, there are still outstanding approximately $7,894,420 in convertible debentures (less discounts of $518,050), and the holders of these debentures have the right to convert them to shares of the Company’s common stock. Approximately $563,422 of these debentures are convertible at a 20% discount from the bid price of Unico’s common stock as of the time of conversion, and the balance are convertible at a 50% discount from the bid price of Unico’s common stock as of the time of conversion.
All of the Debentures and shares of common stock were issued without payment of any underwriting discounts or commissions, and without the assistance of an underwriter.
During the fiscal year ended February 28, 2007 the Company entered into two stock purchase agreements with Cherry Creek Holdings, LLC wherein Cherry Creek purchased 33,333,333 pre-split shares (66,667 post-split shares) and 42,785,700 pre-split shares (85,572 post-split shares) of unregistered and restricted shares of common stock for $400,000 and $599,000 respectively. The shares have not been issued and are reported as a stock payable on the financial statements. The cash has been received and the stock will be issued in the fiscal year ending February 28, 2009. These shares will be issued without registration in reliance on Section 4(2) of the Securities Act of 1933 for transactions not involving any public offering, and the certificates representing the shares will be appropriately restricted.
For information concerning sales of other convertible debentures or shares of Unico's Common Stock by Unico which were not registered under the Securities Act of 1933 during the fiscal years ended February 28, 2006, February 28, 2007 and February 29, 2008 please refer to Unico's annual reports on Form 10-KSB for the fiscal years ended February 28, 2006 and February 28, 2007, and Form 10-K for the fiscal year ended February 29, 2008, respectively.
Item 3. Defaults Upon Senior Securities.
From March 1, 2007 through February 29, 2008 Unico issued convertible debentures (“Debentures”) aggregating approximately $3,764,954 to Blue Marble Investments, approximately $1,200,000 to Compass Capital Corporation and approximately $500,000 to Moore Investment Holdings that were unpaid, and of which $3,965,100 were in default, as of February 29, 2008. From March 1, 2008 through November 30, 2008 an additional $1,715,000 of Debentures were issued to Moore Investment Holdings. Some of the Debentures issued before March 1, 2008, were assigned to Blue Marble Investments, Outboard Investments, Umbrella Holdings and Yanzu, Inc. Because Unico failed to pay the Debentures when
30
due, a total of six (6) lawsuits were filed by certain Debenture holders against Unico in the Twelfth Circuit (State) Court in Florida from March 1, 2007 to February 29, 2008 seeking to collect the amounts owed. Unico entered into settlement agreements to settle each of the lawsuits. The Debentures provided that the principal amount and accrued interest were convertible, at the option of the holders of the Debentures, into Unico’s common stock at a price per share equal to 50% of the closing bid price of Unico’s common stock as quoted on the OTC Bulletin Board on the immediately preceding trading day prior to the notice of conversion. Unico agreed to settle each action by issuing shares of its common stock to the plaintiffs using a valuation of approximately 14% to 20% of the then existing bid price of Unico, Incorporated common stock. These shares were issued pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, after a hearing with notice to, and an opportunity to be heard from, interested parties, as to the fairness of each transaction, by a state court in Florida which specifically determined, prior to declaring that the transactions were exempt under Section 3(a)(10), that the transactions were fair to the interested parties. From March 1, 2007 until February 29, 2008, in connection with the exercise of conversion rights by the holders of the Debentures and pursuant to the litigation settlements, Unico issued an aggregate of 3,926,315,790 pre-split shares (7,852,632 post split shares) of its common stock. As of November 30, 2008, Unico has approximately $6,839,420 in outstanding debentures that were in default.
There are no pending lawsuits seeking to collect on Debentures in default and there were no settlements made in the nine month period ended November 30, 2008.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are filed as part of this statement:
The exhibits listed below are required by Item 601 of Regulation S-B.
Exhibit No.
Description
Location
10.128
Convertible Debenture No. 87 for $25,000 dated September 10, 2008 issued to Moore Investment Holdings, LLC
Filed herewith
10.129
Convertible Debenture No. 88 for $25,000 dated September 16, 2008 issued to Moore Investment Holdings, LLC
Filed herewith
10.130
Convertible Debenture No. 89 for $100,000 dated September 25, 2008 issued to Moore Investment Holdings, LLC
Filed herewith
10.131
Convertible Debenture No. 90 for $100,000 dated October 14, 2008
issued to Moore Investment Holdings, LLC
Filed herewith
10.132
Convertible Debenture No. 91 for $50,000 dated October 27, 2008
issued to Moore Investment Holdings, LLC
Filed herewith
10.133
Convertible Debenture No. 92 for $75,000 dated November 6, 2008
issued to Moore Investment Holdings, LLC
Filed herewith
10.134
Convertible Debenture No. 93 for $50,000 dated November 25, 2008 issued to Moore Investment Holdings, LLC
Filed herewith
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31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
(b) Reports on Form 8-K
During the quarter ended November 30, 2008, the following four Current Reports on Form 8-K were filed by Unico:
1.
A Current Report on Form 8-K was filed on September 12, 2008 disclosing under Item 8.01 Other Events that Tuxedo Holdings had converted certain specified amounts owing under a convertible debenture it had purchased from Moore Investment Holdings to shares of Unico common stock.
2.
A Current Report on Form 8-K was filed on September 12, 2008 disclosing under Item 8.01 Other Events that Moore Investment Holdings purchased two convertible debentures in the amount of $200,000 and $100,000 respectively in August, 2008.
3.
A Current Report on Form 8-K was filed on September 24, 2008 disclosing under Item 8.01 Other Events that Tuxedo Holdings had converted certain specified amounts owing under the same convertible debenture to shares of Unico common stock. The report also disclosed under Item 8.01 Other Events that Ray Brown, Unico’s Chairman, had converted certain interest owed to him by Unico under a debenture to shares of Unico’s common stock.
4.
A Current Report on Form 8-K was filed on October 20, 2008 disclosing under Item 8.01 Other Events that Moore Investment Holdings purchased a convertible debenture in the amount of $100,000 on October 14, 2008.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
UNICO, INCORPORATED
Date: January 20, 2009
/s/ Mark A. Lopez
Mark A. Lopez
Chief Executive Officer
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