SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended 5/31/01
Commission file number 000-30239
UNICO, INCORPORATED
________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Arizona 86-0205130
___________________________ ___________________________________
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or
organization
6475 Grandview Avenue
P.O. Box 777
Magalia, California 95954
________________________________________
(Address of principal executive offices)
(530) 873-4394
________________________________________________
(Issuer's telephone number, including area code)
Check whether the issuer (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 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 July 6, 2001, the issuer had outstanding 67,983,969 shares of its
Common Stock, $0.10 par value per share.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The unaudited consolidated balance sheet of Unico, Incorporated, an
Arizona corporation, as of May 31, 2001, the related audited consolidated
balance sheet of Unico, Incorporated as of February 28, 2001, the unaudited
related consolidated statements of operations and cash flows for the three
month periods ended May 31, 2001 and May 31, 2000, the unaudited related
statement of stockholders' equity for the period from February 28, 1997
through May 31, 2001, and the notes to the financial statements are attached
hereto as Appendix "A" and incorporated herein by reference.
The accompanying financial statements reflect all adjustments which are,
in the opinion of management, necessary to present fairly the financial
position of Unico, Incorporated consolidated with HydroClear, Ltd. and Silver
Bell Mining Company, Incorporated, its wholly-owned subsidiaries. The names
"Unico", "we", "our" and "us" used in this report refer to Unico,
Incorporated.
Unico 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 March 30, 1992, Unico 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. This Mining Lease and Option to Purchase is referred to in this
report as the "Deer Trail Lease". The Deer Trail Lease runs for a period of
10 years, and covers 28 patented claims, 5 patented mill sites and 171
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. Mining operations recently commenced on the
property in late March or early April 2001. Prior to that, the property had
not been mined since approximately 1981. There are no known, proven or
probable reserves on the property.
During Unico's last 2 fiscal years ended February 28, 2001, and since
then, Unico has worked toward reopening the Deer Trail Mine. Unico acquired
the necessary permits to commence mining activities, provided that the surface
disturbance from the mining activities does not exceed 10 acres for both mine
and mill. Unico
2
plans to seek a permit for large scale mining operations in the near future.
During the past 2 fiscal years, Unico explored the Deer Trail property,
conducted a geological evaluation of the property, repaired old mining
equipment and Unico upgraded the infrastructure of the mine by installing
pumping equipment, thousands of feet of pipe, and some new mining track and
mining timbers to prepare the way for new mining activities.
Unico commenced mining activities in late March or early April on the
Deer Trail Mine. To date, the mining activities have been fairly limited.
There are 5 miners working full time in the mine both on mine development work
and production work. Their efforts are currently concentrated in the 3400
Area of the mine, from which they are removing approximately 2,000 tons of ore
per month. The ore is being crushed and stock-piled for now.
Unico intends to conduct mining and milling activities on site at the
Deer Trail Mine. Our initial mining activities have focused on mining and
crushing ore. We expect to begin milling activities in July 2001 to process
ore into lead and zinc concentrates and ship the concentrates to various
smelters which purchase the concentrates.
We believe that there are a variety of mining companies and other
mineral companies that are potential purchasers for the lead concentrates and
zinc concentrates which we intend to sell as the end product from our mining
and milling operations. We do not believe that we will be dependent on one or
a few major customers for sales of the lead and zinc concentrates.
The lead and zinc concentrates can be transported by either rail or
truck, and there are a variety of trucking companies that are willing and able
to transport zinc and lead concentrates to smelters or other places designated
by purchasers. Presently we are negotiating a cartage or hauling contract
with a licensed carrier in order to transport lead concentrates and zinc
concentrates to one or more smelters.
In September and December 2000, Unico acquired all of the issued and
outstanding shares of stock of Silver Bell Mining Company, Incorporated, a
Utah corporation, in consideration for the issuance of 3,000,000 restricted
shares of Unico common stock. Of the 3,000,000 shares of Unico common stock
issued in the acquisition, approximately 2,300,000 shares were issued to W.
Dan Proctor. W. Dan Proctor is the President and a director of Silver
3
Bell Mining Company, Incorporated. Mr. Proctor also serves as a business
consultant to Unico and project manager.
Silver Bell Mining Company, Incorporated 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 which have not been
mined for production since 1983. The properties were mined primarily for
silver, lead and zinc.
Unico intends to commence some mining activities on the Silver Bell Mine
in approximately August 2001. Unico anticipates that it may mine
approximately 60 tons of ore per day from the Silver Bell Mine initially.
Unico intends to transport the ore to the Deer Trail Mine site where it will
be crushed and milled.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Plan of Operation.
During the next 12 months, our plan of operation consists of the
following:
- increase mining activities at the Deer Trail Mine;
- begin milling activities at the Deer Trail Mine in July 2001;
- begin making sales and shipping concentrates to smelters for
smelting and refining in August 2001;
- begin mining activities at the Silver Bell Mine in August 2001;
- purchase up to two used trucks at a cost of approximately $15,000
each to use to transport ore from the Silver Bell Mine to
American Fork, Utah where it can be loaded on larger trucks and
transported to the Deer Trail Mine for crushing and milling;
- increase the number of full-time employees from 10 to
approximately 35; and
- raise approximately $300,000 in additional equity capital and/or
loans.
4
Accomplishing our 12 month plan of operations is dependent on Unico
raising approximately $300,000 in equity or debt financing during the next 2
to 3 months. Unico's current cash will sustain operations for approximately
60 days.
Between February 28, 2001 and May 31, 2001, Unico issued 752,333 shares
of its common stock at prices varying from $0.11 per share to $0.13 per share
for which Unico received a total of $90,000 in cash. Unico's current cash
will sustain operations only for approximately 2 to 3 additional months.
Results of Operations.
During the three months ended May 31, 2001, Unico experienced a net loss
in the amount of $133,867, or approximately ($0.002) per share, compared to
the net loss of $169,136, or approximately ($0.003) per share, for the three
months ended May 31, 2000.
Unico attributes the decreased net loss for the three month period ended
May 31, 2001 primarily to a $41,074 decrease in general and administrative
expenses.
Liquidity and Capital Resources
Unico's stockholders' (deficit) increased $43,866 in the three months
ended May 31, 2001, from a deficit of ($1,306,157) as of February 28, 2001 to
a deficit of ($1,350,023) as of May 31, 2001. Cash and cash equivalents
decreased $176,237 to $52,275 at May 31, 2001 from $228,512 at February 28,
2001. Cash used in operating activities reflects a net loss of $133,867
partially offset by a non-cash expense of $14,996 for depreciation expense.
This decrease in cash and cash equivalents was partially offset by net
cash provided by financing activities through $90,000 cash received for the
issuance of shares of Unico's common stock and a $62,000 increase in advances
from related parties. Unico utilized $184,604 cash for capital requirements
including $150,000 towards the purchase of real property and $34,604 towards
the purchase of equipment.
Unico's most significant cash needs in 2001 include raising funds to
cover operating expenses until such time as revenues are sufficient to cover
operating expenses, and raising funds to exercise Unico's option to purchase
the Deer Trail Mine for $4,000,000 on or before May 31, 2002. Unico's present
cash resources are not adequate to sustain operations through 2001. Unico
will be required to raise additional capital through borrowing or additional
sale of equity.
5
Our auditors have issued a "going concern" opinion in note 9 of our
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 and/or collecting an additional
$250,000 to $300,000 in equity or debt capital in the next 2 to 3 months, we
believe that Unico will have sufficient funds to meet operating expenses until
income from mining operations should be sufficient to cover operating
expenses. However, substantial additional funds must be raised to enable
Unico to exercise its option to purchase the Deer Trail Mine.
Unico's existing lease agreement for the Deer Trail Mine expires May 31,
2002. We presently have an option to purchase the Deer Trail Mine for
$4,000,000. In the event mining operations from the mine are profitable,
Unico will either need to obtain an extension of the lease agreement or
exercise the option to purchase the Deer Trail Mine before May 31, 2002. No
assurance can be given that the owner of the Deer Trail Mine will extend the
lease. Unico presently does not have sufficient funds to exercise the option
to purchase the Deer Trail Mine, and no assurance can be given that Unico will
have sufficient funds to purchase the Deer Trail Mine when the lease expires.
We intend to seek additional capital from private sales of Unico's
common stock and, if necessary, from loans from our management. In the event
income from mining operations is delayed or is insufficient to cover operating
expenses, then Unico will need to seek additional funds from equity or debt
financing, for which we have no commitments.
During the fiscal year ended February 28, 2000, Pellett Investments
purchased or arranged for the purchase of convertible notes for $400,000 which
were converted into 4,000,000 shares of Unico common stock at $0.10 per share.
Unico issued all 4,000,000 shares but Unico had received payment for only
approximately 1,207,400 of the shares as of May 31, 2001. Unico should
receive an additional $279,260 cash for the shares already issued, unless
Unico renegotiates the terms of the transaction, which Unico may seek to do.
After receiving payment of another $79,260 cash from the purchasers, Unico is
obligated to issue an additional 600,000 shares to persons affiliated with
Pellett Investments for no additional consideration. When the final $200,000
stock subscription receivable is paid, Unico will then issue another 600,000
shares to persons affiliated with Pellett Investments for no additional
consideration.
Revenue. We have had no revenues from operations during the past two
fiscal years or since our last fiscal year ended February
6
28, 2001. We do not anticipate generating any revenues from operations until
approximately August 2001.
ANY FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-QSB REFLECT
MANAGEMENT'S BEST JUDGMENT BASED ON FACTORS CURRENTLY KNOWN AND INVOLVE RISKS
AND UNCERTAINTIES. ACTUAL RESULTS MAY VARY MATERIALLY.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The following legal proceedings involving Unico as a defendant were
either commenced or settled during the three month period ended May 31, 2001:
In April, 2000, Melvin J. Sullivan filed a lawsuit against Unico in the
U.S. District Court, District of Utah, Central Division (Case No.
2:00CV-0290) in which plaintiff alleged that he was injured while
operating a mucker on Unico's property. The plaintiff alleged general
damages of at least $100,000 and other unspecified damages. Unico
denied any liability, and Unico filed a counterclaim against Mr.
Sullivan seeking reimbursement for the repair costs incurred in
repairing the mucker. This litigation was settled in April 2001, with
Unico agreeing to pay a total of $110,000. Unico paid $35,000 at the
time of settlement, and Unico has agreed to pay an additional $25,000
per year for 3 years.
Item 2. Changes in Securities.
During the three month period ended May 31, 2001, Unico made the
following sales of shares of Unico's common stock which were not registered
under the Securities Act of 1933:
No. of
Date Recipient Shares Consideration Valuation
- ---------- --------------------------- ------------ --------------- ---------
04/30/01 Carolyn M. Gabriel 153,847 Cash $ 20,000
04/30/01 J. Bruce Hirschberg 416,667 Cash $ 50,000
05/24/01 Carolyn M. Gabriel 181,819 Cash $ 20,000
Carolyn M. Gabriel and J. Bruce Hirschberg each received options to
purchase an equal number of shares at the same price per share during the two
years following their stock purchases.
7
All of the shares described above in the table were sold directly by
Unico, and no underwriters were involved in the transactions. Unico relied on
section 4(2) of the Securities Act of 1933 in making the sales of securities.
No advertising or general solicitation was employed in offering the shares.
Each purchaser received disclosure information concerning Unico. Each
purchaser also had the opportunity to investigate Unico and ask questions of
its president and board of directors. The securities sold were offered for
investment purposes only and not for the purpose of resale or distribution.
The transfer of the shares sold was appropriately restricted by Unico.
During the three months ended May 31, 2001, Unico issued 1,000,000
shares of its common stock which are being held in escrow as security for
Unico's payment obligations pursuant to a settlement of litigation. Assuming
that Unico makes all required payments, then the shares will be canceled and
returned to the status of authorized but unissued at that time.
Item 3. Defaults Upon Senior Securities.
None
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) There are no exhibits included with this report.
(b) No Current Reports on Form 8-K were filed by Unico during the quarter
ended May 31, 2001.
8
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNICO, INCORPORATED
(Registrant)
Date: July 11, 2001 By:/s/ Ray C. Brown
-------------------------------
Ray C. Brown, Chief Executive
Officer and Principal Financial and
Accounting Officer
9
Appendix A
UNICO, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2001 and February 28, 2001
10
UNICO, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
May 31, February 28,
2001 2001
------------- ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 52,275 $ 228,512
Taxes receivable 433 433
------------- ------------
Total Current Assets 52,708 228,945
------------- ------------
PROPERTY AND EQUIPMENT
Property and equipment, net (Note 4) 755,102 735,493
------------- ------------
Total Property and Equipment 755,102 735,493
------------- ------------
OTHER ASSETS
Deposit on subsidiary acquisition (Note 5) - -
Operating agreement (Note 11) - -
Refundable deposit 500 500
Reclamation Bond 38,402 19,000
------------- ------------
Total Other Assets 38,902 19,500
------------- ------------
TOTAL ASSETS $ 846,712 $ 983,938
============= ============
The accompanying notes are an integral part of these
consolidated financial statements.
2
11
UNICO, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
May 31, February 28,
2001 2001
------------- ------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 49,829 $ 49,829
Accrued expenses 1,410 1,410
Advances from related parties (Note 8) 562,199 500,200
Notes payable (Notes 6 and 11) 296,500 446,499
Accrued interest payable 687,250 654,860
Commitments and contingencies (Note 11) 599,547 637,297
------------- ------------
Total Current Liabilities 2,196,735 2,290,095
------------- ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, 100,000,000 shares authorized at
$0.10 par value; 66,074,879 and 65,322,546
shares issued and outstanding, respectively 6,607,488 6,532,254
Additional paid-in capital 579,385 564,618
Stock subscription receivable (379,260) (379,260)
Accumulated deficit prior to development stage (3,788,522) (3,788,522)
Accumulated deficit from inception of the
development stage on March 1, 1997 (4,369,114) (4,235,247)
------------- ------------
Total Stockholders' Equity (Deficit) (1,350,023) (1,306,157)
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 846,712 $ 983,938
============= ============
The accompanying notes are an integral part of
these consolidated financial statements.
3
12
UNICO, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
From
Inception
of the
Development
Stage on
March 1,
For the Three Months Ended 1997 Through
May 31, May 31,
2001 2000 2001
------------- ------------- -------------
REVENUES $ - $ - $ -
EXPENSES
General and administrative 86,330 127,405 2,510,324
Depreciation and amortization 14,996 8,841 171,265
------------- ------------- -------------
Total Expenses 101,326 136,246 2,681,589
------------- ------------- -------------
Loss from Operations (101,326) (136,246) (2,681,589)
------------- ------------- -------------
OTHER INCOME (EXPENSES)
Investment income 829 415 9,571
Interest expense (33,370) (33,305) (668,541)
Decline in value assets - - (651,810)
Settlement of debt - - (91,000)
Loss on valuation of asset - - (309,817)
Gain on gold contract - - 24,072
------------- ------------- -------------
Total Other Income (Expenses) (32,541) (32,890) (1,687,525)
------------- ------------- -------------
NET LOSS $ (133,867) $ (169,136) $ (4,369,114)
============= ============= =============
BASIC LOSS PER SHARE $ (0.00) $ (0.00)
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
4
13
UNICO, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Additional Stock
Common Stock Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit
----------- ---------- ------------- ------------ ------------
Balance, February 28, 1997 36,887,712 $3,688,771 $ 170,052 $ - $(5,254,277)
Common stock issued for
services rendered 1,760,000 176,000 - - -
Common stock issued for cash 1,740,000 174,000 - - -
Common stock issued in
payment of debt 400,000 40,000 - - -
Common stock issued for
acquisition of fixed assets 60,000 6,000 - - -
Stock subscription receivable 1,000,000 100,000 - (100,000) -
Net loss for the year ended
February 28, 1998 - - - - (670,808)
----------- ---------- ------------- ------------ ------------
Balance, February 28, 1998 41,847,712 4,184,771 170,052 (100,000) (5,925,085)
Common stock issued for payment
of debt at $0.10 per share 5,000,000 500,000 - - -
Common stock issued for
investment in mining properties
at $0.10 per share 500,000 50,000 - - -
common stock issued for services
rendered at $0.10 per share 250,000 25,000 - - -
Net loss for the year ended
February 28, 1999 - - - - (527,681)
----------- ---------- ------------- ------------ ------------
Balance, February 28, 1999 47,597,712 $4,759,771 $ 170,052 $ (100,000) $(6,452,766)
----------- ---------- ------------- ------------ ------------
The accompanying notes are an integral part of these
consolidated financial statements.
5
14
UNICO, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Additional Stock
Common Stock Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit
----------- ---------- ------------- ------------ ------------
Balance, February 28, 1999 47,597,712 $4,759,771 $ 170,052 $ (100,000) $(6,452,766)
Common stock issued for services
rendered at $0.10 per share 39,000 3,900 - - -
Common stock issued for cash and
services at $0.10 per share 580,000 58,000 - - -
Common stock issued for cash
at $0.10 per share 500,000 50,000 - - -
Common stock issued for cash
at $0.10 per share 1,550,000 155,000 - - -
Warrants granted below market
price (Note 12) - - 155,000 - -
Net loss for the year ended
February 29, 2000 - - - - (493,267)
----------- ---------- ------------- ------------ ------------
Balance, February 29, 2000 50,266,712 5,026,671 325,052 (100,000) (6,946,033)
Common stock issued for cash
and subscription receivable
at $0.10 per share 4,000,000 400,000 - (321,250) -
Common stock issued for cash
at $0.10 per share 500,000 50,000 - - -
Common stock issued for
services at $0.10 per share 500,000 50,000 - - -
Partial receipt of stock
subscription - - - 11,990 -
Common stock issued for
services at $0.10 per share 460,000 46,000 - - -
Partial receipt of stock
subscription - - - 25,000 -
Common stock issued for cash
at $0.12 per share 208,334 20,833 4,166 - -
Common stock issued for
deposit on subsidiary
acquisition at $0.12 per
share 457,500 45,750 9,150 - -
----------- ---------- ------------- ------------ ------------
Balance Forward 56,392,546 $5,189,254 $ 338,368 $ (374,260) $(6,946,033)
----------- ---------- ------------- ------------ ------------
The accompanying notes are an integral part of these
consolidated financial statements.
6
15
UNICO, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Additional Stock
Common Stock Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit
----------- ---------- ------------- ------------ ------------
Balance Forward 56,392,546 $5,189,254 $ 338,368 $ (374,260) $(6,946,033)
Partial receipt of stock
subscription - - - 5,000 -
Common stock issued for cash and
services at $0.10 per share 500,000 50,000 - - -
Common stock issued for related
party debt and services at
$0.14 per share 5,000,000 500,000 200,000 - -
Common Stock issued for
cash at $0.10 per share 350,000 35,000 - - -
Common Stock issued for
subsidiary acquisition
at $0.10 per share 2,542,500 254,250 - - -
Common Stock issued for
cash at $0.10 per share 100,000 10,000 - - -
Common Stock issued for
cash at $0.16 per share 125,000 12,500 7,500 - -
Common Stock issued for
cash at $0.16 per share 312,500 31,250 18,750 - -
Net loss for the year
ended February 28, 2001 - - - - (1,077,736)
----------- ---------- ------------- ------------ ------------
Balance, February 28, 2001 65,322,546 6,532,254 564,618 (379,260) (8,023,769)
Common stock and options issued
for cash at $0.13 per share
(unaudited) 153,847 15,385 4,615 - -
Common stock and options issued
for cash at $0.12 per share
(unaudited) 416,667 41,667 8,333 - -
Common stock and options issued
for cash at $0.11 per share
(unaudited) 181,819 18,182 1,819 - -
Net loss for the three months
ended May 31, 2001 (unaudited) - - - - (133,867)
----------- ---------- ------------- ------------ ------------
Balance, May 31, 2001 (unaudited) 66,074,879 $6,607,488 $ 579,385 $ (379,260) $(8,157,636)
=========== ========== ============= ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
7
16
UNICO, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
From
Inception
of the
Development
Stage on
March 1,
For the Three Months Ended 1997 Through
May 31, May 31,
2001 2000 2001
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (133,867) $ (169,136) $ (4,369,114)
Adjustments to reconcile net loss to
net cash (used) by operating activities:
Stock issued for services - 50,000 1,097,220
Warrants issued below market value - - 155,000
Depreciation expense 14,996 8,841 171,565
Loss on disposition of asset - - (21,055)
Settlement of debt - - 19,000
Gain on gold contract - - (24,072)
Decline in value of assets - - 960,960
Changes in operating assets and liabilities:
Decrease in accounts receivable and
related receivables - - 152
(Increase) decrease in prepaid expenses - 4,719 -
(Increase) in other assets (19,402) - (900)
Increase in accounts payable and
other liabilities (5,360) 46,980 886,675
------------- ------------- -------------
Net Cash (Used) by Operating Activities (143,633) (58,596) (1,124,569)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of land (150,000) - (200,000)
Decrease in investment - - 95,068
Purchase of fixed assets (34,604) (140,900) (431,335)
------------- ------------- -------------
Net Cash (Used) by Investing Activities (184,604) (140,900) (536,267)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in advances from related parties 62,000 67,500 864,349
Issuance of stock for cash 90,000 128,750 802,750
Receipt of stock subscription receivable - - 41,990
------------- ------------- -------------
Net Cash Provided by Financing
Activities $ 152,000 $ 196,250 $ 1,709,089
------------- ------------- -------------
The accompanying notes are an integral part of these
consolidated financial statements.
8
17
UNICO, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
From
Inception
of the
Development
Stage on
March 1,
For the Three Months Ended 1997 Through
May 31, May 31,
2001 2000 2001
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH $ (176,237) $ (3,246) $ 48,253
CASH AT BEGINNING OF PERIOD 228,512 212,786 4,022
------------- ------------- -------------
CASH AT END OF PERIOD $ 52,275 $ 209,540 $ 52,275
============= ============= =============
CASH PAID DURING THE PERIOD FOR:
Interest $ 980 $ 6,000 $ 18,112
Income taxes $ - $ - $ -
NON-CASH FINANCING ACTIVITIES:
Issuance of stock for services $ - $ 50,000 $ 1,097,220
Issuance of stock for related party debt $ - $ - $ 1,240,000
Issuance of stock for subsidiary
acquisition $ - $ - $ 309,150
Issuance of stock for fixed assets $ - $ - $ 56,000
The accompanying notes are an integral part of these
consolidated financial statements.
9
18
UNICO, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial statements
May 31, 2001 and February 28, 2001
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Unico, Inc. (the Company) was organized under the laws of the State
of Arizona on May 27, 1966 under the name of I.I. Incorporated. The name was
later changed to Industries International, Incorporated, then Red Rock Mining
Co., Inc. and finally Unico, Inc. The Company was incorporated for the
purpose of exploring and, if warranted, developing unpatented lode mining
claims. The Company is presently maintaining and drilling the claims through
sampling, tunnel cleaning, timbering, drill site preparation and other
evaluation activities while seeking financing for further exploration and
development. To date, there has been no material production from the claims
and there are no known, proven or probable reserves. The Company is
considered a development stage company per Statement of Financial Accounting
Standard No. 7 because it has not substantially began operations.
HydroClear, Ltd., the Company's wholly-owned subsidiary, was
organized for the purpose of marketing water purification units used for
purifying swimming pool or cooling tower water by eliminating bacteria and
algae without the use of chlorine or bromine. HydroClear, Ltd. is currently
inactive.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a February 28, or 29, year end.
b. Basic Loss Per Share
The following is an illustration of the reconciliation of the
numerators and denominators of the basic loss per share calculation:
For the Three Months Ended
May 31,
2001 2000
------------- -------------
Net loss (numerator) $ (133,867) $ (169,136)
Weighted average shares outstanding
(denominator) 65,599,480 51,989,538
------------- -------------
Basic loss per share $ (0.00) $ (0.00)
============= =============
Dilutive loss per share is not presented due to potentially dilutive items
being antidilutive in nature.
10
19
UNICO, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
May 31, 2001 and February 28, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. Provision for Taxes
At February 28, 2001, the Company had net operating loss
carryforwards of approximately $8,000,000 that may be offset against future
taxable income through 2021. No tax benefit has been reported in the
financial statements, because the Company believes there is a 50% or greater
chance the carryforwards will expire unused. Accordingly, the potential tax
benefits of the net operating loss carryforwards are offset by a valuation
allowance of the same amount.
d. Cash Equivalents
The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
e. Principles of Consolidation
The consolidated financial statements include those of Unico, Inc.
(the Company) and its wholly-owned subsidiaries, HydroClear, Ltd., and Silver
Bell Mining, Inc.
f. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
g. Recoverability of Asset Costs
The Company assesses on an annual basis the recoverability of its
investment in mining rights. Any decline in value is recorded when
recognized. Any sale of assets is charged to asset costs until the cost has
been recovered in full.
h. Recent Accounting Pronouncements
The Company has adopted the provisions of FASB Statement No. 138
"Accounting for Certain Derivative Instruments and Hedging Activities, (an
amendment of FASB Statement No. 133.)" Because the Company had adopted the
provisions of FASB Statement No. 133, prior to June 15, 2000, this statement
is effective for all fiscal quarters beginning after June 15, 2000. The
adoption of this principle had no material effect on the Company's
consolidated financial statements.
11
20
UNICO, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
May 31, 2001 and February 28, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Recent Accounting Pronouncements (Continued)
The Company has adopted the provisions of FASB Statement No. 140
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (a replacement of FASB Statement No. 125.)"
This statement provides accounting and reporting standard for transfers and
servicing of financial assets and extinguishments of liabilities. Those
standards are based on consistent application of a financial-components
approach that focuses on control. Under that approach, the transfer of
financial assets, the Company recognized the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets
when control has been surrendered, and derecognizes liabilities when
extinguished. This statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. This statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. This statement is effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. The adoption of
this principle had no material effect on the Company's consolidated financial
statements.
The Company has adopted the provisions of FIN 44 "Accounting for
Certain Transactions Involving Stock Compensation (an interpretation of APB
Opinion No. 25.)" This interpretation is effective July 1, 2000. FIN 44
clarifies the application of Opinion No. 25 for only certain issues. It does
not address any issues related to the application of the fair value method in
Statement No. 123. Among other issues, FIN 44 clarifies the definition of
employee for purposes of applying Opinion 25, the criteria for determining
whether a plan qualifies as a noncompensatory plan, the accounting consequence
of various modifications to the terms of a previously fixed stock option or
award, and accounting for an exchange of stock compensation awards in a
business combination. The adoption of this principle had no material effect
on the Company's consolidated financial statements.
i. Unaudited Financial Statements
The accompanying unaudited financial statements include all of the
adjustments which, in the opinion of management, are necessary for a fair
presentation. Such adjustments are of a normal recurring nature.
NOTE 3 - MINING CLAIMS AND LEASES
The Company received four Quit Claim Deeds, all dated August 5, 1986,
from an unrelated corporation for thirty-two (32) unpatented mining claims
located in Piute County, Utah. The mine was obtained in exchange for the
issuance of two million seven hundred thousand (2,700,000) shares of Company's
common stock. No cost basis has been ascribed to the mine.
12
21
UNICO, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
May 31, 2001 and February 28, 2001
NOTE 3 - MINING CLAIMS AND LEASES (Continued)
On March 30, 1992, the Company entered into a ten-year Mining
Lease-Option to Purchase, to be effective June 1, 1992, of twenty-eight (28)
patented claims comprising 505.3 acres, five (5) patented mill sites with 30
acres and one hundred seventy one (171) unpatented claims encompassing 2,720
acres located near Marysvale, Utah (the Deer Trail Mine). Required lease
royalty-rentals are five percent (5%) of gross receipts from mineral sales
less certain specified operating costs but not less than, initially, four
thousand dollars ($4,000) per month. The minimum monthly royalty increased by
two thousand dollars ($2,000) in July 1994 and 1997, and will increase again
in July 2000. The option purchase price is two million dollars ($2,000,000)
until May 31, 1999, and four million dollars ($4,000,000) until May 31, 2002,
the end of the lease-purchase agreement.
NOTE 4 - PROPERTY AND EQUIPMENT
Fixed assets are recorded at cost, major additions and improvements
are capitalized and minor repairs are expensed when incurred.
Depreciation of property and equipment is determined using the
straight-line method over the expected useful lives of the assets as follows:
Description Useful Lives
----------- ------------
Automobiles 4 years
Mining equipment 5 and 12 years
Property and Equipment consist of the following:
May 31, February 28,
2001 2001
------------- -------------
(Unaudited)
Automobiles $ 17,993 $ 17,993
Mining equipment 733,773 699,168
Land 200,000 200,000
------------- -------------
Total fixed assets 951,766 917,161
------------- -------------
Less: accumulated depreciation (196,664) (181,668)
------------- -------------
Net Fixed Assets $ 755,102 $ 735,493
============= =============
Depreciation expense for the three months ended May 31, 2001 and 2000
amounted to $14,996 and $8,841, respectively.
13
22
UNICO, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
May 31, 2001 and February 28, 2001
NOTE 5- INVESTMENT
During September 2000, the Company entered into discussions to acquire
100% of the outstanding shares of Silver Bell Mining, Inc. in a stock for
stock transaction. The Company issued 457,500 shares of stock as a deposit on
the acquisition valued at $54,900, or $0.12 per share.
During December 2000, the Company finalized the purchase agreement
for 100% of the outstanding shares of Silver Bell by issuing 2,542,500 shares
of the Company's common stock valved at $254,250, or $0.10 per share. This
acquisition was completed December 6, 2000. Silver Bell had 29 mining claims
at the date of acquisition. The investment was written down to its estimated
net realizable value of $-0- at February 28, 2001. The acquisition was
accounted for as a purchase proforma per APB No. 16. No value was attributed
to the mining claims. Financial statements have not been provided as Silver
Bell had no assets or operations prior to the purchase.
NOTE 6 - NOTES PAYABLE
Joint Venture
-------------
The Company entered into a joint venture agreement with a limited
partnership to finance, own and operate a mining operation and processing
facility to be built near Marysvale, Utah. The claims described in Note 3,
above, were the properties to be exploited. In exchange for a $25,000 capital
contribution and the claims mentioned, the Company received a twenty-five
percent (25%) interest in the ownership, profits, gains, losses, deductions
and credits derived from the Joint Venture.
However, in response to litigation initiated by the Company, a
proposed settlement terminating the Joint Venture was signed on June 30, 1994.
Provisions included the return of all mine interests, all improvements
thereto, the benefit of all payments, engineering, etc. and a fluorite
contract to the Company. The Company is obligated to pay $250,000 plus
$36,000 plus interest at an annual rate of nine percent (9%) in thirty-six
(36) equal payments beginning in October 1994. The $250,000 could potentially
be convertible to the Company's stock. Additionally, the Company will be
obligated to pay approximately $580,000 from one-fourth of the net profit from
future mine operations. The note is currently in default, making the entire
balance due as of the balance sheet date. The balance due at February 28, 2001
was $286,000.
14
23
UNICO, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
May 31, 2001 and February 28, 2001
NOTE 7 - INVESTMENT IN MINES
In May of 1995, the Company entered into an agreement to purchase 52
mining claims, 9 mill sites, water rights and mill equipment near Searchlight,
Nevada from E.R.I. Gold and Silver, Corp. (ERI) for $280,000. According to
the terms of the agreement, the Company issued two million of its restricted
investment, publicly traded shares as payment in full to seller. The company
was then committed to re-purchase the shares within nine months of the date of
closing at a price of $0.14 per share. The nine month period was extended to
June 1, 1996. The Company decided not to purchase the shares, and according
to the agreement, ERI kept all shares issued to it. The investment was
written down to its estimated net realizable value of $-0- at February 28,
1998.
NOTE 8 - ADVANCES FROM RELATED PARTIES
Advances from related parties amounted to $562,199 and $500,200 at
May 31, 2001 and February 28, 2001, respectively. They are due on demand, and
accrue interest at 10% per annum.
NOTE 9 - GOING CONCERN
The Company's consolidated financial statements are prepared using
generally accepted accounting principles 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 from its inception
through May 31, 2001. It has not established revenues sufficient to cover
its operating costs and to allow it to continue as a going concern. During
the next twelve months, the Company's plan of operation consists of the
following:
. increase mining activities at the Deer Trail Mine;
. begin milling activities at the Deer Trail Mine in July 2001;
. begin making sales and shipping concentrates to smelters for
smelting and refining in August 2001;
. begin mining activities at the Silver Bell Mine in August 2001;
. purchase up to two used trucks at a cost of approximately $15,000
each to use to transport ore from the Silver Bell Mine to
American Fork, Utah where it can be loaded on larger trucks and
transported to the Deer Trail Mine for crushing and milling;
. increase the number of full-time employees from 10 to
approximately 35; and
. raise approximately $300,000 in additional equity capital and/or
loans.
Management believes the Company's current cash will sustain
operations for approximately three additional months. In the event income
from mining operations is delayed or is insufficient to cover operating
expenses, the Company will need to seek additional funds from equity or debt
financing, for which the Company has no current commitments. In the interim,
management is committed to meeting the minimum operating needs of the Company.
15
24
UNICO, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
May 31, 2001 and February 28, 2001
NOTE 10 - DECLINE IN VALUE OF ASSETS
The Company issued 4,000,000 restricted common shares at $0.10 per
share for mining assets and an operating agreement for the Gold Button Mine
located in Wagoner, Arizona. The Company is not presently operating the mine
due to an order from the U.S. Forest Service regarding fire danger.
Due to the inability of the mine to produce revenues and the lack of
substantive evidence as to its net realizable value, the book value of the
operating agreement has been reduced to zero.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Litigation
----------
On August 8, 1996, the Allen Ball and Connie Ball Living Trust filed
suit against the Company. The suit is for the $286,000 and accrued interest
as summarized in Note 6. The Company has engaged counsel to defend itself in
the action.
In an action filed by the Mine Safety and Health Administration
(MSHA) the Company was assessed certain penalties as a result of citations
issued by MSHA. During January 2000, the Company settled with MSHA and is
required to pay penalties totaling $22,000. The penalties are to be paid in
eight installments of $2,750 beginning May 1, 2000 and continuing every six
months until paid. The Company has accrued $13,750 as a contingent liability
at May 31, 2001.
On February 9, 2000, a case was filed in Superior Court, Maricopa
County, Arizona against the Company. The Plaintiffs are seeking $150,000 plus
interest as a result of an alleged breach of contract by the Company. In June
2000, the Company signed a settlement agreement with the plaintiffs in which
the Company agreed to pay $141,500 which has been accrued as part of gold
contracts payable and is payable as follows:
1. $12,000, comprised of $10,000 of principal plus $2,000 for
attorney fees paid upon execution of the release and discharge
agreement.
2. $12,000, comprised of $10,000 of principal plus $2,000 for
attorney fees paid on December 30, 2000.
3. $10,000 paid on June 30, 2001; and
4. $2,000 per month beginning July 31, 2001 until the remaining
principal amount of $107,500 has been paid.
The agreement also calls for security of judgment in the amount of
$150,000 plus 6% interest per year dating back to May 22, 1995. The judgment
will accrue interest at the statutory rate of 10% per year until paid in full.
Plaintiffs agree that they shall not record the judgment or attempt to execute
on it so long as the Company makes payment pursuant to the schedule set forth
above.
16
25
UNICO, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
May 31, 2001 and February 28, 2001
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)
As further security, the amount owed under the judgment is secured
by a stock pledge in the amount of 1,000,000 shares of the Company stock,
issued in March 2001. An escrow account was established by the Company to
hold the 1,000,000 shares.
A former employee filed suit against the Company in the United
States District Court for the District of Utah. The plaintiff was injured
during his unauthorized use of the Company's equipment. This matter was
settled. The Company agreed to pay $110,000 payable as follows:
1. $35,000 paid in April 2001
2. $25,000 due each April 15 starting in 2002 through 2004
If the Company defaults, the plaintiff may take a judgment against
the Company in the amount of $250,000, less any payments already made.
Operating/Management Agreement
------------------------------
The Company had contracted with SLC Environmental, LLC (SLC) to
manage and operate all of its mines, mining property and mining claims. In
return for SLC's services, the Company was to pay all costs incurred by SLC in
operating and managing the mines. Additionally, the Company was to pay SLC
15% of the net profit, after taxes, from the operation and management of all
projects managed or operated by SLC. The Company terminated the services of
SLC during August 1996. SLC has claimed the Company owes it $318,870 as a
result of this agreement. The Company does not agree and plans to respond
vigorously to any legal proceedings, but has accrued this amount as a
contingent liability at May 31, 2001.
Commitments
-----------
On October 5, 1998, the company entered into a development agreement
with Guilderbrook, Inc. (NY Closely Held Corp.) whereby Guilderbrook, Inc.
will jointly provide necessary financial and management resources to retain
the Deer Trail Mine lease discussed in Note 3 and to provide necessary
equipment to put the mine into productive operation. For this, Guilderbrook,
Inc. will receive 25% of the net profits from the mine operations subsequent
ore sales.
During December 1999, the Company entered into an engagement
agreement with Pellett Investments (Pellett) whereby Pellett agreed to buy a
convertible note bearing interest at 5% per annum, convertible into ten
million (10,000,000) shares of the Company's common stock at $0.10 per share.
17
26
UNICO, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
May 31, 2001 and February 28, 2001
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)
Commitments (Continued)
-----------------------
The ten million shares are to be delivered as follows:
1. The Company shall deliver 2,000,000 shares of common stock to
Pellett as soon as practical;
2. Pellett will then forward $200,000 to the Company as soon as
practical;
3. Four subsequent conversions will be done in a duplicate manner
as described in 1. and 2. above to equal a total conversion of
$1,000,000; and
4. An additional 3,000,000 shares of common stock will be
registered in the name of Penny Pellett and Forest Minerals,
Inc. upon payment of each successful round of conversion as
follows:
* 360,000 shares of common stock to Forest Minerals, Inc. and
* 240,000 shares of common stock to Penny Pellett.
Gold Delivery Contracts
-----------------------
The Company entered into four contracts for the advance payment of
gold. The contracts, which total to $166,000, allowed the Company to collect
$141,000, net of commissions. The contracts call for the Company to deliver
gold, in increments of not less than one troy ounce, beginning six months from
the various purchase dates. Three of these contracts are all currently due
and outstanding, one is currently being settled as described under litigation.
The amount accrued as a contingent liability associated with these contracts
at May 31, 2001 was $191,127 and was calculated by the ounces due under these
contracts at the February 28, 1997 spot rate as published in the Wall Street
Journal.
NOTE 12 - DEVELOPMENT STAGE COMPANY
The Company reverted to the status of a startup company during the
year ended February 28, 1998 due to a lack of revenue generation and will be a
development stage company as it commences its planned principal operations of
exploring and developing unpatented lode mining claims.
NOTE 13 - SUBSEQUENT EVENTS
Stock Issuance
--------------
The Company issued 909,090 units of common stock valued at $0.11 per
share for total consideration of $100,000. Each unit consists of 1 share of
common stock and an option to purchase 1 share of common stock at $0.11 per
share. The options expire in 2 years.
18