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 11/30/04
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)
8880 Rio San Diego Drive, 8th Floor
San Diego, California 92108
________________________________________
(Address of principal executive offices)
(619) 209-6124
________________________________________________
(Issuer's telephone number, including area code)
____________________________________________
(Former Name, Former Address and Former Year,
if changed since last report)
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 [X] No [_]
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 February 23, 2005, the issuer had outstanding 484,427,896 shares
of its common stock, $0.10 par value per share and 10,000,000 shares of its
Series A Preferred Stock, $0.001 par value per share. Series A Preferred
Stock is convertible to common stock on a one for one share basis.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The unaudited balance sheet of Unico, Incorporated, an Arizona
corporation, as of November 30, 2004, the unaudited schedule of investments of
Unico, Incorporated as of November 30, 2004, the unaudited related statements
of operations for the three and nine month periods ended November 30, 2004 and
2003, the unaudited related statements of stockholders' equity for the period
from February 29, 2004 through November 30, 2004, the unaudited related
statements of cash flows for the nine month periods ended November 30, 2004
and 2003 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 Deer Trail Mining Company, LLC, Bromide Basin
Mining Company, LLC 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.
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UNICO, INCORPORATED
FINANCIAL STATEMENTS
November 30, 2004
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UNICO, INCORPORATED
Balance Sheet
ASSETS
November 30,
2004
------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 286,629
Certificate of deposit 5,358
Prepaid expenses 3,055
------------
Total Current Assets 295,042
------------
OTHER ASSETS
Investments in unconsolidated subsidiaries
(see Schedule of Investments) 240,000
Refundable deposit 4,810
------------
Total Other Assets 244,810
------------
TOTAL ASSETS $ 539,852
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 49,432
Accrued interest - related parties 29,498
Accrued interest and other expenses 312,313
Debentures payable - related parties 576,276
Debentures payable 1,218,142
Contingent liabilities 286,000
------------
Total Current Liabilities 2,471,661
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, 20,000,000 shares authorized at $0.001
par value; 10,000,000 shares issued and outstanding 10,000
Common stock, 500,000,000 shares authorized at $0.10
par value; 394,427,896 shares issued and outstanding 39,442,790
Additional paid-in capital (deficit) (23,422,072)
Accumulated deficit (17,962,527)
------------
Total Stockholders' Deficit (1,931,809)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 539,852
============
The accompanying notes are an integral part of these financial statements.
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UNICO, INCORPORATED
Schedule of Investments
(Unaudited)
November 30, 2004
------------------
Description Percent Fair
Company of Business Ownership Cost Value Affiliation
- ---------------- ------------ --------- ------------- --------- -----------
Silver Bell
Mining Mining 100% $ 309,150 $ - Yes
Bromide Basin Mining 100% 15,675 - Yes
Deer Trail Mining 100% 1,953,089 240,000 Yes
------------- ---------
$ 2,277,914 $ 240,000
============= =========
See Note 2 for fair value determination methods.
The accompanying notes are an integral part of these financial statements.
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UNICO, INCORPORATED
Statements of Operations
(Unaudited)
For the Nine Months Ended For the Three Months Ended
November 30, November 30,
--------------------------- ---------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
REVENUES $ - $ - $ - $ -
EXPENSES
General and
administrative 774,779 1,331,897 199,982 802,862
------------- ------------- ------------- -------------
Total Expenses 774,779 1,331,897 199,982 802,862
------------- ------------- ------------- -------------
Loss from Operations (774,779) (1,331,897) (199,982) (802,862)
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSES)
Interest expense
and beneficial
conversion costs (2,890,236) (139,996) (1,708,115) (49,190)
Loss attributed to
subsidiaries no
longer consolidated (218,282) (415,841) (6,970) (102,983)
Decline in value of
investments (1,718,779) - (1,522,838) -
Gain (loss) on
settlement of debt (215,074) - 8,397 -
------------- ------------- ------------- -------------
Total Other
Income (Expenses) (5,042,371) (555,837) (3,229,526) (152,173)
------------- ------------- ------------- -------------
NET LOSS BEFORE
INCOME TAXES (5,817,150) (1,887,734) (3,429,508) (955,035)
INCOME TAX EXPENSE - - - -
------------- ------------- ------------- -------------
NET LOSS $ (5,817,150) $ (1,887,734) $ (3,429,508) $ (955,035)
============= ============= ============= =============
NET LOSS PER SHARE $ (0.03) $ (0.02) $ (0.01) $ (0.01)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 158,277,871 79,497,356 280,861,962 85,147,205
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
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UNICO, INCORPORATED
Statements of Stockholders' Deficit
Additional
Preferred Stock Common Stock Paid-in
---------------------- ------------------------- Capital Accumulated
Shares Amount Shares Amount (Deficit) Deficit
------------ --------- ------------ ------------ ------------ -------------
Balance, February 29, 2004 - $ - 90,962,974 $ 9,096,299 $ 810,437 $(12,145,377)
March 16, 2004 common stock
issued for services at
$0.10 per share (unaudited) - - 1,500,000 150,000 - -
April 12, 2004 common stock
issued for services at
$0.10 per share (unaudited) - - 1,000,000 100,000 - -
May 21, 2004 preferred stock
issued for related party
debt extinguishments at
$0.071 per share (unaudited) 6,898,032 6,898 - - 485,764 -
May 21, 2004, preferred
stock issued for debt
extinguishment at $0.071
per share (unaudited) 2,401,968 2,402 - - 169,148 -
May 21, 2004, preferred
stock issued for services
performed at $0.071 per
share (unaudited) 700,000 700 - - 49,294 -
July 24, 2004, common
stock issued for
extinguishments of
debts at $0.058 per
share (unaudited) - - 826,033 82,603 (34,693) -
July 30, 2004, common
stock issued for
extinguishment of debts
at $0.10 per share
(unaudited) - - 7,638,889 763,889 - -
August 2004, common
stock issued for
conversion of debentures
at $0.005 per share
(unaudited) - - 39,000,000 3,900,000 (3,705,000) -
Beneficial conversion
costs associated
with convertible
debenures - - - - 2,732,478 -
September 2004, Common
stock issued for
conversion of debentures
at $0.0152 per share
(unaudited) - - 15,000,000 1,500,000 (1,272,000) -
September to November
2004, common stock
issued for conversion
of debentures at
$0.005 per share
(unaudited) - - 238,500,000 23,850,000 (22,657,500) -
Net loss for the Nine
months ended November 30,
2004 (unaudited) - - - - - (5,817,150)
------------ --------- ------------ ------------ ------------ -------------
Balance, November 30, 2004
(unaudited) 10,000,000 $ 10,000 394,427,896 $39,442,790 $(23,442,072) $(17,962,527)
============ ========= ============ =========== ============= =============
The accompanying notes are an integral part of these financial statements.
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UNICO, INCORPORATED
Statement of Cash Flows
(Unaudited)
For the Nine Months Ended
November 30,
---------------------------
2004 2003
------------- -------------
<s> <c> <c>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (5,817,150) $ (1,887,734)
Adjustments to reconcile net loss to net cash used
by operating activities:
Common stock issued for services 250,000 1,265,000
Preferred stock issued for services 49,994 -
Warrants issued below market value - 24,556
Depreciation expense 24,817 72,726
Decline in value of investments 1,718,779 -
Beneficial conversion feature on convertible debentures 2,732,479 -
Loss on settlement of debt 223,471 -
Changes in operating assets and liabilities:
Increase in prepaid expenses and refundable deposits (7,365) -
Increase in accounts payable and other liabilities 68,435 32,589
------------- -------------
Net Cash Used by Operating Activities (756,540) (492,863)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in subsidiary companies (1,516,189) -
Purchase of fixed assets (4,231) (10,300)
------------- -------------
Net Cash Used by Investing Activities (1,520,420) (10,350)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in bank overdraft (9,211) 20,829
Proceeds from notes payable - related party - 263,476
Proceeds from notes payable 101,800 183,447
Payments on notes payable and debentures (37,000) (22,014)
Proceeds from issuance of convertible debentures 2,475,000 -
Issuance of stock for cash - 57,560
------------- -------------
Net Cash Provided by Financing Activities 2,530,589 503,238
------------- -------------
NET INCREASE IN CASH 253,629 25
CASH AT BEGINNING OF PERIOD 33,000 33,557
------------- -------------
CASH AT END OF PERIOD $ 286,629 $ 34,582
============= =============
CASH PAID DURING THE PERIOD FOR:
Interest $ 22,166 $ 38,168
Income taxes $ - $ -
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for services $ 250,000 $ 1,265,000
Issuance of preferred stock for services $ 49,994 $ -
Issuance of preferred stock for debt extinguishment $ 171,550 $ -
Issuance of preferred stock for debt extinguishments
- related party $ 492,662 $ -
Acquisition of assets with note payable $ - $ 160,155
Issuance of stock for fixed assets $ - $ 20,000
The accompanying notes are an integral part of these financial statements.
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UNICO, INCORPORATED
Notes to the Financial Statements
November 30, 2004
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted in accordance with such rules and regulations. The information
furnished in the interim financial statements include normal recurring
adjustments and reflects all adjustments, which, in the opinion of management,
are necessary for a fair presentation of such financial statements. Although
management believes the disclosures and information presented are adequate to
make the information not misleading, it is suggested that these interim
financial statements be read in conjunction with the Company's most recent
audited financial statements and notes thereto included in its February 29,
2004 Annual Report on Form 10-KSB. Operating results for the Nine months
ended November 30, 2004 are not necessarily indicative of the results that may
be expected for the year ending February 28, 2005.
NOTE 2 - INVESTMENTS
The Company currently has investments in three entities. The first is an
investment in a wholly-owned, unconsolidated subsidiary, Deer Trail Mining
Company, LLC (Deer Trail). The Company contributed assets for its ownership of
Deer Trail on July 12, 2004. Deer Trail is in the mining business. The
second is an investment in a wholly-owned unconsolidated entity, Bromide Basin
Mining Company, LLC (Bromide). The Company contributed assets for its
ownership interest in Bromide on July 12, 2004. Bromide is in the mining
business. The third is Silver Bell Mining, Inc. (Silver Bell). The Company
acquired its interest in Silver Bell in December, 2000. During the summer of
2004, Silver Bell conducted some limited geological exploration work.
As required by ASR 118, the investment committee of the company is required to
assign a fair value to all investments. To comply with Section 2(a)(41) of
the Investment Company Act and Rule 2a-4 under the Investment Company Act, it
is incumbent upon the board of directors to satisfy themselves that all
appropriate factors relevant to the value of securities for which market
quotations are not readily available have been considered and to determine the
method of arriving at the fair value of each such security. To the extent
considered necessary, the board may appoint persons to assist them in the
determination of such value, and to make the actual calculations pursuant to
the board's direction. The board must also, consistent with this
responsibility, continuously review the appropriateness of the method used in
valuing each issue of security in the company's portfolio. The directors must
recognize their responsibilities in this matter and whenever technical
assistance is requested from individuals who are not directors, the findings
of such intervals must be carefully reviewed by the directors in order to
satisfy themselves that the resulting valuations are fair.
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UNICO, INCORPORATED
Notes to the Financial Statements
November 30, 2004
NOTE 2 - INVESTMENTS (Continued)
No single standard for determining "fair value. . .in good faith" can be laid
down, since fair value depends upon the circumstances of each individual case.
As a general principle, the current "fair value" of an issue of securities
being valued by the board of directors would appear to be the amount which the
owner might reasonably expect to receive for them upon their current sale.
Methods which are in accord with this principle may, for example, be based on
a multiple of earnings, or a discount from market of a similar freely traded
security, or yield to maturity with respect to debt issues, or a combination
of these and other methods. Some of the general factors which the directors
considers in determining a valuation method for an individual issue of
securities include: 1) the fundamental analytical data relating to the
investment, 2) the nature and duration of restrictions on disposition of the
securities, and 3) an evaluation of the forces which influence the market in
which these securities are purchased and sold. Among the more specific
factors which are to be considered are: type of security, financial
statements, cost at date of purchase, size of holding, discount from market
value of unrestricted securities of the same class at time of purchase,
special reports prepared by analysis, information as to any transactions or
offers with respect to the security, existence of merger proposals or tender
offers affecting the securities, price and extent of public trading in similar
securities of the issuer or comparable companies, and other relevant matters.
The board has arrived at the following valuation method for its investments.
Where there is not a readily available source for determining the market value
of any investment, either because the investment is not publicly traded, or is
thinly traded, and in absence of a recent appraisal, the value of the
investment shall be based on the following criteria:
1. Total amount of the Company's actual investment ("AI"). This amount
shall include all loans, purchase price of securities, and fair value
of securities given at the time of exchange.
2. Total revenues for the preceding twelve months ("R").
3. Earnings before interest, taxes and depreciation ("EBITD")
4. Estimate of likely sale price of investment ("ESP")
5. Net assets of investment defined as the fair value of assets in excess
of investment liabilities ("NA").
6. Likelihood of investment generating positive returns (going concern).
The estimated value of each investment shall be determined as follows:
. Where no or limited revenues or earnings are present, then the value
shall be the greater of the investment's a) net assets, b) estimated
sales price, or c) total amount of actual investment.
. Where revenues and/or earnings are present, then the value shall be the
greater of one time (1x) revenues or three times (3x) earnings, plus the
greater of the net assets of the investment or the total amount of the
actual investment.
. Under both scenarios, the value of the investment shall be adjusted down
if there is a reasonable expectation that the Company will not be able
to recoup the investment or if there is reasonable doubt about the
investment's ability to continue as a going concern.
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UNICO, INCORPORATED
Notes to the Financial Statements
November 30, 2004
NOTE 3 - 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
from its inception through November 30, 2004. 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 twelve months, the Company's plan of
operation consists of the following:
. Begin the 2nd phase of exploratory drilling at the Deer Trail Mine;
. Continue to upgrade the existing mill at the Deer Trail Mine;
. Upgrade the mine infrastructure at both the Deer Trail and Bromide
Basin Mines;
. Continue sampling and testing ore from the Bromide Basin and Deer
Trail Mines to evaluate the most efficient means to conduct mining
and milling activities;
. Continue to screen, crush and process the ore dumps on the upper Deer
Trail Mine;
. Exercise the purchase option or modify the Bromide Basin Mine lease
prior to April 1, 2005;
. Increase mining activities at the Deer Trail Mine and the Bromide
Basin Mine;
. Increase milling activities at the Deer Trail Mine;
. Increase the number of employees from nine to approximately 25;
. Explore the possibility of obtaining a joint-venture partner to
increase the development of Unico's mining operations;
. Commence an exploration and resource definition program at the Silver
Bell Mine in Spring/Summer, 2005;
. Acquire new mining equipment and vehicles to improve operations at
the Deer Trail Mine and Bromide Basin Mine;
. Exercise an option to purchase the Deer Trail Mine for $3,000,000 on
or before August 31, 2005;
. Evaluate and possibly pursue potential acquisitions in the mining
industry which are compatible with Unico's status as a business
development company; and
. Raise a minimum of $5,000,000 in additional equity capital, loans
and/or other financing transactions.
Management believes the Company's current cash as of November 30, 2004, will
sustain operations for approximately ninety days. 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.
- 11 -
UNICO, INCORPORATED
Notes to the Financial Statements
November 30, 2004
NOTE 4 - MATERIAL EVENTS
During the quarter ended November 30, 2004, the Company issued $1,675,000 of
convertible debentures. The debentures are convertible immediately at 50% of
the closing market price of the Company's common stock on the date of
conversion. The debentures bear interest at 10% per annum. During the quarter
ended November 30, 2004, the Company converted $1,420,500 in debentures into
common stock at prices ranging from $0.005 per share to $0.0152 per share,
resulting in the issuance of 253,500,000 shares. Since the stock was issued
at prices below par value, the resulting difference has been recorded as a
reduction in additional paid in capital.
NOTE 5 - LOSS FROM SUBSIDIARIES NO LONGER CONSOLIDATED
On July 12, 2004, the Company elected to be regulated as a business
development company under the Investment Company Act of 1940. GAAP for
investment companies does not provide for the consolidation of portfolio
companies, regardless of degree of control. As a result, the accompanying
financial statements only reflect the operations of the unconsolidated parent
company, exclusive of all subsidiary or portfolio operations subsequent to
July 12, 2004. For comparative purposes, the consolidated results of
operations for prior periods have been restated to show the results of the
portfolio company operations separate from those of the parent company. These
results have been aggregated in Loss from Subsidiaries No Longer Consolidated.
Detailed operational information from these portfolio companies for all
periods presented are as follows:
For the Nine Months Ended For the Three Months Ended
November 30, November 30,
--------------------------- ---------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
REVENUES $ - $ 15,450 $ - $ -
COST OF GOODS SOLD - (12,180) - -
------------- ------------- ------------- -------------
GROSS PROFIT - 3,270 - -
EXPENSES
General and
administrative 193,465 346,385 6,970 80,011
Depreciation 24,817 72,726 - 22,972
------------- ------------- ------------- -------------
TOTAL EXPENSES 218,282 419,111 6,970 102,983
------------- ------------- ------------- -------------
NET LOSS FROM
SUBSIDIARIES NO
LONGER CONSOLIDATED $ (218,282) $ (415,841) $ (6,970) $ (102,983)
============= ============= ============= =============
NOTE 6 - SUBSEQUENT EVENTS
Subsequent to November 30, 2004, the Company issued a $250,000 convertible
debenture. The debenture bears interest at 10% per annum and is convertible
immediately at 50% of the closing market price on the date of conversion.
Subsequent to November 30, 2004, the Company converted an additional $450,000
in convertible debentures into 90,000,000 shares of common stock.
- 12 -
Item 2. Management's Discussion and Analysis or Plan of Operation.
General Information Regarding Unico and its Operations.
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.
The mining operations at the Deer Trail Mine have been conducted through
Unico's subsidiary, Deer Trail Mining Company, LLC ("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 ("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 Mine.
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. The lease term was for a period of 10 years, and covered 28
patented claims, 5 patented mill sites and 171 unpatented claims located
approximately 5 miles South of Marysvale, Utah. It included mine workings
known as the Deer Trail Mine, the PTH Tunnel and the Carissa and Lucky Boy
mines. There are no known, proven or probable reserves on the property.
Effective December 1, 2001, a second lease agreement was entered into
between the parties covering the same property for a period of thirty (30)
months. It replaced the first lease. The second lease term expired at the
end of May 2004. It required Unico to make monthly lease payments and pay a
3% net smelter return on ore removed from the Deer Trail Mine.
Effective May 31, 2004, the parties entered into a Modification of
Mining Lease and Option to Purchase (the "Lease Modification"). Under the
Lease Modification, the parties agreed to extend the lease term until August
31, 2005. The Lease Modification contains the following additional terms:
(a) Unico will pay all past due royalties, taxes, assessments and all other
amounts presently owed under the Deer Trail Lease (approximately $204,000) on
or before September 1, 2004; (b) Unico will pay a non-refundable payment of
$1,000,000 on or before September 1,
- 13 -
2004, which will be counted as a payment toward exercise of the option to
purchase the Deer Trail Mine if Unico pays an additional $3,000,000 to
purchase the Deer Trail Mine on or before August 31, 2005; and (c) Unico will
continue to make the payments required under the Deer Trail Lease during the
extended lease term. Unico has made the payments required under the Lease
Modification through the date of this report. Unico's ability to exercise the
option by paying $3,000,000 on or before August 31, 2005 is dependent on Unico
raising substantial equity capital and/or securing substantial financing
before then. No assurance can be given that Unico will be successful in its
efforts to raise the necessary funds and/or secure the necessary financing. If
Unico fails in this regard, Unico will likely lose any rights it has to the
Deer Trail Mine property.
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 has 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. Unico is in the
process of seeking a permit from the State of Utah Division of Oil, Gas and
Mining for large scale mining operations. The Company has submitted its
permitting application response to the State of Utah, Department of Natural
Resources, Division of Oil, Gas and Mining for its Large Scale Mining Plan at
the Deer Trail Mine and has submitted a revised copy of the Deer Trail Mine
Reclamation Plan incorporating all changes requested by the Department of Oil,
Gas and Mining on September 24, 2004. Unico has confirmed that it is in the
final review stage.
Unico worked for more than two years to reopen the Deer Trail Mine.
Unico commenced mining activities in late March or early April 2001 on the
Deer Trail Mine. To date, the mining activities have been fairly limited.
Unico presently has seven full time employees, two part time employees, two
full time consultants, and three part time consultants whose services are used
on an as needed basis. There have been 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 has been stock-piled and
some of it has been crushed. Some of the employees have worked on mine
maintenance.
Unico has completed a mill on site at the Deer Trail Mine. In November
2001 Unico began milling activities. Unico has
- 14 -
started screening and crushing ore dumps on the upper Deer Trail Mine and
moving the materials to its ball mill.
We believe that there are a variety of mining companies and other
mineral companies that are potential purchasers for the lead concentrates,
zinc concentrates and other concentrates which we intend to sell as the end
product from our 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. The
Pennolies Smelter in Torreon, Mexico has agreed to purchase concentrates from
Unico.
The Company completed its first phase of drilling at the Upper Deer
Trail Mine in September 2004. Work was conducted by Lang Exploratory Drilling,
an independent contractor, whereby 3,653 feet of reverse circulation drilling
was completed in 28 drill holes on site. 741 samples were taken from the drill
program which were safegaurded by Lang and shipped to ALS Chemex, an
independent lab, for certification and analysis.
In October 2004, Unico acquired a new metallurgical lab testing
facility, including two fully operational lab buildings located at the Deer
Trail Mine site. This facility is currently being used to conduct ongoing
metallurgical testing, assaying and analysis.
Bromide Basin Mines.
On July 20, 2001, Unico entered into a Mining Lease and Option to
Purchase with Kaibab Industries, Inc., an Arizona corporation. The parties
then entered into a Revised Mining Lease and Option to Purchase in April 2003
(the "Revised Kaibab Mining Lease"). Under the Revised Kaibab Mining Lease,
Kaibab Industries, Inc. has leased to Unico certain mining claims located in
the Henry Mountain Mining District in Garfield County, Utah containing
approximately 400 acres, which includes the Bromide Basin Mines. The Revised
Kaibab Mining Lease runs until April 1, 2005, and grants to Unico the option
to purchase all of the property being leased. The option is exercisable
during the two year term of the Revised Kaibab Mining Lease. There are no
known, proven or probable reserves on the property.
Under the Revised Kaibab Mining Lease, Unico has agreed to pay to Kaibab
Industries, Inc. a 5% net smelter return upon all ore taken from the property
during the term of the Revised Kaibab Mining Lease. The Revised Kaibab Mining
Lease requires Unico to produce a minimum of 2,500 ounces of gold (or to pay
to Kaibab
- 15 -
Industries, Inc. a net smelter return equivalent to the amount that would have
been paid if Unico had produced 2,500 ounces of gold) during the first year
ending March 31, 2004, and to produce a minimum of 5,000 ounces of gold during
the second year ending March 31, 2005.
Unico commenced mining efforts on the Bromide Basin Mines in September
2001 with five full time miners. Ore removed from the Bromide Basin Mines is
transported to the Deer Trail Mine site where it is crushed and milled.
Because of the Bromide Basin Mine's high elevation, mining activities are
seasonal and occur only from May or early June through approximately
mid-November.
In 2003, the Company continued exploration work in the Bromide Mine and
re-confirmed the existence of a high-grade gold structure. 2.9 ounces of gold
was recovered from a 400 pound sample of material extracted by crude methods
from the high-grade area in the Bromide Mine. Previous soil survey work
revealed many prospective areas for the discovery of more gold occurrences in
the basin, but most importantly, re-confirmed the strike of the Bromide,
Crescent Creek and Kimble and Turner mineralized structures.
Static screens were installed at Kimble and Turner and previously
excavated gold rich mineralized rock was screened. The gold recovered from
the fines was tested by simple gravity methods confirming a very high recovery
rate of coarse gold. Limited amounts of Kimble and Turner material were
transported to a staging station where it could be loaded for delivery to the
Deer Trail mill in Marysvale, Utah.
Unico shipped approximately 400 tons of Bromide material to the Deer
Trail mill; 235 tons coming from Hanksville, Utah and 160 tons from Fredonia,
Arizona, formerly a processing site for Bromide-ore.
In 2004, work began in Spring at the Bromide Basin Mines with additional
geological sampling and mapping. Throughout the season, the Company conducted
general mine maintenance and continued working on additional infrastructure.
Unico has also commenced reclamation activities at specific sites in the
Bromide Basin area to satisfy its obligations required by the Bureau of Land
Management.
Silver Bell Mine.
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
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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 Bell
Mining Company, Incorporated. Mr. Proctor also serves as an employee of Deer
Trail Mining Company, LLC as a geologist. He also serves as chief consulting
geologist for Unico.
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. There are no known, proven or probable reserves on the
property.
Unico conducted some limited geological exploration work at the Silver
Bell Mine during Summer, 2004. These activities included mapping, surveying
and sampling. Unico plans to commence an exploration and resource definition
program at the Silver Bell Mine during Spring/Summer, 2005. Unico may also
seek a joint venture mining partner to jointly develop the Silver Bell Mine.
Unico 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.
Election to Become a Business Development Company.
On July 12, 2004, Unico filed an election with the U.S. Securities and
Exchange Commission to become a business development company pursuant to
Section 54 of the Investment Company Act of 1940. Prior to filing the N-54A
Notification, Unico formed two new wholly-owned subsidiaries in late June
2004. Unico's Deer Trail Mine operations are now being conducted through
Unico's wholly-owned subsidiary, Deer Trail Mining Company, LLC, a Nevada
limited liability company. Unico's Bromide Basin Mine operations are now
being conducted through Unico's wholly-owned subsidiary, Bromide Basin Mining
Company, LLC, a Nevada limited liability company. Unico also owns Silver
Bell Mining Company, Inc.
Unico intends to provide capital and management assistance necessary to
build its existing mining subsidiaries into revenue-generating assets while
pursuing additional potential investments in synergistic businesses. Unico
believes that by electing to become a business development company, it will be
able to raise capital in a more efficient manner.
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Plan of Operation.
During the next 12 months, our plan of operation consists of the
following:
. Begin the 2nd phase of exploratory drilling at the Deer Trail Mine;
. Continue to upgrade the existing mill at the Deer Trail Mine;
. Upgrade the mine infrastructure at both the Deer Trail and Bromide
Basin Mines;
. Continue sampling and testing ore from the Bromide Basin and Deer
Trail Mines to evaluate the most efficient means to conduct mining
and milling activities;
. Continue to screen, crush and process the ore dumps on the upper Deer
Trail Mine;
. Exercise the purchase option or modify the Bromide Basin Mine lease
prior to April 1, 2005;
. Increase mining activities at the Deer Trail Mine and the Bromide
Basin Mine;
. Increase milling activities at the Deer Trail Mine;
. Increase the number of employees from nine to approximately 25;
. Explore the possibility of obtaining a joint-venture partner to
increase the development of Unico's mining operations;
. Commence an exploration and resource definition program at the Silver
Bell Mine in Spring/Summer, 2005;
. Acquire new mining equipment and vehicles to improve operations at
the Deer Trail Mine and Bromide Basin Mine;
. Exercise an option to purchase the Deer Trail Mine for $3,000,000 on
or before August 31, 2005;
. Evaluate and possibly pursue potential acquisitions in the mining
industry which are compatible with Unico's status as a business
development company; and
. Raise a minimum of $5,000,000 in additional equity capital, loans
and/or other financing transactions.
Accomplishing our 12-month plan of operations is dependent on the
Company raising approximately $5,000,000 in equity and/or debt financing
during the next 12 months. The Company's cash as of November 30, 2004 will
sustain operations for approximately 90 days.
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Results of Operations.
During the three months ended November 30, 2004, Unico experienced a net
loss in the amount of $3,429,508 or approximately ($0.01) per share. This net
loss was $2,474,473 larger than the net loss of $955,035, or approximately
($0.01) per share, for the three months ended November 30, 2003. For the nine
months ended November 30, 2004, Unico incurred a net loss of $5,817,150, or
approximately ($0.03) per share. This net loss was $3,929,416 larger than the
net loss of $1,887,734, or approximately $0.02 per share, incurred by Unico
for the nine months ended November 30, 2003.
For the three months ended November 30, 2004, Unico reported revenues of
$0 which is the same as the revenues of $0 reported for the three months ended
November 30, 2003. For the nine months ended November 30, 2004, Unico reported
revenues of $0 which is the same as the revenues of $0 reported for the nine
months ended November 30, 2003.
Unico attributes the $2,474,473 increase in net loss for the three month
period ended November 30, 2004 primarily to a $1,658,925 increase in interest
expense and beneficial conversion costs, and a $1,522,838 decline in value of
investments, partially offset by a $602,880 decrease in general and
administrative expense a $96,013 decrease in loss attributed to subsidiaries
no longer consolidated and a $8,397 gain on settlement of debt. Unico
attributes the $3,929,416 increase in net loss for the nine month period ended
November 30, 2004 primarily to a $2,750,240 increase in interest expense and
beneficial conversion costs, a $1,718,779 decline in value of investments and
a $215,074 expense in settlement of debt, partially offset by a $557,118
decrease in general and administrative expense and a $197,559 decrease in loss
attributed to subsidiaries no longer consolidated.
The substantial increase in interest expenses for the three and nine
month periods ended November 30, 2004 is largely attributed to the issuance of
certain debentures by Unico which contain features which allow the holders the
right to convert the debentures to shares of Unico's common stock at prices
less than fair market value. The discounted conversion rate is treated as an
interest expense. The debentures acquired by Ray C. Brown, Mark A. Lopez and
C. Wayne Hartle allow them to convert amounts owing under the debentures to
shares of restricted Unico common stock at prices 20% less than fair market
value. Other parties who are not officers or directors acquired debentures
with conversion features that allow them to convert amounts owing under the
debentures to shares of Unico common stock at prices 50% less than fair market
value.
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Liquidity and Capital Resources.
Unico's stockholders' deficit decreased $306,832 in the nine months
ended November 30, 2004, from a deficit of ($2,238,641) as of February 29,
2004 to a deficit of ($1,931,809) as of November 30, 2004. Cash and cash
equivalents increased $253,629 to $286,629 at November 30, 2004 from $33,000
at February 29, 2004. Net cash used in operating activities of $756,540 for
the nine months ended November 30, 2004 reflects a net loss of $5,817,150
partially offset by non-cash expenses of $2,732,479 for beneficial conversion
feature on convertible debentures, a $1,718,779 decline in value of
investments, $250,000 for common stock issued for services, $223,471 for loss
on settlement of debt, $68,435 increase in accounts payable and other
liabilities, $49,994 for preferred stock issued for services, and $24,817 for
depreciation expense. During the nine months ended November 30, 2004,
approximately $664,212 of debt was converted to 9,300,000 shares of Unico's
Series A preferred stock at a conversion price of $0.0714206 per share. Ray
C. Brown received 6,549,043 shares for converting $467,737 of debt. C. Wayne
Hartle received 348,989 shares for converting $24,925 of debt. Mark Lopez
received 2,401,968 shares for converting $171,550 of debt. During the same
nine month period, Unico received $2,475,000 cash from issuing convertible
debentures which are convertible to shares of Unico common stock at fifty
percent (50%) of the closing price on the date of conversion, and $101,800
from notes payable from Mark Lopez.
During the nine month period ended November 30, 2004, Unico issued
277,500,000 shares of common stock for conversion of debentures at $0.005 per
share and 15,000,000 shares of common stock for conversion of debentures at
$0.0152 per share.
Unico's major cash needs include raising additional funds to exercise
Unico's option to purchase the Deer Trail Mine for $3,000,000 on or before
August 31, 2005, to pay for upgrading of the mill structure estimated at
approximately $250,000, to pay for the next phase of the drilling program
estimated at approximately $250,000 to $1,000,000, to complete the purchase of
certain equipment from Kaibab Industries of approximately $117,000, and
possibly to exercise the option to purchase the Bromide Basin Mining property
for $835,000. Unico must raise substantial additional funds for these
purposes.
As of November 30, 2004, our liquid resources are sufficient to support
operations for approximately 90 days. We are dependent on raising
approximately $5,000,000 to successfully implement our 12 month business plan
described above.
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Our auditors have issued a "going concern" opinion in note 3 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 an additional $5,000,000 in equity,
debt or through other financing transactions in the next 12 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.
We intend to seek additional capital from private sales of Unico's
common stock and, if necessary, from loans from our management and/or others.
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.
Item 3. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.
Mark A. Lopez who serves as Unico's chief executive officer and as
Unico's chief financial officer, after evaluating the effectiveness of Unico's
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c)
and 15d-14(c) as of a date within 90 days of the filing date of the quarterly
report (the "Evaluation Date") concluded that as of the Evaluation Date,
Unico's disclosure controls and procedures were adequate and effective to
ensure that material information relating to Unico and its subsidiaries would
be made known to them by others within those entities, particularly during the
period in which this quarterly report was being prepared.
(b) Changes in internal controls.
There were no significant changes in Unico's internal controls or in
other factors that could significantly affect Unico's disclosure controls and
procedures subsequent to the Evaluation Date, nor any significant deficiencies
or material weaknesses in such disclosure controls and procedures requiring
corrective actions. As a result, no corrective actions were taken.
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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
No legal proceedings involving Unico as a defendant were commenced
during the three month period ended November 30, 2004. No material
developments occurred in any legal proceedings involving Unico as a defendant
during the same period.
Item 2. Changes in Securities.
During the three month period ended November 30, 2004, Unico issued a
total of 238,500,000 shares pursuant to its offering statement under
Regulation E for the conversion of convertible debentures. The shares were
issued at a conversion price of $0.005 per share.
The shares sold pursuant to Unico's offering circular under Regulation E
were sold by Unico's officers and directors without the assistance of any
broker dealers. Unico relied on Regulation E in making these sales. No
advertising or general solicitation was employed in offering these shares.
Each purchaser received a copy of Unico's offering circular. The shares sold
in reliance on Regulation E are not restricted securities.
During the three month period ended November 30, 2004, Unico also issued
the following shares of Unico's common stock which were not registered under
the Securities Act of 1933.
No. of
Date Recipient Shares Consideration Valuation
- ------------------------------------------------------------------------------
9/15/04 Mark Lopez 5,000,000 Conversion of Portion of Debenture $ 76,000
9/27/04 Ray C. Brown 10,000,000 Conversion of Portion of Debenture $152,000
All of the shares described above in the table were sold directly by
Unico, and no underwriters were involved in the transactions. The shares were
issued at a conversion price of $0.0152 per share which was equal to eighty
percent (80%) of the closing bid price on the date Unico received the
conversion notices. Unico relied on section 4(2) of the Securities Act of
1933 in making the sales of securities described in the table below. 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 Unico's
executive officers 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.
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Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a vote of Security Holders.
None.
Item 5. Other Information.
Between December 1, 2004 and the filing date of this report (February
24, 2005), Unico issued approximately 90,000,000 shares of Unico's common
stock at a conversion price of $0.005 per share pursuant to Unico's offering
circular in reliance on Regulation E.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
10.34 Convertible Debenture No. 8 for $100,000 dated September 27,
2004 issued to Kentan Limited Corp.
10.35 Convertible Debenture No. 9 for $75,000 dated October 7, 2004
issued to Reef Holdings Ltd.
10.36 Convertible Debenture No. 10 for $250,000 dated October 20,
2004 issued to Reef Holdings Ltd.
10.37 Convertible Debenture No. 11 for $250,000 dated November 3,
2004 issued to Reef Holdings Ltd.
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
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32.2 Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K. A Form 8-K Current Report was filed on
September 13, 2004 to report under Item 5.02 the resignation of Ray C. Brown
as Chief Executive Officer of Unico and as a Co-Manager of Deer Trail Mining
Company, LLC and Bromide Basin Mining Company, LLC effective September 7,
2004, and the appointment of Mark A. Lopez to those same positions, also
effective September 7, 2004. A copy of a related press release was filed
under Item 9.01 as Exhibit 99.1.
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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)
/s/ Mark A. Lopez
Date: February 23, 2005 By:______________________________
Mark A. Lopez, Chief Executive
Officer and Principal Financial
and Accounting Officer
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