SECURITIES AND EXCHANGECOMMISSION

Washington,D.C. 20549

** **

**FORM10-Q**

(Mark One)

 

[**X**]	Quarterly Reportunder Section 13 or 15(d) of the Securities Exchange Act of 1934 

 

For thequarterly period ended **June 30, 2012**or 

 

[ ]	Transition report pursuantto Section 13 or 15(d) of the Securities Exchange Act of 1934

 

CommissionFile No. **0-3978**

 

**UNICO AMERICAN CORPORATION**

*(Exact Name of Registrant as Specified inIts Charter)*

 

**           Nevada                                                                 95-2583928**

*(State or Other Jurisdiction of                                            (I.R.S. Employee*

*Incorporation or Organization)                                               Identification No.)*

 

**23251 Mulholland Drive, WoodlandHills, California 91364**

*(Address ofPrincipal Executive Offices) (Zip Code)*

 

**(818) 591-9800**

*(Registrant's Telephone Number, IncludingArea Code)*

 

**No Change****

*(Former Name, Former Address and Former FiscalYear, if Changed Since Last Report)*

   

Indicateby check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days. Yes X		No __  

 

Indicateby check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for suchshorter period that the registrant was required to submit and post such files). Yes X		No__  

** **

Indicateby check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smallerreporting company.  See the definitions of “large accelerated filer," "accelerated filer" and "smallerreporting company" in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large accelerated filer __ 	Acceleratedfiler __

 

Non-accelerated filer __	Smaller reportingcompany X 

(Do not check if a smaller reporting company)

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __    No X 

 

Indicate the number of sharesoutstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

** **

**  **

**PART1 - FINANCIAL INFORMATION**

 

ITEM 1 - FINANCIAL STATEMENTS

 

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

 

 

 

  

See notes to unaudited consolidated financialstatements.

 

 

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

 

  

 

See notes to unaudited consolidated financialstatements.

 

 

 

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)INCOME

(UNAUDITED)

 

 

 

 

See notes to unaudited consolidated financialstatements.

 

 

 

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

 

 

 

See notes to unaudited consolidated financialstatements.

 

 

 

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

 

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS

JUNE 30, 2012

 

 

NOTE 1 – SUMMARY OF SIGNIFICANTACCOUNTING POLICIES

Nature of Business 

Unico American Corporation is an insurance holdingcompany that underwrites property and casualty insurance through its subsidiary Crusader Insurance Company (Crusader); providesproperty, casualty, and health insurance through its agency subsidiaries; and provides insurance premium financing and membershipassociation services through its other subsidiaries. Unico American Corporation is referred to herein as the "Company"or "Unico" and such references include both the corporation and its subsidiaries, all of which are wholly owned, unlessotherwise indicated. Unico was incorporated under the laws of Nevada in 1969.

 

Principles of Consolidation 

The accompanying consolidated financial statementsinclude the accounts of Unico American Corporation and its subsidiaries. All significant intercompany accounts and transactionshave been eliminated in consolidation.

 

Basis of Presentation

The accompanying unaudited consolidated financialstatements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial informationand the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information andfootnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normalrecurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and sixmonths ended June 30, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31,2012. Quarterly financial statements should be read in conjunction with the consolidated financial statements and related notesin the Company’s 2011 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

 

Use of Estimates in the Preparation of theFinancial Statements

The preparation of financial statements in conformitywith GAAP requires the Company to make estimates and assumptions that affect its reported amounts of assets and liabilities andits disclosure of any contingent assets and liabilities at the date of its financial statements, as well as its reported amountsof revenues and expenses during the reporting period. The most significant assumptions in the preparation of these consolidatedfinancial statements relate to losses and loss adjustment expenses. While every effort is made to ensure the integrity of suchestimates, actual results may differ.

 

Fair Value of Financial Instruments

The Company employs a fair value hierarchy thatprioritizes the inputs to valuation techniques used to measure fair value. The fair value of a financial instrument is the amountthat would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants atthe measurement date (the exit price). Financial assets and financial liabilities recorded on the consolidated balance sheets atfair value are categorized based on the reliability of inputs to the valuation techniques. (See Note 8.)

 

The Company has used the following methods andassumptions in estimating its fair value disclosures:

 

- Fixed Maturities:

 

- Cash and short-term investments – Thecarrying amounts reported at cost in the balance sheet approximate their fair values given the short-term nature of these instruments.

- Notes receivable – The carrying amountsreported at cost in the balance sheet approximate their fair values given the short-term nature of these instruments. These valuationshave been classified as Level 3 of the fair value hierarchy as defined in Note 8.

 

NOTE 2 - IMMATERIAL CORRECTION TO PREVIOUSLYREPORTED AMOUNTS

As disclosed in theCompany’s December 31, 2011 Form 10-K, the Company had identified an error related to valuation of investments as previouslyreported for interim periods ended September 30, 2011 and June 30, 2011. The error resulted in an overstatement of accumulatedother comprehensive income and stockholders’ equity as of June 30, 2011 of $659,980 and an overstatement of comprehensiveincome for the three and six months ended June 30, 2011, of $659,980. Management concluded the error was immaterial to all periodspresented and has revised the June 30, 2011 Consolidated Statements of Comprehensive Income to reflect correction of the error.The September 30, 2011 previously reported amounts in the Consolidated Statements of Comprehensive Income will be revised in theCompany’s September 30, 2012 Form 10-Q to reflect correction of the error.

 

NOTE 3 – REPURCHASE OF COMMONSTOCK – EFFECTS ON STOCKHOLDERS’ EQUITY

On December 19, 2008, the Board of Directorsauthorized a stock repurchase program to acquire from time to time up to an aggregate of 500,000 shares of the Company’scommon stock. This program has no expiration date and may be terminated by the Board of Directors at any time. During the threeand six months ended June 30, 2012, the Company repurchased 4,786 shares and 5,286 shares of the Company’s common stock,in unsolicited transactions at a cost of $48,582 and $54,357, respectively, of which $2,352 and $2,598 were allocated to capitaland $46,230 and $51,759 were allocated to retained earnings, respectively. As of June 30, 2012, the Company had remaining authorityunder the 2008 program to repurchase up to an aggregate of 240,946 shares of its common stock. The 2008 program is the only programunder which there is authority to repurchase shares of the Company’s common stock. The Company has or will retire all stockrepurchased.

 

NOTE 4 – EARNINGS PER SHARE

The following table representsthe reconciliation of the Company's basic earnings per share and diluted earnings per share computations reported on the ConsolidatedStatements of Operations for the three and six months ended June 30, 2012 and 2011:

 

NOTE 5 – RECENTLY ISSUED ACCOUNTING STANDARDS

Accounting Guidance Adopted

In June 2011, the FASB issued ASU 2011-05, “Presentationof Comprehensive Income” (ASC 220).  The new standard requires entities to report components of comprehensive incomein either a continuous statement of comprehensive income or two separate but consecutive statements.  Under the continuousstatement approach, the statement would include the components and total of net income, the components and total of other comprehensiveincome and the total of comprehensive income.  Under the two statement approach, the first statement would include thecomponents and total of net income and the second statement would include the components and total of other comprehensive income. The ASU does not change the items that must be reported in other comprehensive income.  The Company adopted thenew standard on January 1, 2012, and has historically presented all components of comprehensive income in a separate but consecutivestatement after a statement including the components and total of net income; therefore, the adoption of this standard had no effecton the Company’s consolidated financial statements.

 

 

In December 2011, the FASB issued ASU 2011-12,“Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated OtherComprehensive Income in ASU 2011-05.” The new standard indefinitely defers the requirement in ASU 2011-05 to present reclassificationadjustments from other comprehensive income to net income on the face of the financial statements.  During the deferral period,entities will still need to comply with the existing requirements for the presentation of reclassification adjustments. The amendmentwas effective for interim and annual reporting periods beginning after December 15, 2011.  The Company adopted the new standardon January 1, 2012. The adoption of the new standard had no effect on the Company’s consolidated financial statements.

 

In May 2011, the FASB issued ASU 2011-04, “Amendmentsto Achieve Common Fair Value Measurement and Disclosure Requirement in U.S. GAAP and IFRSs” (ASC 820).  The newstandard does not extend the use of fair value but, rather, provides guidance about how fair value should be applied where italready is required and permitted under IFRS or U.S. GAAP.  For U.S. GAAP, most of the changes are clarifications ofexisting guidance or wording changes to align with IFRS 13. The new guidance was effective on a prospective basis for interimand annual periods beginning after December 15, 2011, with early adoption not permitted.  In the period of adoption,a reporting entity is required to disclose a change, if any, in valuation technique and related inputs that result from applyingthe new standard and to quantify the total effect, if practicable. The Company adopted the new standard on January 1, 2012. Theadoption of the new standard had no effect on the Company’s financial position or results of operations.

 

In October 2010,the FASB issued ASU 2010-26, “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts” (ASC944). The new standard modifies the types of policy acquisition costs that can be capitalized and are eligible for deferral. Specifically,the new guidance limits deferrable costs to those that are incremental direct costs of contract acquisition and certain costsrelated to acquisition activities performed by the insurer, such as underwriting, policy issuance and processing, inspection costsand broker commissions. The ASU defines incremental direct costs as those costs that result directly from and were essential tothe contract acquisition and would not have been incurred absent the acquisition. Accordingly, under the new guidance, deferrableacquisition costs are limited to costs related to successful contract acquisitions. Acquisition costs that are not eligible fordeferral are to be charged to expense in the period incurred. The new guidance became effective for interim periods and annualfiscal years beginning after December 15, 2011, and allows for prospective or retrospective application. 

 

The Company adopted the new standard on January1, 2012, prospectively. As a result of adopting ASU 2010-26, approximately $300,000 of unamortized deferred policy acquisitioncosts as of January 1, 2012, deferred under the prior guidance have been determined to be no longer deferrable and will be recognizedin expense over the original amortization period. As of June 30, 2012, deferred policy acquisition costs were $4,025,978, but wouldhave been $4,262,871 under the previous guidance. Deferred policy acquisition cost amortization was $1,706,793 and $3,468,528 forthe three and six months ended June 30, 2012, respectively, compared to $1,771,705 and $3,544,865 for the three and six monthsended June 30, 2011.

 

NOTE 6 – ACCOUNTING FOR INCOMETAXES

The Company and its wholly owned subsidiariesfile consolidated federal and state income tax returns. Pursuant to tax allocation agreements, Crusader Insurance Company and AmericanAcceptance Corporation are allocated taxes or tax credits in the case of losses, at current corporate rates based on their owntaxable income or loss. The Company files income tax returns under U.S. federal and various state jurisdictions. The Company issubject to examination by U.S. federal income tax authorities for tax returns filed starting in taxable year 2008 and Californiastate income tax authorities for tax returns filed starting in taxable year 2007. There are no ongoing examinations of income taxreturns by federal or state tax authorities.

 

ASC 740 prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken ina tax return. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods,disclosure, and transition. Since the adoption of ASC 740 and as of June 30, 2012, the Company had no unrecognized tax benefitsand no additional liabilities or reduction in deferred tax asset. In addition, the Company had not incurred interest and penaltiesrelated to unrecognized tax benefits. However, if interest and penalties would need to be accrued related to unrecognized tax benefits,such amounts would be recognized as a component of federal income tax expense.

 

 

NOTE 7 – SEGMENT REPORTING

ASC 280 establishes standards for theway information about operating segments are reported in financial statements. The Company has identified its insurance companyoperation as its primary reporting segment. Revenues from this segment comprised 90% and 89% of consolidated revenues for the threeand sixmonths ended June 30, 2012, respectively, compared to 89% of consolidated revenues forthe three and six months ended June 30, 2011. The Company’s remaining operations constitute a variety of specialty insuranceservices, each with unique characteristics and individually insignificant to consolidated revenues.

 

Revenues, income before incometaxes, and assets by segment are as follows: