unam_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the quarterly period ended March 31, 2022 or

☐	Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the transition period from ____ to ____.

	Commission File No. 000-03978

UNICO AMERICAN CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Nevada		95-2583928
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

5230 Las Virgenes Road, #100 Calabasas, California		91302
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (818) 591‑9800

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol

Name of each exchange

on which registered

Common Stock, No Par Value

UNAM

The Nasdaq Global Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large, accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large, accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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

Class		Outstanding at August 19, 2022
Common Stock, no par value per share		5,304,863

UNICO AMERICAN CORPORATION

INDEX TO FORM 10-Q

		Page No.
Cautionary Note Regarding Forward-Looking Statements		3
Part I ‑ Financial Information
	Item 1. Financial Statements	5
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	50
	Item 4. Controls and Procedures	50
Part II ‑ Other Information
	Item 1. Legal Proceedings	52
	Item 1A. Risk Factors	53
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	53
	Item 3. Defaults Upon Senior Securities	53
	Item 4. Mine Safety Disclosures	53
	Item 5. Other Information	53
	Item 6. Exhibits	54
Signatures		55

Table Of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 (“Form 10-Q”) and the documents incorporated by reference in this document, Unico American Corporation’s (“Unico” or the “Company”) press releases and oral statements made from time to time by the Company or on the Company’s behalf, may contain “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended (or “the Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. In this context, forward-looking statements are not historical facts and include statements about the Company’s plans, objectives, beliefs and expectations. Forward-looking statements include statements preceded by, followed by, or that include the words “believes,” “expects,” “anticipates,” “seeks,” “plans,” “estimates,” “intends,” “projects,” “targets,” “should,” “could,” “may,” “will,” “can,” “hope,” “can have,” “likely,” the negatives thereof or similar words and expressions. These forward-looking statements are contained throughout this Form 10-Q, including, but not limited to, statements found in Part I – Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements are only predictions and are not guarantees of future performance. These statements are based on current expectations and assumptions involving judgments about, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company’s control. These predictions are also affected by known and unknown risks, uncertainties and other factors that may cause the Company’s actual results to be materially different from those expressed or implied by any forward-looking statement. Many of these factors are beyond the Company’s ability to control or predict. The Company’s actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors. Such factors include, but are not limited to, the following:

	·	The Company may be unable to continue as a going concern.
	·	Unico is dependent on financial support from Crusader Insurance Company (“Crusader”) to fund its operations or engage in certain strategic alternatives, and there can be no assurances that Crusader’s financial support of Unico will continue.
	·	Crusader is subject to extensive supervision by the California Department of Insurance, (“CA DOI”) and may be subject to further regulatory action.
	·	Crusader is subject to minimum capital and surplus requirements, and its failure to meet those requirements could subject Crusader to additional regulatory action.
	·	The ability of the Company to retain personnel and to maintain appropriate staffing levels is critical to the Company’s success.
	·	Failure to maintain an effective system of internal control over financial reporting and disclosure controls and procedures could lead to errors in our financial reporting and could adversely affect our business.
	·	The Company has a history of net losses and could continue to incur substantial net losses in the future.
	·	The Company’s success will depend on its ability to adjust claims accurately.
	·	Loss and loss adjustment expense reserves are based on estimates and may not be sufficient to cover future losses
	·	The Company does not expect to realize its deferred tax assets, which may have a materially adverse effect on the Company’s financial condition and results of operations.
	·	The Company may be negatively impacted by emerging claim and coverage issues.
	·	The Company’s success depends on the accuracy of its past underwriting of risks and the adequacy of the premiums charged to policyholders.
	·	Inability to obtain reinsurance or to collect ceded losses and loss adjustment expenses could adversely affect Crusader’s ability to write new policies.
	·	The insurance business is subject to extensive regulation and such regulation may become more extensive in the future, which may adversely affect the Company’s business, financial condition, and results of operations.
	·	The Company’s risk management framework could prove inadequate, which could adversely affect the Company.
	·	The Company’s earnings may be affected by changes in interest rates.
	·	The Company’s investments may be subject to credit, prepayment, and other risks.

	·	The Company’s geographic concentration ties its performance to the business, economic, and regulatory conditions in California.
	·	The Company’s single operating location exposes it to geographic risk.
	·	The Company’s reserve for doubtful accounts is based on estimates.
	·	Litigation may have an adverse effect on the Company’s business.
	·	The exclusions and limitations in the Company’s policies may not be enforceable.
	·	The Company may find it difficult to acquire necessary data.
	·	Cybersecurity risks, or failure of the Company’s information technology systems to operate properly and/or the failure to maintain the confidentiality, integrity, and availability of policyholder and claims data, could result in a materially adverse effect on the Company’s business, reputation, financial condition, and results of operations.
	·	Data privacy and security laws and regulations are continuing to change.
	·	Uncertain economic conditions may negatively affect the Company’s business and operating results.
	·	The Company’s business is vulnerable to climate change and significant catastrophic property loss, which could have an adverse effect on its financial condition and results of operations.
	·	The Company’s business may be adversely affected by public health threats and epidemics, including the novel coronavirus (“COVID-19”) and any variants of COVID-19.
	·	The Company’s financial condition may be adversely affected if one or more parties that have significant contracts or relationships with the Company become insolvent, experience other financial difficulties, or default in the performance of obligations.
	·	Crusader is a participant in various underwriting pools and programs which have legal power to levy assessments to Crusader.
	·	The Company’s primary goal is to maximize the long-term value of the enterprise which may sometimes conflict with short-term earnings expectations.
	·	The Company is controlled by a small number of stockholders who will be able to exert significant influence over matters requiring stockholder approval.
	·	Insurance laws make it difficult to effect a change of control of the Company or sale of insurance subsidiary
	·	The Company does not expect to declare or pay dividends on its common shares in the future so any returns will be limited to the value of its stock.
	·	The trading market for the Company’s stock is relatively illiquid.
	·	Changes in the accounting standards issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies may adversely affect the Company’s consolidated financial statements.
	·	Changes in federal or state tax laws could have a materially adverse effect on the Company’s financial condition and results of operations.
	·	The Company’s disclosure controls and procedures may not prevent or detect all acts of fraud.
	·	Changes in general economic conditions may have an adverse effect on the Company’s financial condition and results of operations.
	·	The Company incurs significant costs as a result of operating as a public company, and its management is required to devote substantial time to related compliance initiatives.

Please see Part I - Item 1A – “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as amended by Amendment No. 1 on Form 10-K/A (the “2021 Form 10-K”) as filed with the U.S. Securities and Exchange Commission (“SEC”), as well as other documents we file with the SEC from time-to-time, for other important factors that could cause the Company’s actual results to differ materially from the Company’s current expectations and from the forward-looking statements discussed herein. Because of these and other risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. In addition, these statements speak only as of the date of this Form 10-Q and, except as may be required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.

	·	The Company’s geographic concentration ties its performance to the business, economic, and regulatory conditions in California.
	·	The Company’s single operating location exposes it to geographic risk.
	·	The Company’s reserve for doubtful accounts is based on estimates.
	·	Litigation may have an adverse effect on the Company’s business.
	·	The exclusions and limitations in the Company’s policies may not be enforceable.
	·	The Company may find it difficult to acquire necessary data.
	·	Cybersecurity risks, or the failure of the Company’s information technology systems to operate properly and/or the failure to maintain the confidentiality, integrity, and availability of policyholder and claims data, could result in a materially adverse effect on the Company’s business, reputation, financial condition, and results of operations.
	·	Data privacy and security laws and regulations are continuing to change.
	·	Uncertain economic conditions may negatively affect the Company’s business and operating results.
	·	The Company’s business is vulnerable to climate change and significant catastrophic property loss, which could have an adverse effect on its financial condition and results of operations.
	·	The Company’s business may be adversely affected by public health threats and epidemics, including the novel coronavirus (“COVID-19”) and any variants of COVID-19.
	·	The Company’s financial condition may be adversely affected if one or more parties that have significant contracts or relationships with the Company become insolvent, experience other financial difficulties, or default in the performance of obligations.
	·	Crusader is a participant in various underwriting pools and programs which have legal power to levy assessments to Crusader.
	·	The Company’s primary goal is to maximize the long-term value of the enterprise which may sometimes conflict with short-term earnings expectations.
	·	The Company is controlled by a small number of stockholders who will be able to exert significant influence over matters requiring stockholder approval.
	·	Insurance laws make it difficult to effect a change of control of the Company or sale of insurance subsidiary
	·	The Company does not expect to declare or pay dividends on its common shares in the future so any returns will be limited to the value of its stock.
	·	The trading market for the Company’s stock is relatively illiquid.
	·	Changes in the accounting standards issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies may adversely affect the Company’s consolidated financial statements.
	·	Changes in federal or state tax laws could have a materially adverse effect on the Company’s financial condition and results of operations.
	·	The Company’s disclosure controls and procedures may not prevent or detect all acts of fraud.
	·	Changes in general economic conditions may have an adverse effect on the Company’s revenue and profitability. condition and results of operations.
	·	The Company incurs significant costs as a result of operating as a public company, and its management is required to devote substantial time to related compliance initiatives.

Table Of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. -FINANCIAL STATEMENTS

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2022 (Unaudited)			December 31, 2021
ASSETS
Investments
Available-for-sale: Fixed maturities, at fair value (amortized cost: $67,255,856 at March 31, 2022, and $71,218,405 at December 31, 2021)	$	65,844,664		$	72,413,405
Held-to-maturity: Fixed maturities, at amortized cost (fair value: $300,000 at March 31, 2022, and $300,000 at December 31, 2021)		300,000			300,000
Equity securities, at fair value (cost: $3,613,060 at March 31, 2022, and $3,532,026 at December 31, 2021)		4,030,888			4,131,153
Short‑term investments, at fair value		1,051,230			1,154,750
Total investments		71,226,782			77,999,308
Cash, cash equivalents, and restricted cash (restricted cash of $869,526 at March 31, 2022, and $381,942 at December 31, 2021)		9,471,871			15,626,651
Accrued investment income		397,864			369,928
Receivables, net		437,239			1,204,013
Reinsurance recoverable:
Paid losses and loss adjustment expenses		1,663,273			911,566
Unpaid losses and loss adjustment expenses		26,431,307			27,116,043
Deferred policy acquisition costs		-			986,806
Property and equipment, net		1,961,021			2,154,520
Other assets		518,726			502,095
Total assets	$	112,108,083		$	126,870,930
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses	$	82,257,992		$	82,492,674
Unearned premium		6,779,810			14,331,273
Advance premium and premium deposits		104,018			102,846
Accrued expenses and other liabilities		1,343,222			2,266,237
Total liabilities		90,485,042			99,193,030

Commitments and Contingencies (Note 10)

STOCKHOLDERS’ EQUITY
Common stock, no par value – authorized 10,000,000 shares: 5,304,863 shares issued and outstanding.		3,798,141			3,783,346
Accumulated other comprehensive (loss) income		(1,114,842	)		944,050
Retained earnings		18,939,742			22,950,504
Total stockholders’ equity		21,623,041			27,677,900
Total liabilities and stockholders’ equity	$	112,108,083		$	126,870,930

See notes to condensed consolidated financial statements (unaudited).

Table Of Contents

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended
	March 31
	2022			2021
REVENUES
Insurance company operations:
Net earned premium	$	5,449,052		$	6,603,760
Net investment income		328,782			514,723
Net realized investment gains		61,733			55,399
Net realized gain on real estate sale		-			3,693,858
Net unrealized investment
(losses) gains on equity securities		(180,069	)		151,667
Other income (loss)		89,740			(26,752	)
Total insurance company operations		5,749,238			10,992,655

Other insurance operations:
Gross commissions and fees		313,650			433,461
Finance charges and fees earned		6,298			44,998
Other income (loss), net		1,549			540
Total revenues		6,070,735			11,471,654

EXPENSES
Losses and loss adjustment expenses		6,831,504			5,585,213
Policy acquisition costs		285,641			1,021,965
Salaries and employee benefits		858,404			1,128,090
Commissions to agents/brokers		19,187			20,568
Other operating expenses		1,539,460			1,173,479
Total expenses		9,534,196			8,929,315

(Loss) income before taxes		(3,463,461	)		2,542,339
Income tax expense		(547,301	)		(274,636	)
Net (loss) income	$	(4,010,762	)	$	2,267,703

PER SHARE DATA:
Basic and Diluted
(Loss) income per share	$	(0.76	)	$	0.43
Weighted average shares		5,304,863			5,304,885

See notes to condensed consolidated financial statements (unaudited).

Table Of Contents

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	Three Months Ended
	March 31
	2022			2021

Net (loss) income	$	(4,010,762	)	$	2,267,703
Other changes in comprehensive income (loss):
Changes in unrealized (losses) on securities classified as available-for-sale arising during the period, net of income tax		(2,058,892	)		(1,033,155	)
Comprehensive (loss) income, net of income tax	$	(6,069,654	)	$	1,234,548

See notes to condensed consolidated financial statements (unaudited).

Table Of Contents

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

	Common				Accumulated Other Comprehensive			Retained		Equity
	Shares		Amount		Income (Loss)			Earnings		Total
Balance at December 31, 2020		5,304,885	$	3,771,767	$	2,637,347		$	28,623,846	$	35,032,960
Change in unrealized losses, net of deferred income tax		-		-		(1,033,155	)		-		(1,033,155	)
Net Income				-		-			2,267,703		2,267,703
Balance at March 31, 2021		5,304,885		3,771,767		1,604,192			30,891,549		36,267,508

	Common				Accumulated Other Comprehensive			Retained			Equity
	Shares		Amount		Income (Loss)			Earnings			Total
Balance at December 31, 2021		5,304,863	$	3,783,346	$	944,050		$	22,950,504		$	27,677,900
Change in unrealized losses, net of deferred income tax		-		-		(2,058,892	)		-			(2,058,892	)
Stock based compensation		-		14,795								14,795
Net loss		-		-		-			(4,010,762	)		(4,010,762	)
Balance at March 31, 2022		5,304,863		3,798,141	$	(1,114,842	)		18,939,742			21,623,041

See notes to condensed consolidated financial statements (unaudited).

Table Of Contents

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended
	March 31
	2022			2021
Cash flows from operating activities:
Net (loss) income	$	(4,010,762	)	$	2,267,703
Adjustments to reconcile net loss to net cash from operations:

SEC Form 10-Q filed by Unico American Corporation