PINX:ZNCMD Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

OMB APPROVAL

OMB Number: 3235-0070

Expires: January 31, 2013

Estimated average burden

hours per response . . ..... .187.2

 

 (Mark One)

 

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2012

 

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 Number: 0-27210

 

Zunicom, Inc.

(Exact name of registrant as specified in its charter)

 

Texas

(State or other jurisdiction of

incorporation or organization)

 

75-2408297

(I.R.S. Employer Identification No.)

 

4315 West Lovers Lane, Dallas, Texas

(Address of principal executive offices)

 

(214) 352-8674

(Registrant’s telephone number, including area code)  

 

None

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirements for the past 90 days.

[ X ] Yes [    ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 and post such files).

[ X ] Yes [    ] No

 

 

 

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

 

 

Large accelerated filer   o Accelerated filer                     o
Non-accelerated filer     o Smaller reporting company   þ

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[    ] Yes [ X ] No

 

As of May 14, 2012, 9,904,257 shares of Common Stock were outstanding.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Zunicom, Inc.

INDEX

 

   
 

Page

----

 PART I - Financial Information  
   
 Item 1. Financial Statements  
   

Consolidated Balance Sheet at March 31, 2012 (unaudited)

and Consolidated Balance Sheet at December 31, 2011. . . . . . . . . . .

4
   

Unaudited Consolidated Statements of Operations for the

three months ended March 31, 2012 and 2011 . . . . . . . . . . . . . . .

6
   

Unaudited Consolidated Statements of Cash Flows for the

three months ended March 31, 2012 and 2011 . . . . . . . . . .

7
   

Notes to Unaudited Consolidated Financial Statements. . . . . . . . . .

8
   

Item 2. Management's Discussion and Analysis of Financial

Condition and Results of Operations. . . . . . . . . . . . . . . . . . .

14
   

Item 3. Quantitative and Qualitative Disclosures About Market Risk . . .

16
   

Item 4. Controls and Procedures. . . . . . . . . . . . . . . . . . . . .

16
   

PART II - Other Information

 
   

Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . .

16
   

Item 6. Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . .

16
   

Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18
   

Certifications

 
   
   

 

 

 

 

 

 

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PART I - FINANCIAL INFORMATION

----------------------------------

Item 1. Financial Statements

 

ZUNICOM, INC.

CONSOLIDATED BALANCE SHEETS

 

           
ASSETS
           
  March 31, 2012   December 31, 2011
  (unaudited)      
CURRENT ASSETS          
  Cash and cash equivalents $     3,658,431   $    3,793,507
  Accounts receivable - trade, net of allowance  for doubtful accounts of $12,000 for each period respectively        47,970           44,283
  Inventory          11,253           28,621
  Deferred costs          55,615           67,780
  Prepaid expenses and other current assets          14,477         29,494
Total current assets       3,787,746      3,963,685
           
PROPERTY AND EQUIPMENT          
  Computer equipment            3,147            3,147
  Furniture and fixtures          10,000         10,000
Total Property and Equipment          13,147           13,147
  Less accumulated depreciation          (4,305)         (3,648)
  Net property and equipment           8,842          9,499
           
INTANGIBLE ASSETS - NET OF ACCUMULATED AMORTIZATION       260,750          290,000
           
INVESTMENT IN UNCONSOLIDATED INVESTEE       4,695,631      4,575,977
TOTAL ASSETS  $      8,752,969    $   8,839,161
           

 

 

 

 

The accompanying footnotes are an integral part of these unaudited

consolidated financial statements.

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ZUNICOM, INC.

CONSOLIDATED BALANCE SHEETS - Continued

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY
           
 Current liabilities          
  Accounts payable  $       435,410   $      404,750
  Accrued expenses          43,681           55,402
  Deferred revenue          11,769           13,463
  Customer deposits          46,403         51,121
     Total current liabilities         537,263        524,736
           
DEFERRED TAX LIABILITY       2,186,534      2,213,406
TOTAL LIABILITIES       2,723,797      2,738,142
           
STOCKHOLDERS' EQUITY          
Preferred stock - $1.00 par value,          58,708           60,208
   1,000,000 shares authorized; 58,708 and          
   60,208 Class A Shares issued and out-          
   standing; liquidation preference of $308,217        
   and $316,092 as of March 31, 2012 and December 31, 2011      
Common stock - $0.01 par value; 50,000,000 shares authorized; 9,904,257 and 9,901,257 shares issued and outstanding, respectively        99,043           99,013
Additional paid-in capital       9,200,307        9,194,684
Accumulated deficit      (3,328,886)       (3,252,886)
 Total stockholders' equity       6,029,172        6,101,019
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $      8,752,969    $     8,839,161
           

 

 

 

The accompanying footnotes are an integral part of these unaudited

consolidated financial statements.

 

 

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 ZUNICOM, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2012 and 2011
              
     2012   2011
REVENUE        
  Sales   $    220,414   $ 267,806
  Service         83,853     71,300
Total revenue        304,267     339,106
             
COST OF REVENUE            
  Cost of goods sold        112,701     93,380
  Direct servicing costs         52,056     48,477
Total cost of revenue        164,757       141,857
             
GROSS PROFIT        139,510       197,249
             
OPERATING EXPENSES            
  Selling, general and administrative        326,569     263,920
  Depreciation and amortization         29,907     29,750
Total operating expenses        356,476     293,670
LOSS FROM OPERATIONS      (216,966)       (96,421)
              
OTHER INCOME (EXPENSE)            
  Interest income           1,973     3,341
  Equity  in earnings of unconsolidated investee       117,991     154,826
Total other income        119,964       158,167
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES     (97,002)        61,746
              
INCOME TAXES BENEFIT (EXPENSE)         26,872     (67,540)
             
LOSS FROM CONTINUING OPERATIONS   $   (70,130)   $    (5,794)
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAXES    -         (6,960)
NET LOSS       (70,130)       (12,754)
             
Preferred stock dividend     (5,870)        (5,870)
Net loss attributable to            
 common stockholders   $   (76,000)   $   (18,624)
             
Basic and diluted net loss per share             
attributable to common stockholders:            
  Loss from continuing operations   $     (0.01)   $  (0.00) 
  Loss from discontinued operations   $        -     $  (0.00) 
Net loss per share   $     (0.01)   $  (0.00) 
             
Number of weighted average shares of common stock outstanding        
  Basic and diluted       9,902,675     9,733,527
             

   The accompanying footnotes are an integral part of these unaudited

consolidated financial statements.

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ZUNICOM, INC.
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three Months Ended March 31, 2012 and 2011
              
       2012     2011
                 
CASH FLOWS FROM OPERATING ACTIVITIES:              
Net loss   $    (70,130)     $ (12,754)
Adjustments to reconcile net loss to net cash used in operating activities:    
  Depreciation and amortization          29,907            29,750
  Equity in earnings of investee     (117,991)         (154,827)
  Stock-based compensation           2,491       12,678
  Deferred income taxes     (26,872)            63,955
                 
Changes in operating assets and liabilities:              
  Accounts receivable - trade      (3,688)        3,139
  Inventories          17,366       (45,965)
  Deferred costs          12,165            41,689
  Prepaid expenses and other current assets          15,017             9,158
  Accounts payable          30,663          (58,750)
  Accrued expenses     (11,722)         (28,293)
  Customer deposits     (4,718)             3,707
  Deferred revenue     (1,694)        -- 
Net cash used in operating activities     (129,206)         (136,513)
                  
CASH FLOWS FROM FINANCING ACTIVITIES:              
  Dividends paid on preferred stock      (5,870)          (5,870)
Net cash provided by financing activities     (5,870)         (5,870)
                 
NET DECREASE IN CASH AND CASH EQUIVALENTS      (135,076)          (142,383)
                 
Cash and cash equivalents at beginning of year 3,793,507       4,427,227
                 
Cash and cash equivalents at end of year   $ 3,658,431     $ 4,284,844
                 
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW FINANCING ACTIVITIES        
                 
Conversion of preferred stock to common stock   $ (1,500)     $ -  
                 

 

 

The accompanying footnotes are an integral part of these unaudited

consolidated financial statements.

 

 

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ZUNICOM, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE A - ORGANIZATION

 

Zunicom, Inc., ("Zunicom" or the "Company") was formed on January 10, 1992 as a Texas corporation. Zunicom's consolidated wholly-owned subsidiary, AlphaNet Hospitality Systems Inc. ("AlphaNet"), has been a provider of guest communication services to the hospitality market. AlphaNet discontinued this business as of August 31, 2010. Accordingly, the results of this discontinued operation are presented in our Unaudited Consolidated Statements of Operation above. In April of 2010, AlphaNet purchased the assets and business of Action Computer Systems and is now a reseller of point-of-sale software and hardware to restaurants in southern Connecticut, Westchester County, New York, and New York City (Note I). Zunicom also holds a 40.8 percent ownership interest in Universal Power Group, Inc. (UPG), a distributor and supplier to a diverse and growing range of industries of portable power and related synergistic products, provider of third-party logistics services and a custom battery pack assembler.

 

NOTE B - BASIS OF PRESENTATION

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments considered necessary for a fair presentation have been included for the three month period ended March 31, 2012. The results for the three month period ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012. The unaudited consolidated financial statements included in this filing should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's annual report on form 10-K for the year ended December 31, 2011.

 

NOTE C - STOCK-BASED COMPENSATION

 

Stock-based compensation expense recognized in the statements of operations for the three months ended March 31, 2012 and 2011, of $2,491, and $12,678 respectively, represents the amortization of the restricted stock grant to the Company's chairman.

As of June 30, 2011, the 2007 grant of restricted stock to the Company's chairman has been fully expensed.

Amortization of the restricted stock granted to UPG employees for the three months ended March 31, 2012 and 2011 of $1,663 and $10,271, respectively, represents the amortization of the restricted stock grant to UPG employees in 2007 and 2011. The grant of the new restricted shares to UPG officers and employees is accounted for as a contribution of capital. The Company will amortize 59% of that capital contribution as additional equity in earnings (loss) of the investee over the vesting period.

 

Restricted Stock

 

On June 25, 2007, the Board of Directors approved a grant of 996,940 restricted shares of the Company’s common stock to our chairman and certain officers and employees of UPG. Several of the officers and employees of UPG had been officers and employees of the Company prior to the deconsolidation of UPG in December 2006. The Company attributed a value of $205,801 to the restricted stock granted to our chairman and $377,392 to the restricted stock granted to the officers and employees of UPG. The grant was made in recognition of past and future performance, especially with regard to the initial public offering of UPG's common stock in which Zunicom was able to sell 1,000,000 shares of UPG common stock resulting in an $0.80 dividend to shareholders paid in the first quarter of 2007. The restricted stock vested in full on June 25, 2011, but was extended for three years pursuant to a new agreement as described below. Accordingly, the deferred stock compensation to the Company’s chairman has been fully amortized and the unrecognized compensation cost to certain UPG employees has been fully realized as of September 30, 2011.

 

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NOTE C - STOCK-BASED COMPENSATION (CONTINUED)

 

On January 21, 2009, the chief executive officer of UPG resigned and according to the terms of the restricted stock agreement, forfeited his restricted stock grant. Accordingly, his shares were returned to the Company and the investment in UPG was reduced by $132,925. During 2011, two UPG employees resigned and according to the terms of the restricted stock agreement, forfeited their restricted stock grant. Accordingly, their shares have been returned to the Company and the investment in UPG has been reduced by $4,624.

 

On June 24, 2011, the Company offered an additional grant of restricted shares to the grantees on condition that the grantees would agree that the original grant remain in escrow and subject to the original restrictions until June 30, 2014. The new grant will also be subject to the same restrictions and remain in escrow for the same period. All remaining grantees accepted the Company’s offer.

 

Accordingly, on June 24, 2011, the Company issued a grant of 87,952 restricted shares of common stock to the Company’s chairman and a grant of 99,538 restricted shares of common stock to certain employees of UPG. These additional shares will vest on June 30, 2014 and will be held in escrow for the benefit of the grantee subject to the same restrictions and risk of forfeiture as the original shares until the vesting date.

 

As of March 31, 2012, $7,692 of the restricted stock grant to the Company’s chairman has been amortized and $22,475 remains unamortized and $5,136 of the restricted stock grant to UPG employees has been amortized and $15,007 remains unamortized.

 

The Company accounted for the grant of the new restricted shares to our chairman as stock based compensation. We accounted for the grant of the new restricted shares to UPG officers and employees as a contribution of capital. The Company will amortize 59% of that capital contribution as additional equity in earnings (loss) of the investee over the vesting period.

 

Valuation Assumptions

 

The fair values of option awards are estimated at the grant date using a Black-Scholes option pricing model. There were no options granted in the three months ended March 31, 2012 or 2011.

Activity and Summary

 

Stock option activity under the 1999 and 2000 stock option plans was as follows:

 

      Weighted Average
  Number of Shares   Exercise Price
  Options outstanding at December 31, 2011 125,000    $ 0.71
  Granted --    $ --
  Exercised --    $ --
  Canceled, lapsed or forfeited (25,000 $ 1.75
  Options outstanding at March 31, 2012 100,000     0.45

 

 

 

 

 

 

 

 

 

 

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NOTE C - STOCK-BASED COMPENSATION (CONTINUED)

 

The following table summarizes stock options outstanding under the 1999 and 2000

stock option plans at March 31, 2012:

 

    Options Outstanding     Options Exercisable
      Weighted                
      Average                
      Remaining   Weighted       Weighted
    Number of  Contractual   Average     Number of   Average
  Range of  Options   Life   Exercise     Options   Exercise
  Exercise Prices  Outstanding   (in years)   Price    Exercisable   Price
  $ 0.45   100,000   1.0   $ 0.45     100,000   $ 0.45

 

  

At March 31, 2012, the aggregate intrinsic value of options outstanding and exercisable was $0. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company's common stock for those awards that have an exercise price currently below the quoted price. At March 31, 2012, all outstanding options were fully vested.

 

NOTE D - NET LOSS PER SHARE

 

Basic net loss per share is computed by dividing net loss increased by the preferred stock dividends of $5,870 and $5,870 for the three months ended March 31, 2012 and 2011, respectively, by the weighted average number of common shares outstanding for the period.

Diluted net loss per share is computed by dividing net income decreased by the preferred stock dividends by the weighted average number of common shares and common stock equivalents outstanding for the period. The Company's common stock equivalents include all common stock issuable upon conversion of preferred stock and the exercise of outstanding stock options. 

The dilutive effect of 100,000 options and the dilutive effect of the conversion of 58,708 shares of preferred stock into 117,416 shares of common stock have not been included in the computation of dilutive net income per share for the three month period ended March 31, 2012 and 2011 as the effect would be anti-dilutive.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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NOTE E - UNCONSOLIDATED INVESTEE

 

The Company's investment in UPG is accounted for under the equity method of accounting for the three month periods ended March 31, 2012 and 2011. Following is a summary of financial information of UPG for the three months ended March 31, 2012 and 2011:

 

Three Months Ended March 31,

($ in thousands)

 

 

 

    2012     2011  
                                     
Net revenues $ 26,410   $ 21,587  
             
Cost of revenues   21,734     17,278  
             
Gross profit   4,676     4,309  
             
Operating expenses   4,167     3,536  
             
Income from operations     509     773  
             
Interest expense   (144)   (141)  
Other, net   125     -  

Income from operations

before income tax provision

 

 

490

   

 

632

 
             
Income tax provision   (198)     (229)  
             
Net income $ 292   $ 403  
                                 

 

Following is a summary of the balance sheets for UPG as of

March 31, 2012 and December 31, 2011.

  ($ in thousands)
  March 31,  December 31,
  2012 2011

Current assets                                       

45,533

40,990

Noncurrent assets

2,995 3,085

Current liabilities 

25,241

21,086

Noncurrent liabilities 204 229
Shareholders' equity 23,083 22,760

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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NOTE F - FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

 

The Company utilizes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach). The levels of the hierarchy are described below:

  Level 1: consists of financial instruments whose value is based on quoted market prices for identical financial instruments in an active market
  Level 2: consists of financial instruments that are valued using models or other valuation methodologies. These models use inputs that are observable either directly or indirectly; Level 2 inputs include (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in markets that are not active, (iii) pricing models whose inputs are observable for substantially the full term of the financial instrument and (iv) pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the financial instrument
  Level 3: consists of financial instruments whose values are determined using pricing models that utilize significant inputs that are primarily unobservable, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation

The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial instruments and their classification within the fair value hierarchy. Financial instruments are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. There have been no changes in the classification of any financial instruments within the fair value hierarchy.

 

NOTE G - SHAREHOLDERS' EQUITY

 

During the three month periods ended March 31, 2012 and 2011, the Company paid a cash dividend of $5,870, and $5,870, respectively, to the holders of its class A Preferred Stock.

NOTE H - LEGAL PROCEEDINGS

 

The Company is subject to legal proceedings and claims that arise in the ordinary course of business. As of March 31, 2012, the Company is not subject to any ongoing legal proceedings.

 

NOTE I - PURCHASE OF BUSINESS

 

On March 30, 2010, AlphaNet entered into a binding agreement to acquire the business and the assets of Advanced Computer Software, Inc., a New York corporation, doing business as Action Computer Systems for a purchase price of $495,000. Action Computer Systems is a reseller of point-of-sale software to restaurants in the New York metropolitan area and southern Connecticut. The software, Restaurant Manager, was developed by Action Systems Inc., Silver Spring, Maryland. On April 23, 2010, AlphaNet closed on the acquisition and now provides point-of-sale software, hardware systems and maintenance and support to restaurants in the New York metropolitan area and southern Connecticut.

 

The Company accounted for this purchase under the acquisition method of accounting. The following represents the purchase price allocation at the date of the acquisition:

 

  Customer Lists $  335,000
  Covenant not to compete     150,000
  Fixed Assets     10,000
  Purchase price $   $495,000

 

 

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NOTE J – DISCONTINUED OPERATIONS

 

In August 2010, the Company discontinued its guest communications services business. The Company chose to abandon the assets associated with this business and accordingly has written these assets off in the consolidated statements of operations for the year ended December 31, 2010.

The liability related to discontinued operations as of March 31, 2012 and 2011 is accounts payable of $282,725 and $289,102 respectively.

 

NOTE K - ECONOMIC DEPENDENCE

 

With the purchase of the business of Action Computer Systems in April 2010, the Company is now a reseller for Action Systems Inc. (ASI) in Silver Spring, Maryland, the developer of Restaurant Manager, a point-of-sale computer software system designed for restaurants. Should ASI fail to develop and issue improvements for the Restaurant Manager software to keep pace with technological developments and the operational needs of restaurants, Restaurant Manager's competitive position could be diminished and the Company's business would be harmed.

Should ASI cease operation of its business, the Company would be forced to identify other point-of-sale software that it could offer to the restaurant industry. The Company has an effective sales and marketing, and service and support infrastructure in place and an installed system base in excess of 500 customers which could make it an attractive reseller for one of the many point-of-sale software systems offered to restaurants. However, there is no guarantee that the Company would be able to identify such a replacement system or, if identified, complete an arrangement satisfactory to the Company or to the system developer.

 

NOTE L – REVERSE/FORWARD STOCK SPLIT

 

The Company's Board of Directors has approved a 1-for-12 reverse stock split of our Common Stock followed by a 12-for-1 forward stock split of our Common Stock (the" Reverse/Forward Stock Split"). In January 2012 shareholders owing in excess of 50% of the voting power of the Company approved the Reverse/Forward Stock Split. On February 10, 2012, the Company filed Schedules 14C and a 13E-3 Transaction Statement with the Security and Exchange Commission (SEC) in connection with the Reverse/Forward Stock Split. We cannot effectuate the Reverse/Forward Stock Split until twenty days after we mail our Schedule 14C Information Statement to our shareholders. If consummated, the Reverse/Forward Stock Split would provide that all shareholders owning less than 12 shares of our Common Stock would receive a payment of $.65 for each share and would thereafter no longer be shareholders of the Company. The shareholdings of all other shareholders would remain unchanged. The Reverse/Forward Stock Split is part of the Company's plan to terminate the registration of the Common Stock and suspend its reporting requirements under the Exchange Act ("Deregistration" or "Deregister"). Following the effective date of the Reverse/Forward Stock Split, the Company would have fewer than 300 Shareholders of record and would be eligible for Deregistration under the Exchange Act. Therefore, the Reverse/Forward Stock Split is considered a "going private" transaction as defined in Rule 13e-3 promulgated under the Exchange Act. The Company has received comments from the SEC and is in the process of responding to those comments.

 

 

 

 

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with Zunicom's Unaudited Consolidated Interim Financial Statements and notes thereto included elsewhere in this Form 10-Q. Except for the historical information contained herein, the discussion in this Form 10-Q contains certain forward looking statements that involve risks and uncertainties, such as statements of Zunicom's plans, objectives, expectations and intentions. The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-Q. These statements include, without limitation, statements concerning the potential operations and results of the Company described below. Zunicom's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, without limitation, those factors discussed herein and in Zunicom's Annual Report on Form 10-K for the year ended December 31, 2011.

 

RESULTS OF OPERATIONS

 

Currently, the operations of Zunicom are conducted through its wholly-owned subsidiary, AlphaNet. AlphaNet had been a provider of guest communication services to the hospitality market. AlphaNet exited this business as of August 31, 2010. In April 2010, AlphaNet purchased the assets and business of Action Computer Systems and is now a reseller of point-of-sale software and hardware to restaurants in southern Connecticut, Westchester County, New York, and New York City.

 

Three months ended March 31, 2012

 

REVENUES

 

For the three month period ended March 31, 2012, Zunicom, through its wholly owned subsidiary Alphanet, had consolidated revenues of $304,267 compared to $339,106 for the same period in 2011, a decrease of $34,839 or 10.3%. The decrease is due primarily to a decrease in the sales of new systems offset by increases in service and commission revenue. We are encountering increased competition from lower end point-of-sale systems reducing the number of systems sold and decreasing prices and margins on those systems sold.

 

COST OF REVENUES

 

For the three month period ended March 31, 2012, cost of revenue was $164,757 compared to $141,857 for the same period in 2011, an increase of $22,900 or 16.1%. The increase primarily reflects increases in the cost of new system components and technician’s wages. In 2011, we were able to purchase a key new system component at a significant discount due to a model change, reducing our cost of sales and increasing our gross profit. The increase in the cost of technicians reflects the increases in service revenue.

 

GROSS PROFIT

 

For the three month period ended March 31, 2012, gross profit was $139,510 compared to $197,249 for the same period in 2011, a decrease of $57,739 or 29.3%. Gross profit as a percent of total revenue was 45.8% for the three month period ended March 31, 2012 compared to 58.2% for the same period in 2011. The drop in gross profit reflects the discounted purchase in 2011 and increasing pricing pressure in the market for point-of-sale systems.

 

 

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

 

OPERATING EXPENSES

 

For the three month period ended March 31, 2012, Zunicom's consolidated operating expenses, consisting of selling, general and administrative expenses increased to $326,569 compared to $263,920 for the same period in 2011, an increase of $62,649 or 23.7%. The increase is due to an increase in Zunicom’s legal fees related to the 14C and 13E-3 filings with the Securities and Exchange Commission (see note L in the financial statements) offset by a decrease in stock compensation expense. Operating expenses increased at Action Computer Systems due primarily to an increase in compensation costs reflecting the addition of one marketing and administrative support position, an increase in marketing expenses reflecting efforts to increase the number of customers on service and support contracts, and an increase in health insurance costs, offset by a decrease in sales commissions reflecting the lower volume of new systems sales.

 

For the three month period ended March 31, 2012, the Company recorded $29,907 in depreciation and amortization expense compared to $29,750 in 2011.

 

OTHER INCOME / EXPENSE

 

Zunicom's consolidated interest income for the three month period ended March 31, 2012 was $1,973 compared to interest income of $3,341 for the same period in 2011, a decrease of $1,368, or 40.9%. The decrease is due to a declining cash balance.

 

Equity in earnings of investee of $117,991 represents Zunicom's share of UPG's net income for the three month period ended March 31, 2012 recorded in accordance with the equity method of accounting for an unconsolidated investee.

 

 

LIQUIDITY

 

Zunicom, on a consolidated basis, had cash and cash equivalents of $3,658,431 at March 31, 2012.

 

Net cash used in operating activities was $129,206 for the three month period ended March 31, 2012 as compared to $136,513 for the same period in 2011. The cash used in operating activities is primarily attributable to the net loss of $70,130, equity in earnings of investee of $117,991, deferred income taxes of 26,872, offset by depreciation of $29,907, non-cash stock based compensation of $2,491, and changes in operating assets and liabilities of $53,389.

 

Net cash used in financing activities for the three month period ended March 31, 2012 was $5,870 representing payment of a cash dividend on the Company's preferred stock.

 

Zunicom management believes that cash on hand will be sufficient to meet its operational needs over the next year.

 

 

 

 

 

 

  

 

 

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Interest Rates

 

We currently have no direct borrowings and therefore are not exposed to market rate risk for changes in interest rates.

 

ITEM 4. CONTROLS AND PROCEDURES

 

The Company's management, including the Company's principal executive officer and principal financial officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13(a) - 15(e) and 15(d) - 15(e) under the Securities Exchange Act of 1934) as of the three months ended March 31, 2012. Based upon that evaluation, the Company's principal executive officer and principal financial officer have concluded that the disclosure controls and procedures were effective as of March 31, 2012 to insure that the information required to be disclosed by us in the reports filed or submitted by us under the Securities Exchange Act of 1934, as amended, was recorded, processed, summarized or reported within the time periods specified in the rules and regulations of the SEC, and included controls and procedures designed to ensure that information required to be disclosed by us in such reports was accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

 

There were no changes in the Company's internal control over financial reporting that occurred during the Company's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings. None

 

Item 6. Exhibits.

 

a.The following exhibits are filed as part of this report or incorporated herein as indicated.

 

3.1 Articles of Incorporation, as amended (incorporated by reference to the Company's Registration Statement on Form SB-2, Commission File No. 33-98662, filed on October 30, 1995 and amended on January 5,1996 and January 23, 1996).
   
3.2 Certificate of Designation (incorporated by reference to the Company's Registration Statement on Form SB-2, Commission File No. 33-98662, filed on October 30, 1995 and amended on January 5, 1996 and January 23, 1996).
   
3.2A Amended Certificate of Designation (incorporated by reference to the Company's Registration Statement on Form SB-2, Commission File No.33-98662, filed on October 30, 1995 and amended on January 5, 1996 and January 23, 1996).
   
3.3 Bylaws (incorporated by reference to the Company's Registration Statement on Form SB-2, Commission File No. 33-98662, filed on October 30, 1995 and amended on January 5, 1996 and January 23, 1996).

 

 

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10.1 Second Amended and Restated Creditors Subordination Agreement (incorporated by reference to the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2008, Commission File No. 0-27210, filed August 14, 2008)
10.2

Purchase and Sale agreement between AlphaNet Hospitality Systems, Inc. Advanced Computer Software, Inc. dated March 30, 2010 (incorporated by reference to the Company's Annual Report on Form 10-K for the Fiscal year ended December 31, 2009, Commission File No. 000-27210, filed April 7, 2010)

 

14.2

 

Code of Ethics and Business Conduct as adopted March 30, 2004 (incorporated by reference to the Company's Annual Report on Form 10-K for the Fiscal Year ended December 31, 2003, Commission File No. 0-27210, filed March 31, 2004)
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 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
   
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
   

____________

* Filed herewith.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Signature

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

  Zunicom, Inc.
  (Registrant)
   
Date: May 15, 2012 /s/ John C. Rudy
 

John C. Rudy

Chief Financial Officer

(principal financial officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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PINX:ZNCMD Quarterly Report 10-Q Filling

PINX:ZNCMD Stock - Get Quarterly Report SEC Filing of PINX:ZNCMD stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

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PINX:ZNCMD Quarterly Report 10-Q Filing - 3/31/2012
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