PINX:ZNCMD Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

 

 

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 June 30, 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 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.

[ 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 August 14, 2012, 9,904,257 shares of Common Stock were outstanding.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Zunicom, Inc.

INDEX

 

 

 PART I - Financial Information  Page
   
 Item 1. Financial Statements  
   

Consolidated Balance Sheet at June 30, 2012 (unaudited)

and Consolidated Balance Sheet at December 31, 2011

4
   

Unaudited Consolidated Statements of Operations for the

three and six months ended June 30, 2012 and 2011

5
   

Unaudited Consolidated Statements of Cash Flows for the

six months ended June 30, 2012 and 2011

7
   
Notes to Unaudited Consolidated Financial Statements 9
   

Item 2. Management's Discussion and Analysis of Financial

Condition and Results of Operations

15
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
   
Item 4. Controls and Procedures 18
   
PART II - Other Information  
   
Item 1. Legal Proceedings 18
   
Item 6. Exhibits 18
   
Signature 20
   
Certifications  
   

 

 

 

 

 

 

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PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

ZUNICOM, INC.
CONSOLIDATED BALANCE SHEETS
           
ASSETS
  June 30, 2012   December 31, 2011
  (unaudited)      
CURRENT ASSETS          

Cash and cash equivalents

$     3,332,126   $    3,793,507

Accounts receivable - trade, net of allowance for doubtful accounts of $12,000 for each period respectively

         44,206           44,283
  Inventory          12,780           28,621
  Deferred costs          70,615           67,780
  Prepaid expenses and other current assets          62,589         29,494
Total current assets       3,522,316      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   (4,963)     (3,648)
    Net property and equipment           8,184          9,499
           
INTANGIBLE ASSETS - NET OF ACCUMULATED AMORTIZATION         231,500          290,000
           
INVESTMENT IN UNCONSOLIDATED INVESTEE       4,655,883      4,575,977
TOTAL ASSETS $     8,417,883   $  8,839,161
           
LIABILITIES AND STOCKHOLDERS' EQUITY
           
 Current liabilities          
  Accounts payable  $       333,009   $      404,750
  Accrued expenses          22,393           55,402
  Deferred revenue          14,318           13,463
  Customer deposits          67,200         51,121
     Total current liabilities         436,920        524,736
           
DEFERRED TAX LIABILITY       2,111,472      2,213,406
TOTAL LIABILITIES       2,548,392      2,738,142
           
STOCKHOLDERS' EQUITY          

Preferred stock - $1.00 par value, 1,000,000 shares authorized; 58,708 and 60,208 Class A Shares issued and outstanding; liquidation preference of $308,217 and $316,092 as of June 30, 2012 and December 31, 2011

         58,708           60,208

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       9,204,463        9,194,684
Accumulated deficit   (3,492,723)     (3,252,886)
 Total stockholders' equity       5,869,491        6,101,019
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $     8,417,883   $    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 and Six Months Ended June 30, 2012 and 2011
                      
     For the three months ended   For the six months ended
     June 30,   June 30,
     2012   2011   2012   2011
REVENUE                    
  Sales   $   163,241   $   336,604    $ 383,655   $ 604,410
  Service       102,723        67,928     186,576     139,228
Total revenue       265,964       404,532     570,231     743,638
                         
COST OF REVENUE                        
  Cost of goods sold        88,605       168,384     201,306     261,764
  Direct servicing costs        51,009        57,370     103,065     105,847
Total cost of revenue       139,614       225,754       304,371       367,611
                         
GROSS PROFIT       126,350       178,778       265,860       376,027
                         
OPERATING EXPENSES                        
  Selling, general and administrative       290,440       304,726     617,008     579,191
  Depreciation and amortization        29,908        29,750     59,815     59,500
Total operating expenses       320,348       334,476     676,823     638,691
LOSS FROM OPERATIONS       (193,998)      (155,698)      (410,963)      (262,664)
                          
OTHER INCOME (EXPENSE)                        

Interest income

        1,795         3,218     3,768     6,559

Equity  in (loss) earnings of unconsolidated investee

      (41,412)        51,368     76,579     206,194
Total other income       (39,617)        54,586        80,347       212,753
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES      (233,615)      (101,112)      (330,616)       (49,911)
                          
INCOME TAXES BENEFIT (EXPENSE)        75,062        15,402     101,934     (48,553)
                         
   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 and Six Months Ended June 30, 2012 and 2011
                     
    For the three months ended   For the six months ended
    June 30,   June 30,
    2012   2011   2012   2011
                     
NET LOSS   $ (158,553)   $ (85,710)   $ (228,682)   $ (98,464)
                         
Preferred stock dividend     (5,284)     (5,419)     (11,154)     (11,289)
                         
Net loss attributable to common stockholders   $ (163,837)   $ (91,129)   $ (239,836)   $ (109,753)
                         
                         
Basic and diluted net loss per share attributable to common stockholders:                        
  Net Loss   $ (0.02)   $ (0.01)   $ (0.02)   $ (0.01)
                         
Number of weighted average shares of common stock outstanding                        
  Basic and diluted     9,904,257     9,744,586     9,903,466     9,739,087
                         
   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 Six Months Ended June 30, 2012 and 2011
         
    2012   2011
             
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss $ (228,682)   $ (98,464)
Adjustments to reconcile net loss to net cash used in operating activities:          
  Depreciation and amortization        59,815          59,500
  Equity in earnings of investee       (76,579)        (206,194)
  Stock-based compensation         4,982          24,956
  Deferred income taxes      (101,934)          48,553
             
Changes in operating assets and liabilities:          
  Accounts receivable - trade     77     (30,366)
  Inventories        15,841         (23,167)
  Deferred costs     (2,835)        51,689
  Prepaid expenses and other current assets   (33,095)      (23,515)
  Accounts payable   (71,741)     (32,251)
  Accrued expenses   (33,010)     (29,098)
  Deferred revenue           855      --
  Customer deposits      16,079     (10,596)
Net cash used in operating activities   (450,227)     (268,953)
             
CASH FLOWS FROM FINANCING ACTIVITIES:          
  Dividends paid on preferred stock    (11,154)      (11,289)
Net cash provided by financing activities   (11,154)     (11,289)
             
   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 Six Months Ended June 30, 2012 and 2011
         
    2012     2011
             
NET DECREASE IN CASH AND CASH EQUIVALENTS    (461,381)      (280,242)
             
Cash and cash equivalents at beginning of period   3,793,507     4,427,227
             
Cash and cash equivalents at end of period $ 3,332,126   $ 4,146,985
             
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW FINANCING ACTIVITIES          
             
Conversion of preferred stock to common stock $ (1,500)   $ -
Income taxes paid $ 720   $ -
Restricted stock issued $ -   $ 64,309
             
 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. 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 and six month periods ended June 30, 2012. The results for the three and six month periods ended June 30, 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 and six months ended June 30, 2012 and 2011, of $2,491, $12,278, $4,982, and $24,956 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 and six months ended June 30, 2012 and 2011 of $1,663, $110, $3,326, and $10,381 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 99,536 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 June 30, 2012, $10,184 of the restricted stock grant to the Company’s chairman has been amortized and $19,984 remains unamortized and $6,800 of the restricted stock grant to UPG employees has been amortized and $13,343 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 six months ended June 30, 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 June 30, 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 June 30, 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 0.75   $ 0.45     100,000   $ 0.45

 

  

At June 30, 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 June 30, 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 $5,284 and $5,419, $11,154, and $11,289 for the three and six months ended June 30, 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 and six month periods ended June 30, 2012, as the effect would be anti-dilutive.

The dilutive effect of 100,000 in-the-money options and the dilutive effect of the conversion of 60,208 shares of preferred stock into 120,416 shares of common stock have not been included in the computation of dilutive net income per share for the three and six month periods ended June 30, 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 and six month periods ended June 30, 2012 and 2011. Following is a summary of financial information of UPG for the three and six month periods ended June 30, 2012 and 2011:

 

Three and Six Months Ended June 30,

($ in thousands)

 

 

  2012   2011   2012   2011
                       
Net revenues $ 23,583   $ 21,580   $ 49,921   $ 43,109
Cost of revenues   19,392     17,218     41,077     34,429
Gross profit   4,191     4,362     8,844     8,680
Operating expenses   3,487     3,877     7,572     7,283
Income from operations   704     485     1,272     1,397
                       
Interest expense   (153)     (150)     (296)     (290)
Other, net   --     --     127     --
Income from continuing operations                      
  before income tax provision   551     335     1,103     1,107
Income tax provision   (145)     (146)     (361)     (425)
                       
Income from continuing operations   406     189     742     682
                       
Loss from discontinued operations                      
  before income tax provision   (646)     (88)     (707)     (228)
Income tax provision   143     24     160     74
                       
Loss from discontinued operations   (503)     (64)     (547)     (154)
                       
Net income (loss) $ (97)   $ 125   $ 195   $ 528

 

 

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

June 30, 2012 and December 31, 2011.

  ($ in thousands)
  June 30,  December 31,
  2012 2011
Current assets                                        55,792 40,990
Noncurrent assets 2,779 3,085
Current liabilities  35,382 21,086
Noncurrent liabilities 180 229
Shareholders' equity 23,009 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 and six month periods ended June 30, 2012 and 2011, the Company paid a cash dividend of $5,284, $5,419, $11,154, and $11,289 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 June 30, 2012, the Company is not subject to any ongoing legal proceedings.

 

NOTE I – 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 June 30, 2012 and December 31, 2011 is accounts payable of $252,725 and $289,102 respectively.

 

 

 

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NOTE J - 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 K – 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 notice from the SEC that they have completed their review. The Company is now in the process of updating and mailing the Schedule 14C to its shareholders.

 

 

 

 

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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 June 30, 2012

 

REVENUES

 

For the three month period ended June 30, 2012, Zunicom, through its wholly owned subsidiary Alphanet, had consolidated revenues of $265,964 compared to $404,532 for the same period in 2011, a decrease of $138,568 or 34.2%. 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. In July 2012, we became a reseller for a lower-end, cloud-based restaurant point-of-sale system and added a salesman.

 

COST OF REVENUES

 

For the three month period ended June 30, 2012, cost of revenue was $139,614 compared to $225,754 for the same period in 2011, an decrease of $86,140 or 38.1%. The decrease reflects the decrease in the sales of new systems.

 

GROSS PROFIT

 

For the three month period ended June 30, 2012, gross profit was $126,350 compared to $178,778 for the same period in 2011, a decrease of $52,428 or 29.3%. Gross profit as a percent of total revenue was 47.5% for the three month period ended June 30, 2012 compared to 44.2% for the same period in 2011. The drop in gross profit dollars reflects the increasing pricing pressure in the market for point-of-sale systems while the increase in gross profit percent reflects the increase in service revenue which carries a higher gross profit percent.

 

 

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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 June 30, 2012, Zunicom's consolidated operating expenses, consisting of selling, general and administrative expenses decreased to $290,440 compared to $304,726 for the same period in 2011, a decrease of $14,286 or 4.7%. The decrease is primarily due to a decrease in Zunicom’s legal fees related to the 14C and 13E-3 filings with the Securities and Exchange Commission (see note K in the financial statements). Operating expenses at Action Computer Systems are essentially flat between the two periods.

 

For the three month period ended June 30, 2012, the Company recorded $29,908 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 June 30, 2012 was $1,795 compared to interest income of $3,218 for the same period in 2011, a decrease of $1,423, or 44.2%. The decrease is due to a declining cash balance.

 

Equity in loss of investee of $41,412 represents Zunicom's share of UPG's net loss for the three month period ended June 30, 2012 recorded in accordance with the equity method of accounting for an unconsolidated investee.

 

 

Six months ended June 30, 2012

 

REVENUES

 

For the six month period ended June 30, 2012, Zunicom, through its wholly owned subsidiary Alphanet, had consolidated revenues of $570,231 compared to $743,638 for the same period in 2011, a decrease of $173,407 or 23.3%. 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. In July 2012, we became a reseller for a lower-end, cloud-based restaurant point-of-sale system and added a salesman.

 

 

COST OF REVENUES

 

For the six month period ended June 30, 2012, cost of revenue was $304,371 compared to $367,611 for the same period in 2011, a decrease of $63,240 or 17.2%. The decrease reflects the decrease in the sales of new systems.

 

GROSS PROFIT

 

For the six month period ended June 30, 2012, gross profit was $265,860 compared to $376,027 for the same period in 2011, a decrease of $110,167 or 29.3%. Gross profit as a percent of total revenue was 46.6% for the six month period ended June 30, 2012 compared to 50.6% for the same period in 2011. The drop in gross profit reflects the discounted purchase of equipment 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 six month period ended June 30, 2012, Zunicom's consolidated operating expenses, consisting of selling, general and administrative expenses increased to $617,008 compared to $579,191 for the same period in 2011, an increase of $37,817 or 6.5%. 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 K 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 six month period ended June 30, 2012, the Company recorded $59,815 in depreciation and amortization expense compared to $59,500 in 2011.

 

OTHER INCOME / EXPENSE

 

Zunicom's consolidated interest income for the six month period ended June 30, 2012 was $3,768 compared to interest income of $6,559 for the same period in 2011, a decrease of $2,791, or 42.6%. The decrease is due to a declining cash balance.

 

Equity in earnings of investee of $76,579 represents Zunicom's share of UPG's net income for the six month period ended June 30, 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 $3,332,126 at June 30, 2012.

 

Net cash used in operating activities was $450,227 for the six month period ended June 30, 2012 as compared to $268,953 for the same period in 2011. The cash used in operating activities is primarily attributable to the net loss of $228,682, equity in earnings of investee of $76,579, deferred income taxes of $101,934, offset by depreciation of $59,815, non-cash stock based compensation of $4,982, and changes in operating assets and liabilities of negative $107,829.

 

Net cash used in financing activities for the six month period ended June 30, 2012 was $11,154 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 six months ended June 30, 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 June 30, 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: August 14, 2012 /s/ John C. Rudy
 

John C. Rudy

Chief Financial Officer

(principal financial officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20


 

 

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 - 6/30/2012
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