10-Q 1 zunicom_2011jun30-10q.htm

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, 2011

[ ] 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

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 July 31, 2011, 9,901,255 shares of Common Stock were outstanding.

Zunicom, Inc.

INDEX

	Page
PART I - Financial Information

Item 1. Financial Statements

Consolidated Balance Sheet at June 30, 2011 (unaudited) and Consolidated Balance Sheet at December 31, 2010.. . . . . . . . .	4

Unaudited Consolidated Statements of Operations for the Three and six months ended June 30, 2011 and 2010. . . . . . . . . . .	6

Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010. . . . . .. . . . . . . . . . . . . . . .	8

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 . . . . . . . . . . . . . . . . . . . . . .	19

Item 6. Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . .	19

Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21

Certifications

PART I - FINANCIAL INFORMATION

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

Item 1. Financial Statements

ZUNICOM, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS		June 30, 2011		December 31, 2010
		(unaudited)		(audited)
CURRENT ASSETS
Cash and cash equivalents	$	4,146,985	$	4,427,227

Accounts receivable – trade, net of allowance for doubtful accounts of $6,323 and 6,323, respectively		67,430		37,064
Inventory		23,167		-
Deferred costs		17,345		69,034
Prepaid expenses and other current assets		58,683		35,166
Total current assets		4,313,610		4,568,491

PROPERTY AND EQUIPMENT
Furniture and fixtures		10,000		10,000

Less accumulated depreciation		(2,333)		(1,333)

Net property and equipment		7,667		8,667

INTANGIBLE ASSETS – NET OF ACCUMULATED AMORTIZATION		348,500		407,000

INVESTMENT IN UNCONSOLIDATED INVESTEE		4,704,717		4,489,039

TOTAL ASSETS	$	9,374,494	$	9,473,197

(Continued)

ZUNICOM, INC.

CONSOLIDATED BALANCE SHEETS - Continued

LIABILITIES AND STOCKHOLDERS' EQUITY		June 30, 2011		December 31, 2010
		(unaudited)		(audited)
CURRENT LIABILITIES
Accounts payable		373,935		406,185
Accrued liabilities		23,121		52,219
Customer deposits		41,990		52,586
Total current liabilities		439,046		510,990

NON-CURRENT DEFERRED TAX LIABILITY		2,473,416		2,424,863
TOTAL LIABILITIES		2,912,462		2,935,853

STOCKHOLDERS' EQUITY

Preferred stock - $1.00 par value, 1,000,000 shares authorized; 60,208 and 60,208 Class A Preferred Shares issued and outstanding; liquidation preference of $316,092 as of June 30, 2011		60,208		60,208
Common stock - $0.01 par value; 50,000,000 shares authorized; 9,901,255 and 9,733,527 shares issued and outstanding		99,013		97,335
Additional paid-in capital		9,186,283		9,153,520
Accumulated deficit		(2,883,472)		(2,773,719)
Total stockholders' equity		6,462,032		6,537,344
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	9,374,494	$	9,473,197

The accompanying footnotes are an integral part of these unaudited

consolidated financial statements.

ZUNICOM, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months and Six Months Ended June 30, 2011 and 2010

	For the three months ended June 30,				For the six months ended June 30,
		2011		2010		2011		2010
REVENUES
Sales revenue	$	336,604	$	168,959	$	604,410	$	168,959
Service revenue		67,928		72,276		139,228		72,276
Total revenue		404,532		241,235		743,638		241,235
COST OF REVENUES
Cost of sales		168,384		96,853		261,764		96,853
Direct servicing costs		57,370		31,417		105,847		31,417

Total cost of revenues		225,754		128,270		367,611		128,270

GROSS PROFIT		178,778		112,965		376,027		112,965

OPERATING EXPENSES
Selling, general and administrative		304,726		300,419		579,191		432,324
Depreciation and amortization		29,750		19,833		59,500		19,833

		334,476		320,252		638,691		452,157

LOSS FROM OPERATIONS		(155,698)		(207,287)		(262,664)		(339,192)

OTHER INCOME (EXPENSES)
Interest income		3,218		5,563		6,559		11,971
Equity in earnings of investee		51,368		335,462		206,194		532,531
Total other income		54,586		341,025		212,753		544,502
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES AND DISCONTINUED OPERATIONS		(101,112)		133,738		(49,911)		205,310
INCOME TAX (EXPENSE) BENEFIT		15,402		(46,976)		(48,553)		(98,817)
(LOSS) INCOME FROM CONTINUING OPERATIONS	$	(85,710)	$	86,762	$	(98,464)	$	106,493
LOSS FROM DISCONTINUED OPERATIONS NET OF TAXES		--		(78,534)		--		(140,517)
NET (LOSS) INCOME		(85,710)		8,228		(98,464)		(34,024)
Preferred stock dividend		(5,419)		(5,419)		(11,289)		(11,289)

(Continued)

ZUNICOM, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months and Six Months Ended June 30, 2011 and 2010

(Continued)

	For the three months ended June 30,				For the six months ended June 30,
		2011		2010		2011		2010
Net (loss)income attributable to common stockholders	$	(91,129)	$	2,809	$	(109,753)	$	(45,313)

Net (loss)income per share attributable to common stockholders
Basic
(Loss) income from Continuing operations	$	(0.01)	$	0.01	$	(0.01)	$	0.01

(Loss) from discontinued Operations	$	--	$	(0.01)	$	--	$	(0.01)

Net loss per share	$	(0.01)	$	0.00	$	(0.01)	$	0.00

Diluted

(Loss) income from Continuing operations	$	(0.01)	$	0.01	$	(0.01)	$	0.01

(Loss) from discontinued Operations	$	--	$	(0.01)	$	--	$	(0.01)

Net loss per share	$	(0.01)	$	0.00	$	(0.01)	$	0.00

Number of weighted average shares of common stock outstanding
Basic		9,744,586		9,733,527		9,739,087		9,733,527

Diluted		9,744,586		9,953,943		9,739,087		9,733,527

The accompanying footnotes are an integral part of these unaudited

consolidated financial statements.

ZUNICOM, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Six Months Ended June 30, 2011 and 2010

		2011		2010

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(98,463)	$	(34,024)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		59,500		27,463
Write off of property and equipment		--		4,355
Equity in earnings of investee		(206,194)		(532,531)
Non-cash stock-based compensation		24,956		25,496
Provision for income taxes - deferred		48,553		26,430

Change in operating assets and liabilities:
Accounts receivable – trade		(30,366)		(51,516)
Inventory		(23,167)		--
Prepaid expenses and other current assets		(23,516)		(22,996)
Deferred costs		51,689		--
Accounts payable		(32,251)		74,408
Accrued liabilities		(29,098)		(47,739)
Customer deposits		(10,596)		31,596
Net cash used in operating activities		(268,953)		(499,058)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of business assets		--		(495,000)

CASH FLOWS FROM FINANCING ACTIVITIES

Dividends paid on preferred stock		(11,289)		(11,289)


NET DECREASE IN CASH AND CASH EQUIVALENTS		(280,242)		(1,005,347)
Cash and cash equivalents at beginning of period		4,427,227		5,680,943

Cash and cash equivalents at end of period		4,146,985		4,675,596

SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid	$	--	$	46

Restricted stock issued	$	64,309	$	--

The accompanying footnotes are an integral part of these unaudited

consolidated financial statements.

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 41 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, 2011. The results for the three and six month periods ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ended December 31, 2011. 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, 2010.

NOTE C - STOCK-BASED COMPENSATION

Stock-based compensation expense recognized in the statements of operations for the three and six months ended June 30, 2011 and 2010, of $12,114, $24,956, $12,819, and $25,496 respectively, represents the amortization of the restricted stock grant to the Company's chairman in 2007.

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

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 June 30, 2011.

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 2010, 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, 2011, $164 of the restricted stock grant to the Company’s chairman has been amortized and $30,004 remains unamortized and $110 of the restricted stock grant to UPG employees has been amortized and $20,033 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. The Company concluded that it is reasonable to discount the value of these restricted shares by 30%. Of the 30% discount, the Company considers the risk of forfeiture to be 10% and illiquidity to be 20%. The Company applied this discount to the grant date market value of a freely tradable share to arrive at the fair value of a restricted share.

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, 2011 or 2010.

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, 2010	125,000	$ 0.71
Granted	--	$ --
Exercised	--	$ --
Canceled, lapsed or forfeited	--	$ --
Options outstanding at June 30, 2011	125,000	$ 0.71

NOTE C - STOCK-BASED COMPENSATION (CONTINUED)

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

stock option plans at June 30, 2011:

	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
$ 1.75	25,000	5.6	$ 1.75	25,000	$ 1.75
$ 0.45	100,000	1.8	$ 0.45	100,000	$ 0.45
$ 0.45 - $ 1.75	125,000	2.6	$ 0.71	125,000	$ 0.71

At June 30, 2011, the aggregate intrinsic value of options outstanding and exerciseable was $5,000. 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, 2011, all outstanding options were fully vested.

NOTE D - NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed by dividing net income (loss) decreased (increased) by the preferred stock dividends of $5,419, $11,289, $5,419, and $11,289 for the three and six months ended June 30, 2011 and 2010,respectively, by the weighted average number of common shares outstanding for the period.

Diluted net income (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 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 or for the six month period ended June 30, 2010, as the effect would be anti-dilutive.

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, 2011 and 2010. Following is a summary of financial information of UPG for the three and six months ended June 30, 2011 and 2010:

Three and Six Months Ended June 30,

($ in thousands)

		2011			2010			2011			2010
Net revenues	$	21,665		$	28,394		$	43,252		$	54,429

NOTE E - UNCONSOLIDATED INVESTEE (CONTINUED)


Cost of revenues		17,275		23,333		34,554	44,935

Gross profit		4,390		5,061		8,698	9,494

Operating expenses		3,992		3,657		7,528	7,131

Income from operations		398		1,404		1,170	2,363

Interest expense		(151)		(237)		(291)	(398)
Income from operations before income tax provision		247		1,167		879	1,965

Income tax provision		(122)		(323)		(351)	(616)

Net income	$	125	$	844	$	528	1,349

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

June 30, 2011 and December 31, 2010.

	($ in thousands)
	June 30,	December 31,
	2011	2010
Current assets	45,420	46,126
Noncurrent assets	3,369	1,485
Current liabilities	25,735	25,177
Noncurrent liabilities	287	267
Shareholders' equity	22,767	22,167

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:

o		Level 1: consists of financial instruments whose value is based on quoted market prices for identical financial instruments in an active market
o		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
o		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, 2011 and 2010, the Company paid a cash dividend of $5,419, $11,289, $5,419 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, 2011, 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

Supplemental pro-forma information regarding the results of the combined entity for the comparative periods presented in these consolidated financial statements has not been presented, as the financial information of the business prior to acquisition is not available, and it is impracticable for management to reasonably estimate the effect for such disclosure.

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 asset related to discontinued operations in the six months ended June 30, 2011 is a deposit of $5,000. The liability related to discontinued operations in 2011 and 2010 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.

NOTE K - ECONOMIC DEPENDENCE (CONTINUED)

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 450 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 - INVENTORY

Beginning with the period ended March 31, 2011, management is performing a monthly inventory of components and parts to be sold and installed in POS systems. Accordingly, the balance sheet as of June 30, 2011, includes inventory valued at the lower of cost or market.

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, 2010.

RESULTS OF OPERATIONS

Currently, the operations of Zunicom are conducted through its wholly-owned subsidiary, AlphaNet. AlphaNet has 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, 2011

REVENUES

For the three month period ended June 30, 2011, Zunicom, through its wholly owned subsidiary Alphanet had consolidated revenues of $404,532 compared to $241,235 for the same period in 2010, an increase of $163,297 or 67.7%. The increase is due primarily to the short period in 2010, only two months of revenue from the acquisition date, April 23, 2010, until June 30, 2010.

COST OF REVENUES

For the three month period ended June 30, 2011, cost of revenue was $225,754 compared to $128,270 for the same period in 2010, an increase of $97,484 or 76.0%.

OPERATING EXPENSES

For the three month period ended June 30, 2011, Zunicom's consolidated operating expenses, consisting of selling, general and administrative expenses and depreciation and amortization of property and equipment increased to $334,476 compared to $320,252 for the same period in 2010, an increase of $14,224 or 4.4%. The increase is due to an increase in operating expenses of AlphaNet of $41,824, offset by a decrease in Zunicom's expenses of $27,600.

AlphaNet's selling, general and administrative expenses for the three month period ended June 30, 2011 were $156,013 compared to $124,105 for the same period in 2010, an increase of $31,908 or 25.7%. The increase is attributable to the purchase of Action Computer Systems at the end of April 2010. The three month period ended June 30, 2010 only includes two months of activity while the same period in 2011 includes three months.

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

OF OPERATIONS (CONTINUED)

Zunicom's selling, general and administrative expenses for the three month period ended June 30, 2011 were $148,714 compared to $176,314 for the same period in 2010, a decrease of $27,600 or 15.7%. The decrease is primarily attributable to decreased legal fees and travel expenses.

For the three month period ended June 30, 2011, the Company recorded $29,750 in depreciation and amortization expense compared to $19,833 in 2010. The increase is due to the two months of activity in 2010 as opposed to three months in 2011.

OTHER INCOME / EXPENSE

Zunicom's consolidated interest income for the three month period ended June 30, 2011 was $3,218 compared to interest income of $5,563 for the same period in 2010, a decrease of $2,345, or 42.2%. The decrease is due to a declining cash balance.

Equity in earnings of investee of $51,368 represents Zunicom's share of UPG's net income for the three month period ended June 30, 2011 recorded in accordance with the equity method of accounting for an unconsolidated investee.

Six months ended June 30, 2011

REVENUES

For the six month period ended June 30, 2011, Zunicom, through its wholly owned subsidiary Alphanet, had consolidated revenues of $743,638 compared to $241,235 for the same period in 2010, an increase of $502,403 or 208.3%. The increase is due to the acquisition of Action Computer Systems at the end of April 2010. The six month period ended June 30, 2010 includes two months of activity while the same period in 2011 includes six months.

COST OF REVENUES

For the six month period ended June 30, 2011, Zunicom's consolidated cost of revenues is $367,611 compared to $128,270 for the same period in 2010, an increase of $238,341 or 186.6%. This increase is due to the acquisition of Action Computer Systems at the end of April 2010.

OPERATING EXPENSES

For the six month period ended June 30, 2011, Zunicom's consolidated operating expenses, consisting of selling, general and administrative expenses and depreciation and amortization of property and equipment increased to $638,691 compared to $452,157 for the same period in 2010, an increase of $186,534 or 41.2%. The increase is due to a decrease in operating expenses of Zunicom of $61,774, offset by an increase in AlphaNet's expenses of $248,308.

AlphaNet's selling, general and administrative expenses for the six month period ended June 30, 2011 were $332,765 compared to $124,105 for the same period in 2010, an increase of $208,660 or 168.1%. The increase is attributable to the two months of activity in 2010 as opposed to six months in 2011.

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

Zunicom's selling, general and administrative expenses for the six month period ended June 30, 2011 were $246,426 compared to $308,219 for the same period in 2010, a decrease of $61,793 or 20.1%. The decrease is primarily attributable to decreased legal fees, and travel expenses.

For the six month period ended June 30, 2010, the Company recorded $59,500 in depreciation and amortization expense compared to $19,833 in 2010. The increase is due to the two months of activity in 2010 as opposed to six months in 2011.

OTHER INCOME / EXPENSE

Zunicom's consolidated interest income for the six month period ended June 30, 2011 was $6,559 compared to interest income of $11,971 for the same period in 2010, a decrease of $5,412, or 45.2%. The decrease is due to a declining cash balance.

Equity in earnings of investee of $206,194 represents Zunicom's share of UPG's net income for the six month period ended June 30, 2011 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 $4,146,985 at June 30, 2011.

Net cash used in operating activities was $268,953 for the six month period ended June 30, 2011 as compared to $499,058 for the same period in 2010. The cash used in operating activities is primarily attributable to the net loss of $98,463 offset by depreciation of $59,500, non-cash stock based compensation of $24,956, provision for federal income taxes of $48,553, and a decrease in working capital of $97,305, and a decrease in equity in earnings of investee of $206,194.

Net cash used in financing activities for the six month period ended June 30, 2011 was $11,289 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.

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, 2011. 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, 2011 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).

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)

14.1 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.

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, 2011	/s/ John C. Rudy
	John C. Rudy Chief Financial Officer (principal financial officer)

ZUNICOM INC 10-Q