U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 31, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to ________
COMMISSION FILE NUMBER: 001-15665
UC HUB GROUP, INC.
(Name of small business issuer in our charter)
NEVADA 88-0389393
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10390 COMMERCE CENTER DRIVE, SUITE 250 91730
RANCHO CUCAMONGA, CALIFORNIA (Zip Code)
(Address of principal executive offices)
(909) 586-3715
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of January 31, 2006, the
issuer had 22,890,936 shares of common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 2
Item 1. Financial Statements (Unaudited). . . . . . . . . . . . . . . 2
Item 2. Management's Discussion and Analysis or Plan of Operation . . 11
Item 3. Controls and Procedures . . . . . . . . . . . . . . . . . . . 13
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 14
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds . 14
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 15
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
UC HUB GROUP, INC.
Consolidated Balance Sheet
(Unaudited)
January 31,
2006
-------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 47,841
Accounts Receivable, net of allowance of $57,053 105,609
Inventory 2,492
Other current assets 30,664
-------------
Total current assets 186,606
Property and equipment, net of accumulated
depreciation of $40,864 37,548
-------------
Total assets $ 224,154
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,057,937
Notes payable 678,534
-------------
Total current liabilities 2,736,471
-------------
Total Liabilities 2,736,471
Stockholders' deficit
Convertible Preferred stock, 5,000,000 shares authorized, $0.001 par value
per share; 2,703,327 shares issued and outstanding at January 31, 2006 2,704
Common stock, .001 par value 100,000,000 shares authorized,
22,890,936 shares issued and outstanding at January 31, 2006 22,890
Stock subscription payable 18,900
Deferred compensation 142,825
Additional paid-in capital 14,756,855
Accumulated (deficit) (17,193,347)
Total stockholder's deficit (2,512,317)
-------------
Total liabilities and stockholders' deficit $ 224,154
=============
The accompanying notes are an integral part of these financial statements.
2
UC HUB GROUP, INC.
Consolidated Statement of Losses
(Unaudited)
For the Three Months Ended For the Six Months Ended
January 31, January 31,
2005 2006 2005 2006
--------------- -------------- --------------- -------------
Revenues $ 747,100 $ 11,788 $ 1,448,884 $ 312,371
Cost of Sales 570,703 6,536 1,104,646 140,792
--------------- -------------- --------------- -------------
Gross Profit 176,397 5,252 344,238 171,579
Selling, general, and administrative expenses 220,879 35,575 723,493 505,311
Acquisition costs - - 33,474
--------------- -------------- --------------- -------------
Total operating expenses 220,879 35,575 756,967 505,311
--------------- -------------- --------------- -------------
Loss before other income and expense (44,482) (30,323) (412,729) (334,232)
Other income (expense):
Interest income (expense) (58,542) - (70,667) -
Net Loss $ (103,024) $ (30,323) $ (483,396) $ (334,232)
=============== ============== =============== =============
NET LOSS PER COMMON SHARE
Profit (Loss) from operations
Loss from discontinued operations
Net loss $ (0.02) $ (0.01) $ (0.09) $ (0.03)
=============== ============== =============== =============
PER SHARE INFORMATION -
BASIC AND FULLY DILUTED
Weighted average shares outstanding 5,720,545 12,500,000 5,213,239 12,500,000
=============== ============== =============== =============
The accompanying notes are an integral part of these financial statements.
3
UC HUB GROUP, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
January 31,
2005 2006
---------- ----------
OPERATING ACTIVITIES
Net loss $(483,396) $(334,232)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation 16,503 -
Acquisition costs 33,474 -
Interest expense 70,667 -
Allowance for bad debt 200,757 -
Changes in:
Accounts receivable (588,349) 217,935
Inventory (2,492) -
Other current assets (425) (700)
Deposits - -
Accounts payable 564,684 (95,436)
Freight 4,579
Notes Payable (18,966)
---------- ----------
Net cash used in operating activities (188,577) (226,820)
---------- ----------
FINANCING ACTIVITIES
Issuance of notes payable 108,500 108,000
Proceeds of short-term borrowing 56,000 121,202
Sale of common stock for cash - 2,225
Common stock subscribed for cash 75,000 -
---------- ----------
Net cash provided by financing activities 239,500 231,427
---------- ----------
Net increase (decrease) in cash 50,923 4,607
CASH AT BEGINNING OF YEAR 44,320 43,234
---------- ----------
CASH AT END OF YEAR $ 95,243 $ 47,841
========== ==========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash for paid for:
Interest $ - $ -
========== ==========
Income taxes $ - $ -
========== ==========
SUPPLEMENTAL DISCLOSURE OF
NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of stock and warrants for asset acquisition
and related costs assigned to property and equipment $ 37,500 $ -
========== ==========
Issuance of stock and warrants for asset acquisition,
amount charge to acquisition costs $ 33,474 $ -
========== ==========
Issuance of shares as inducement for loan $ 3,900 $ -
========== ==========
Exchange of 327,970 shares of preferred stock for
983,910 shares of common stock $ 656 $ -
========== ==========
Fair value of warrants issued with promissory note $ 17,011 $ -
========== ==========
Beneficial conversion feature of convertible note $ 24,656 $ -
========== ==========
Convert note payable to common stock subscribed $ 25,000 $ -
========== ==========
Value of options issued to the Company's president $ 150,000 $ -
========== ==========
4
NOTE A - SUMMARY OF ACCOUNTING POLICIES
GENERAL
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions to Form 10-QSB, and therefore, do not include
all the information necessary for a fair presentation of financial position,
results of operations and cash flows in conformity with accounting principles
generally accepted in the United States of America for a complete set of
financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
results from operations for the three-month and six-month periods ended January
31, 2006 are not necessarily indicative of the results that may be expected for
the year ended July 31, 2006. The unaudited condensed consolidated financial
statements should be read in conjunction with the July 31, 2005 financial
statements and footnotes thereto included in the Company's Securities and
Exchange Commission Form 10-KSB.
BUSINESS AND BASIS OF PRESENTATION
- ----------------------------------
UC Hub Group Inc. ("Company" or "UC Hub") was formed on February 22, 1999 under
the laws of the State of California.
The consolidated financial statements include the accounts of the Company, and
its wholly-owned subsidiaries, AllCom USA, Inc and eSAFE, Inc. Significant
inter-company transactions have been eliminated in consolidation.
UC Hub is a communications software development and distribution company with
primary interests in digital communications and digitally based products and
services necessary to support the corporate vision of the "Digital City." At
January 31, 2006, we had two wholly owned subsidiaries and a software division:
- - AllCom USA, Inc., a licensed and web centric telecommunications services
provider with Wi-Fi and VoIP offerings, a wholly owned subsidiary;
- - eSAFE, Inc., a developer and distributor of bank sponsored debit and payroll
cards and related services, a wholly owned subsidiary; and
- - OurTown2, a municipal government software application designed to manage the
interface between a municipal government and its constituents or e-citizens.
RECLASSIFICATION
Certain reclassifications have been made to conform to prior periods' data to
the current presentation. These reclassifications had no effect on reported
losses.
LIQUIDITY
As shown in the accompanying financial statements, the Company incurred a net
loss of $30,323 and $103,024 during the three months ended January 31, 2006 and
2005, respectively. The Company's current liabilities exceeded its current
assets by $2,549,865 as of January 31, 2006 (see Note E).
STOCK BASED COMPENSATION
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related interpretations. Accordingly, compensation expense
for stock options is measured as the excess, if any, of the fair market value of
the Company's stock at the date of the grant over the exercise price of the
related option. The Company has adopted the annual disclosure provisions of SFAS
No. 148 in its financial reports for the year ended December 31, 2002 and for
the subsequent periods.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized over the options' vesting period. The Company's pro forma
information was as follows:
5
Three months ended January 31, Six months ended January 31,
------------------------------------ ----------------------------------
2005 2006 2005 2006
---------------- ------------------ ---------------- ----------------
Net loss, as reported $ (103,024) $ 11,788 $ (483,396) $ (334,232)
Compensation recognized under
APB No. 25 205 0 205 0
Compensation recognized under
SFAS 123 (485) 0 (485) 0
---------------- ------------------ ---------------- ----------------
Pro forma net loss $ (102,744) $ 11,788 $ (483,676) $ (334,232)
================ ================== ================ ================
Pro forma loss per share $ (0.02) $ (0.01) $ (0.09) $ (0.03)
================ ================== ================ ================
AMOUNT DUE TO OFFICER
The CEO and President of the Company continues to invest his personal capital
into the company by making loans. In addition to these loans the CEO has not
drawn down his full salary according to his employment agreement. As of January
31, 2006, the Company owes Mr. Wilcox a net amount of $631,269.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at January 31, 2005 consist of the
following:
Accounts Payable 1,129,388
Due to Chief Executive 631,269
Sales taxes and fees 170,954
Accrued payroll and related -
Other accrued liabilities -
Accrued interest 44,371
---------
1,975,982
=========
NOTE A - NEW ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
151, Inventory Costs--an amendment of ARB No. 43, Chapter 4. This Statement
amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that "under some circumstances, items such as idle facility
expense, excessive spoilage, double freight, and rehandling costs may be so
abnormal as to require treatment as current period charges" This Statement
requires that those items be recognized as current-period charges regardless of
whether they meet the criterion of "so abnormal." In addition, this Statement
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. This
Statement is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Management does not believe the adoption of this
Statement will have any immediate material impact on the Company.
In December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67" ("SFAS
152) The amendments made by Statement 152 This Statement amends FASB Statement
No. 66, Accounting for Sales of Real Estate, to reference the financial
accounting and reporting guidance for real estate time-sharing transactions that
is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
Estate Time-Sharing Transactions. This Statement also amends FASB Statement No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
to state that the guidance for (a) incidental operations and (b) costs incurred
to sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject to the
guidance in SOP 04-2. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. with earlier application encouraged.
The Company does not anticipate that the implementation of this standard will
have a material impact on its financial position, results of operations or cash
flows.
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
published Statement of Financial Accounting Standards No. 123 (Revised 2004),
Share-Based Payment ("SFAS 123R"). SFAS 123R requires that compensation cost
related to share-based payment transactions be recognized in the financial
statements. Share-based payment transactions within the scope of SFAS 123R
include stock Warrants, restricted stock plans, performance-based awards, stock
appreciation rights, and employee share purchase plans. The provisions of SFAS
123R are effective as of the first interim period that begins after June 15,
2005. Accordingly, the Company will implement the revised standard in the third
quarter of fiscal year 2005. Currently, the Company accounts for its share-based
payment transactions under the provisions of APB 25, which does not necessarily
require the recognition of compensation cost in the financial statements.
Management is assessing the implications of this revised standard, which may
materially impact the Company's results of operations in the third quarter of
fiscal year 2005 and thereafter.
On December 16, 2004, FASB issued Statement of Financial Accounting Standards
No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29,
Accounting for Nonmonetary Transactions (" SFAS 153"). This statement amends APB
Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. Under SFAS 153, if a
nonmonetary exchange of similar productive assets meets a commercial-substance
criterion and fair value is determinable, the transaction must be accounted for
at fair value resulting in recognition of any gain or loss. SFAS 153 is
effective for nonmonetary transactions in fiscal periods that begin after June
15, 2005. The Company does not anticipate that the implementation of this
standard will have a material impact on its financial position, results of
operations or cash flows.
NOTE B - SEGMENT INFORMATION
The Company currently operates in two business segments: (1) reselling long
distance and related services through its subsidiary AllCom USA Inc.; (2)
telecommunications hardware sales and installation, a segment which was entered
during the three months ended October 31, 2004 when the Company purchased
certain assets of Integrated Communications (See Note B). Intercompany
receivables and payables are subtracted from total assets and liabilities for
the segments, which are eliminated in consolidation and therefore do not
themselves impact consolidated results.
Three months ended Six months ended
January 31, January 31,
2005 2006 2005 2006
--------- --------- ---------- ----------
Sales to external customers:
Service 374,421 5,200 886,883 151,000
Systems 372,679 6,588 562,001 161,371
--------- --------- ---------- ----------
Total sales to external customers 747,100 11,788 1,448,884 312,371
========= ========= ========== ==========
Cost of goods sold:
Service 289,494 3,100 699,765 84,792
Systems 281,209 3,436 404,881 56,000
--------- --------- ---------- ----------
Total cost of goods sold 577,703 6,536 1,104,646 140,792
========= ========= ========== ==========
Gross Profit:
Service 91,350 2,600 185,000 100,500
Systems 85,047 2,652 159,238 71,079
--------- --------- ---------- ----------
Total gross profit 176,397 5,252 324,238 171,579
General and administrative expenses,
Including sales taxes and fees:
Service 198,979 32,075 651,759 455,811
Systems 21,900 3,500 71,734 50,000
--------- --------- ---------- ----------
Total general and administrative 220,879 35,575 723,493 505,811
========= ========= ========== ==========
Sales Taxes and Fees:
Service - - 319,659 -
Systems - - - -
Total sales taxes and fees - - 319,659 -
--------- --------- ---------- ----------
Acquisition costs:
Service - - - -
Systems - - 33,474 -
--------- --------- ---------- ----------
Total depreciation and amortization - - 33,474 -
========= ========= ========== ==========
Capital expenditures:
Service - - - -
Systems - - 37,500 -
--------- --------- ---------- ----------
Total capital expenditures - - 37,500 -
========= ========= ========== ==========
Operating income (loss):
Service (114,052) (100,500) (464,641) (301,232)
Systems 69,570 70,177 51,912 (33,000)
--------- --------- ---------- ----------
Total operating income (loss) (44,482) (30,323) (412,729) (334,232)
========= ========= ========== ==========
Segment assets:
Service 376,527 100,000
Systems 465,407 124,154
--------- ---------
Total segment assets 841,934 224,154
========= =========
6
NOTE C - SALES TAXES AND FEES
During the three months ended January 31, 2006, the Company determined that
there is a liability for sales taxes and fees collected on telephone services
sold. At January 31, 2006, the Company estimates the amount of this liability to
be approximately $170,954.
8
NOTE D - NOTES PAYABLE
In December 2004, we issued a note payable in the amount of $50,000. As
incentive for making this loan to the Company we also provided the lender with
15,000 shares of restricted stock with a value of $3,900. This amount is charged
to interest expense and credited to common stock subscribed during the three
months ended January 31, 2005. In December 2005, we issued two notes payable
totaling $75,000 with options to convert to stock at a 20% discount off the
market price at time of conversion.
In December 2005, an additional note was issued to Mobilepro for $83,000.
NOTE E - CAPITAL STOCK
ETI transaction and preferred stock exchanged for common stock
- --------------------------------------------------------------
On March 5, 2004, the Company entered into an Agreement and Plan of Merger
('Agreement") with Expertise Technology Innovation, Inc("ETI") an inactive
publicly registered shell corporation with no significant assets or operations.
In accordance with SFAS No. 141, the Company was the acquiring entity. While the
transaction is accounted for using the purchase method of accounting, in.
substance the Agreement is a recapitalization of the Company's capital
structure.
For accounting purposes, the Company has accounted for the transaction as a
reverse acquisition and the Company shall be the surviving entity. The total
purchase price was the fair value of the shares held by the ETI shareholders, or
$865,164. This amount was charged to operations during the twelve months ended
July 31, 2004. The Company did not recognize goodwill or any intangible assets
in connection with the transaction.
Effective with the Agreement, all previously outstanding common stock, preferred
stock, options and warrants owned by the Company's shareholders were exchanged
for an aggregate of 4,269,844 shares of ETI's convertible preferred stock (the
"ETI Preferred Stock"). The value of the ETI Preferred Stock that was issued was
the historical cost of the ETI's net tangible assets, which did not differ
materially from their fair value. In addition, holders of the Company's options
and warrants to acquire common stock exchanged their options for options to
acquire the ETI's common stock. The ETI Preferred Stock was exchangeable at the
option of the stockholder into shares of ETI Common Stock at the rate of one
share of ETI Preferred Stock for three shares of common stock. The exchange of
ETI Preferred Stock to common stock was restricted to one-twelfth of the total
number of shares held by each shareholder per month, beginning in January 2004.
During the three months ended January 31, 2004, 327,970 shares of ETI Preferred
Stock were exchanged for 983,910 shares of common stock. At January 31, 2004, a
cumulative total of 1,206,762 shares of ETI Preferred Stock had been exchanged
for 3,620,286 shares of common stock, and 3,063,082 shares of ETI Preferred
Stock exchangeable for 9,189,246 shares of common stock remained outstanding.
Common Stock Subscribed
In December 2004, a note payable previously issued in the amount of $25,000
converted to common stock at 50% of the market price, or $0.15. We calculated
the intrinsic value of the beneficial conversion feature of the note to be
$24,656, and charged that amount to operations during the three months ended
January 31, 2005. The amount of $25,000 is shown as Common Stock Subscribed in
the accompanying financial statements for the period ended January 31, 2005.
Stock Options
- -------------
In January 2005, the Company's Chief Executive Officer received options to
purchase 1,500,000 shares of the Company's stock at a price of $0.16. These
options vest over a three-year period, and have a term of ten years. The 946,875
options previously held by the Chief Executive Officer were cancelled. The
Company valued the options at $150,000 and charged this amount to deferred
compensation during the three months ended January 31, 2006. This amount will be
amortized over the vesting period of the options, or 3 years. During the 3
months ended January 31, 2006, the Company amortized the amount of $205.
9
NOTE F - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the accompanying
financial statements, the Company incurred a net loss of $30,323 and $103,024
during the three months ended January 31, 2006 and 2005, respectively. The
Company's current liabilities exceeded its current assets by $2,549,865 as of
January 31, 2006. These factors among others may indicate that the Company will
be unable to continue as a going concern for a reasonable period of time.
The Company's existence is dependent upon management's ability to develop
profitable operations. The accompanying statements do not include any
adjustments that might result should the Company be unable to continue as a
going concern.
In order to improve the Company's liquidity, the Company's management is
actively pursing additional equity financing through discussions with investment
bankers and private investors. There can be no assurance the Company will be
successful in its effort to secure additional equity financing.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD-LOOKING INFORMATION
Much of the discussion in this Item is "forward looking". Actual operations and
results may materially differ from present plans and projections due to changes
in economic conditions, new business opportunities, changed business conditions,
and other developments. Other factors that could cause results to differ
materially are described in our filings with the Securities and Exchange
Commission.
The following are factors that could cause actual results or events to differ
materially from those anticipated, and include, but are not limited to general
economic, financial and business conditions, changes in and compliance with
governmental laws and regulations, including various state and federal
environmental regulations, our ability to obtain additional financing from
outside investors and/or bank and mezzanine lenders; and our ability to generate
sufficient revenues to cover operating losses and position us to achieve
positive cash flow.
Readers are cautioned not to place undue reliance on the forward-looking
statements contained herein, which speak only as of the date hereof. We believe
the information contained in this Form 10-QSB to be accurate as of the date
hereof. Changes may occur after that date. We will not update that information
except as required by law in the normal course of our public disclosure
practices.
Additionally, the following discussion regarding our financial condition and
results of operations should be read in conjunction with the financial
statements and related notes contained in Item 1 of Part I of this Form 10-QSB,
as well as the financial statements in Item 7 of Part II of our Form 10-KSB for
the fiscal year ended July 31, 2005.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements requires our management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and revenue and expenses
during the applicable period. Future events and their effects cannot be
determined with certainty; therefore, the determination of estimates requires
the exercise of judgment. Actual results inevitably will differ from those
estimates, and such differences may be material to our financial statements. Our
management continually evaluates its estimates and assumptions, which are based
on historical experience and other factors that we believe to be reasonable
under the circumstances. These estimates and our actual results are subject to
known and unknown risks and uncertainties. There have been no material changes
in our critical accounting estimates or our application of these estimates in
2005.
COMPARISON OF THE THREE MONTHS ENDED JANUARY 31, 2006 TO THE THREE MONTHS ENDED
JANUARY 31, 2005
REVENUE. Our total revenue was $11,788 for the three month period ended January
31, 2006, a decrease of $735,312 or approximately 98 percent compared to
$747,100 for the three month period ended January 31, 2005. Our wholly owned
subsidiary.
GROSS PROFIT. Our gross profit was $5,252 or approximately 68 percent of sales
for the three months ended January 31, 2006, compared to a gross profit of
$176,397 or approximately 24 percent of sales for the three months ended January
31, 2005. The increase in gross profit as a percent of sales and the decrease in
gross profit in dollars during the period both resulted from the decrease in
sales from AllCom and the elimination of marginal business, and improved results
from ongoing business of the unit.
COSTS AND EXPENSES. Selling, general and administrative ("SG&A") expenses for
the three-month period ended January 31, 2006 were $35,575, a decrease of
$185,304 or approximately 85 percent compared to SG&A expenses of $220,879
during the three month period ended January 31, 2005. The decrease is
attributable to the inclusion of the Costs and expenses of AllCom Systems offset
by head office cost reductions.
INTEREST EXPENSE. We incurred interest expense of $2,004 during the three months
ended January 31, 2006 versus $58,542 during the three
11
months ended January 31, 2005, which is a decrease of $56,538. The decrease is a
result of the amortization of the discounts on notes payable resulting from
beneficial conversion features and warrants offered as an inducement to the
lender. The increase is also a result of an increase in the amount of debt
outstanding during the three months ended January 31, 2006.
NET LOSS. For the above reasons, our net loss for the three months ended January
31, 2006 was $30,323, a decrease of $72,701 or approximately 70 percent compared
to a net loss of $103,024 for the three months ended January 31, 2005.
Our net loss per common share (basic and diluted) was $0.01 for the three months
January 31, 2006 compared to a net loss per common share of $0.02 for the three
months ended January 31, 2005.
The weighted average number of outstanding shares was 12,500,000 and 5,720,545
for the three months ended January 31, 2006 and 2005, respectively.
COMPARISON OF THE SIX MONTHS ENDED JANUARY 31, 2006 TO THE SIX MONTHS ENDED
JANUARY 31, 2005
REVENUE. Our total revenue was $312,371 for the six-month period ended January
31, 2006, a decrease of $1,136,513 or approximately 75 percent compared to
$1,448,884 for the six months ended January 31, 2005.
GROSS PROFIT. Our gross profit was $171,579 or approximately 55 percent of sales
for the six months ended January 31, 2006, compared to a gross profit of
$344,238 or approximately 24 percent of sales for the six months ended January
31, 2005. The increase in gross profit as a percent of sales and the decrease in
gross profit in dollars during the period resulted from the decrease in sales
from AllCom and the elimination of marginal business, and improved results from
ongoing business of the unit.
COSTS AND EXPENSES. Selling, general and administrative ("SG&A") expenses for
the six month period ended January 31, 2006 were $505,311, a decrease of
$218,182 or approximately 29 percent compared to SG&A expenses of $723,493
during the six month period ended January 31, 2005. The decrease is attributable
to the inclusion of the Costs and expenses of AllCom Systems, a reserve for bad
debts of $31,476.64, together partially offset by head office cost reductions.
ACQUISITION COSTS. Acquisition costs were $0 during the six months ended January
31, 2006.
INTEREST EXPENSE. We incurred interest expense of $4,928 during the six months
ended January 31, 2006 compared to $70,667 during the six months ended January
31, 2005, which is a decrease of $65,739. The decrease is a result of the
amortization of the discounts on notes payable resulting from beneficial
conversion features and warrants offered as an inducement to the lender. The
increase is also a result of a large amount of debt outstanding during the six
months ended January 31, 2006.
NET LOSS. For the above reasons, our net loss for the six months ended January
31, 2006 was $334,232, a decrease of $149,164 or approximately 15 percent
compared to a net loss of $483,396 for the six months ended January 31, 2005.
Our net loss per common share (basic and diluted) was $0.03 for the six months
ended January 31, 2006 compared to a net loss per common share of $0.09 for the
six months ended January 31, 2005.
The weighted average number of outstanding shares was 12,500,000 and 5,213,239
for the three months ended January 31, 2006 and 2005, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 2006, we had a working capital deficit of $2,549,865. We
generated cash flow from operations of (226,820) for the six month period ended
January 31, 2006. The cash flow from operating activities is largely
attributable to our net loss of (334,232).
We met our cash requirements during the period through proceeds from the
issuance of notes payable for cash of $108,000, short term borrowing of
$121,202, and the sale of our common stock in the amount of $2,225.
While we have raised capital to meet our working capital and financing needs in
the past, additional financing is required in order to meet our current and
projected cash flow deficits from operations and development. We are seeking
financing in the form of equity in order to provide the necessary working
capital. We currently have no commitments for financing. There is no guarantee
that we will be successful in raising the funds required.
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By adjusting our operations and development to the level of capitalization, we
believe we have sufficient capital resources to meet projected cash flow
deficits through the next 12 months. However, if thereafter we are not
successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations, liquidity and
financial condition. Our net loss for the six months ended January 31, 2006 was
$(334,232), an increase of $78,497 or approximately 16 percent compared to a net
loss of ($483,386) for the six months ended January 31, 2005.
The effect of inflation on our revenue and operating results was not
significant. Our operations are located in North America and there are no
seasonal aspects that would have a material effect on our financial condition or
results of operations.
Our independent certified public accountants have stated in their report
included in our July 31, 2005 Form 10-KSB, that we have incurred operating
losses in the last two years, and that we are dependent upon management's
ability to develop profitable operations. These factors among others may raise
substantial doubt about our ability to continue as a going concern.
RECENT DEVELOPMENTS
eSAFE has completed its interface with Meta Payment Systems a Mastercard issuing
bank and eCommLink as a processor. eSAFE is presently also working with FSV and
GTP as processors.
eSAFE is now being run directly by the CEO, as Alice Kong is no longer with the
Company. The Company has some immediate momentum due to Management's new
direction and the veteran consultants and the Company believes it is now ahead
of schedule on the past projections of deals. Just one of these new contracts in
this space resulted in immediate six figure volume payroll card contracts and
International deals in West Africa. Management has begun strategically
leveraging the entertainment industry and has also begun negotiations for a deal
with Viacom, MTV,a Direct Response TV Company. Concurrently management is
preparing to implement a program for a call center, and a mobile phone platform
that will use the eSAFE card as a compliment to their mobile transaction
software.
eSAFE also added a complete web based bill payment system where the consumer can
pay all bills here.
eSAFE has begun updating all web interfaces in .net and will provide interfaces
for FSV and eCommLink and Pay All Bills Here.
eSAFE is presently working on finalizing deals with Green Dot, and MoneyGram and
a strategic Money Services Business arrangement that will give them thousands of
domestic load stations. Internationally eSAFE has strategically aligned with the
West African Fed Ex facilities and has begun issuing an International card in
those locations.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
ITEM 3. CONTROLS AND PROCEDURES.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file under the
Exchange Act is accumulated and communicated to our management, including our
principal executive and financial officers, as appropriate to allow timely
decisions regarding required disclosure.
Evaluation of Disclosure and Controls and Procedures. As of the end of the
period covered by this Quarterly Report, we conducted an evaluation, under the
supervision and with the participation of our chief executive officer and chief
financial officer, of our disclosure controls and procedures (as defined in
Rules 13a-15(e) of the Exchange Act). Based on this evaluation, our chief
executive officer and chief financial officer concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.
Changes in Internal Controls Over Financial Reporting. There was no change in
our internal controls, which are included within disclosure controls and
procedures, during our most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal
controls.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In the ordinary course of business, we may be involved in legal proceedings from
time to time. Although occasional adverse decisions or settlements may occur, we
believe that the final disposition of such matters will not have material
adverse effect on our financial position, results of operations or liquidity. We
will seek to minimize disputes with our customers but recognize the
inevitability of legal action in today's business environment as an unfortunate
price of conducting business.
On May 25, 2004, in Cause No. 04-0553, at the American Arbitration Association
located in Denver, Colorado, we reached a favorable settlement of the litigation
with Qwest Communications, Inc. and the disposition of the claimed $1,070,000
obligation to Qwest. This settlement required us to pay a $50,000 settlement
fee, which has been paid. We recorded a gain of $1,022,238 on legal settlement
as a result of this ruling during the 12 months ended July 31, 2004. As part of
the same settlement, our wholly owned subsidiary, AllCom USA, agreed to pay
Qwest the sum of $130,477.17 representing previously incurred debt pursuant to a
promissory note which was due on November 24, 2004. Although we have not paid
the AllCom note, Qwest has agreed verbally to extend the terms of the AllCom
note for a period of up to 180 days. As of the date of this report, we have
verbally agreed with Qwest to pay the note over the next three months by making
payments in March, April and May of 2005. As of the date of this report, we have
made the first payment. We made the payment and have agreed to pay the balance
upon the next round of capital infusion.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the three months ended January 31, 2006, 983,910 shares of our common
stock were issued in exchange for 327,970 shares of our preferred stock in
connection with the Agreement and Plan of Merger dated May 28, 2003, whereby New
ETI, Inc., a California corporation, and a wholly owned subsidiary of Expertise
Technology Innovation, Inc., merged with and into United Communications Hub,
Inc., a California corporation, with United Communications Hub continuing as the
surviving corporation and as our wholly owned subsidiary.
In December 2004, a note payable previously issued in the amount of $25,000
converted to common stock at 50% of the market price, or $0.15. We calculated
the intrinsic value of the beneficial conversion feature of the note to be
$24,656, and charged that amount to operations during the three months ended
January 31, 2005. The amount of $25,000 is shown as Common Stock Subscribed in
the accompanying financial statements for the period ended January 31, 2005.
In December 2004, we issued our note payable in the amount of $50,000. As an
incentive for making this loan to the Company we also provided the lender with
15,000 shares of restricted stock with a value of $3,900. This amount is charged
to interest expense and to common stock subscribed during the period ended
January 31, 2005.
The issuance of all shares of our common stock was pursuant to the exemption
from registration provided by Section 4(2) of the Securities Act and related
state private offering exemptions. All of the investors took their shares for
investment purposes without a view to distribution and had access to information
concerning UC Hub Group and our business prospects, as required by the
Securities Act.
In addition, there was no general solicitation or advertising for the purchase
of our shares. Our securities were sold only to persons with whom we had a
direct personal preexisting relationship, and after a thorough discussion.
Further, our securities were sold to less than 35 Non-Accredited Investors. All
certificates for our shares contained a restrictive legend. Finally, our stock
transfer agent has been instructed not to transfer any of such shares, unless
such shares are registered for resale or there is an exemption with respect to
their transfer.
(c) The following table provides information about purchases by us and our
affiliated purchasers during the quarter ended January 31, 2005 of equity
securities that are registered by us pursuant to Section 12 of the Securities
Exchange Act of 1934:
ISSUER PURCHASES OF EQUITY SECURITIES
Period (a) (b) (c) (d)
Total Number of Average Price Total Number of Shares (or Maximum Number (or Approximate Dollar
Shares (or Units) Paid per Share Units) Purchased as Part of Value) of Shares (or Units) that May Yet
Purchased) (or Unit) Publicly Announced Plans or Be Purchased Under the Plans or Programs
Programs (1) (1)
08/01/04- 0 $ 0 0 0
08/31/04
09/01/04- 0 $ 0 0 0
09/30/04
10/01/04- 0 $ 0 0 0
10/31/04
(1) We have not entered into any plans or programs under which we may
repurchase our common stock.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On November 19, 2004, an "E" was appended to our trading symbol due to our
failure to timely file our Annual Report on Form 10-KSB for the period ended
July 31, 2004. On January 12, 2004, we filed our Annual Report on Form 10-KSB
for the period ended July 31, 2004 with the SEC. Effective January 24, 2005, the
"E" was removed from our trading symbol.
ITEM 6. EXHIBITS
(a) Exhibits.
EXHIBIT IDENTIFICATION OF EXHIBIT
NO.
31.1** Certification of Larry Wilcox, Chief Executive Officer of UC Hub Group, Inc., pursuant to 18 U.S.C.
Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002.
31.2** Certification of Larry Wilcox, Chief Financial Officer of UC Hub Group, Inc., pursuant to 18 U.S.C.
Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002.
32.1** Certification of Larry Wilcox, Chief Executive Officer of UC Hub Group, Inc., pursuant to 18 U.S.C.
Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002.
32.2** Certification of Larry Wilcox, Chief Financial Officer of UC Hub Group, Inc., pursuant to 18 U.S.C.
Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002.
* Previously Filed ** Filed Herewith
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on our behalf by the undersigned, thereunto duly
authorized.
DATED MARCH 20, 2006.
UC HUB GROUP, INC.
By /s/ Larry Wilcox
----------------------------------------
Larry Wilcox,
Chief Executive Officer and Chief Financial Officer
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