UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended October 31, 2009
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to ______________
Universal Infotainment Systems Corporation
------------------------------------------
(Name of small business issuer in our charter)
Nevada 3670 80 018 7018
(State or other jurisdiction of (Primary Standard IRS I.D.
incorporation or organization) Industrial Classification Code Number)
East West Corporate Center
1771 Diehl Road, Suite 330
Naperville, Illinois 60563
Registrant's telephone number: 630-390-7674
SEC File No. 333-154227
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former three months,
if changed since last report)
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 |_|
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 |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller Reporting Company |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
As of December 21st, 2009 there were 29,564,246 shares issued and outstanding of
the registrant's common stock.
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION 2-13
Item 1. Financial Statements. 2-13
Item 2. Management's Discussion and Analysis or Plan of Operation. 14
Item 3. Quantitative and Qualitative Disclosure about Market Risk 18
Item 4. Controls and Procedures. 18
PART II -- OTHER INFORMATION 19
Item 1. Legal Proceedings. 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 19
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders. 21
Item 5. Other Information. 21
Item 6. Exhibits. 21
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
UNIVERSAL INFOTAINMENT SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED OCTOBER 31, 2009 (UNAUDITED)
TABLE OF CONTENTS
Page
----
Consolidated Balance Sheets at October 31, 2009 (unaudited)
and April 30, 2009 2
Consolidated Statements of Operations for the three and six
months ended October 31, 2009 and 2008 (unaudited) and the period
from April 14, 2008 (Inception) to October 31, 2009 (unaudited) 3 - 4
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
for the six months ended October 31, 2009 (unaudited) and the period
from April 14, 2008 (Inception) to October 31, 2009 (unaudited) 5
Consolidated Statements of Cash Flows for the six months ended
October 31, 2009 and 2008 (unaudited) and the period from April 14,
2008 (Inception) to October 31, 2009 (unaudited) 6
Condensed Notes to Consolidated Financial Statements (unaudited) 7 - 13
Universal Infotainment Systems Corporation and Subsidiary
(a development stage company)
Consolidated Balance Sheets
ASSETS
October 31, 2009
(unaudited) April 30, 2009
----------------- -----------------
Current assets
Cash $ 10,000 $ 1,206
Prepaid expenses 61 4,061
----------------- -----------------
Total current assets 10,061 5,267
Property and equipment, net 49,429 48,619
Other assets
Deposits 7,231 7,231
Intangibles 550 550
----------------- -----------------
Total other assets 7,781 7,781
----------------- -----------------
Total assets $ 67,271 $ 61,667
================= =================
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current maturity of note payable $ 11,657 $ 7,753
Accounts payable 47,710 33,461
Accrued compensation 69,996 34,998
Accrued interest 8,282 6,441
Other current liabilities 2,000 -
Due to officer - related party 81,076 100,385
----------------- -----------------
Total current liabilities 220,721 183,038
Note payable, less current maturity 9,531 14,645
Deferred rent 9,538 9,798
----------------- -----------------
Total liabilities 239,790 207,481
----------------- -----------------
Commitments and Contingencies (Note 8)
Stockholders' equity (deficit)
Preferred stock, $0.0001 par value; 50,000,000 shares authorized;
no shares issued and outstanding at October 31, 2009 - -
and April 30, 2009, respectively
Common stock, $0.0001 par value; 100,000,000 shares authorized;
29,244,246 and 28,557,246 shares issued and outstanding at 2,925 2,856
October 31, 2009 and April 30, 2009, respectively
Common stock Issuable, 570,000 and 125,000 shares at
October 31, 2009 and April 30, 2009, respectively 56 12
Additional Paid in Capital 419,953 252,671
Deficit accumulated during the development stage (595,453) (401,353)
----------------- -----------------
Total stockholders' equity (deficit) (172,519) (145,814)
----------------- -----------------
Total liabilities and stockholders' deficit $ 67,271 $ 61,667
================= =================
See Accompanying Unaudited Condensed Consolidated Notes to Financial Statements
2
Universal Infotainment Systems Corporation and Subsidiary
(a development stage company)
Consolidated Statements of Operations
Three Months Three Months
Ended Ended
October 31, October 31,
2009 2008
(unaudited) (unaudited)
------------ ------------
Revenues $ - $ -
Operating expenses
General and administrative expenses 39,711 102,672
Compensation expense 46,249 33,000
------------ ------------
Total operating expenses 85,960 135,672
------------ ------------
Loss from operations (85,960) (135,672)
Other income (expense)
Interest income - 49
Interest expense (4,425) (4,205)
------------ ------------
Total other (expense) (4,425) (4,156)
------------ ------------
Net loss $ (90,385) $ (139,828)
============ ============
Basic and diluted net loss per share $ - $ -
============ ============
Basic and diluted weighted average
common shares outstanding 29,615,007 28,557,246
============ ============
See Accompanying Unaudited Condensed Consolidated Notes to Financial Statements
3
Universal Infotainment Systems Corporation and Subsidiary
(a development stage company)
Consolidated Statements of Operations
Period from
Six Months Six Months April 14,
Ended Ended 2008 (Inception)
October 31, October 31, to October 31,
2009 2008 2009
(unaudited) (unaudited) (unaudited)
---------------- ---------------- -----------------
Revenues $ - $ - $ -
Operating expenses
General and administrative expenses 86,391 108,577 266,480
Compensation expense 98,498 61,996 265,995
Research and Development expense - - 39,500
---------------- ---------------- -----------------
Total operating expenses 184,889 170,573 571,975
---------------- ---------------- -----------------
Loss from operations (184,889) (170,573) (571,975)
Other income (expense)
Interest income - 49 57
Interest expense (9,211) (4,730) (23,690)
Miscellaneous income - 155 155
---------------- ---------------- -----------------
Total other (expense) (9,211) (4,526) (23,478)
---------------- ---------------- -----------------
Net loss $ (194,100) $ (175,099) $ (595,453)
================ ================ =================
Basic and diluted net loss per share $ (0.01) $ (0.01) $ (0.02)
================ ================ =================
Basic and diluted weighted average
common shares outstanding 29,357,121 28,192,216 28,721,692
================ ================ =================
See Accompanying Unaudited Condensed Consolidated Notes to Financial Statements
4
Universal Infotainment Systems Corporation and Subsidiary
(a development stage company)
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
For the Periods from April 14, 2008 (Inception) to April 30, 2008,
the Year Ended April 30, 2009, the Six Months Ended October 31, 2009 (unaudited)
and from April 14, 2008 (Inception) to October 31, 2009 (unaudited)
Deficit
Accumulated Total
Common Stock Issued Common Stock Issuable Additional During Stockholders'
-------------------- ----------------------- Paid In Development Equity
Shares Amount Shares Amount Capital Stage (Deficit)
---------- --------- --------- ------------- ---------- ----------- -------------
Balance at April 14, 2008 (Inception) - $ - - $ - $ - $ - $ -
Net loss, April 14, 2008 (Inception) through
April 30, 2008 - - - - - (510) (510)
---------- --------- --------- ------------- ---------- ----------- -------------
Balance at April 30, 2008 - - - - - (510) (510)
Issuance of common stock for cash, net 25,954,460 2,596 - - 85,135 - 87,731
Issuance of common stock for services 2,602,786 260 - - 548 - 808
Common stock issuable for services - - 125,000 12 12,488 - 12,500
Valuation of Officer's contributed services - - - - 115,000 - 115,000
Valuation of contributed research and
development services - - - - 39,500 - 39,500
Net loss, year ended April 30, 2009 - - - - - (400,843) (400,843)
---------- --------- --------- ------------- ---------- ----------- -------------
Balances at April 30, 2009 28,557,246 $ 2,856 125,000 $ 12 $252,671 $(401,353) $(145,814)
========== ========= ========= ============= ========== =========== =============
Issuance of common stock for cash, net 542,000 54 380,000 38 88,803 - 88,895
Issuance of common stock for services 135,000 14 75,000 7 20,979 - 21,000
Issuance of previously issuable shares for services 10,000 1 (10,000) (1) - - -
Valuation of Officer's contributed services - - - - 57,500 - 57,500
Net loss, six months ended October 31, 2009 - - - - - (194,100) (194,100)
---------- --------- --------- ------------- ---------- ----------- -------------
Balances at October 31, 2009 (unaudited) 29,244,246 $ 2,925 570,000 $ 56 $419,953 $(595,453) $(172,519)
========== ========= ========= ============= ========== =========== =============
See Accompanying Unaudited Condensed Consolidated Notes to Financial Statements
5
Universal Infotainment Systems Corporation and Subsidiary
(a development stage company)
Consolidated Statements of Cash Flows
Period from
April 14,
Six Months Six Months 2008 (Inception)
Ended Ended to
October 31, October 31, October 31,
2009 2008 2009
(unaudited) (unaudited) (unaudited)
------------------- ------------------ --------------------
Cash flows from Operating activities:
Net loss $ (194,100) $ (175,099) $ (595,453)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation 4,840 1,736 10,835
Impairment of intangibles - 825 825
Common stock issued for services 21,000 808 21,808
Officer's non-cash contributed services 57,500 57,500 172,500
Non-cash contributed research & development
services - - 39,500
Common stock issuable for services - - 12,500
Changes in operating assets and liabilities:
Prepaid expenses 4,000 (4,061) (61)
Deposits - (7,231) (7,231)
Accounts payable 14,249 10,600 47,710
Accrued expenses & other current liabilities 38,839 1,353 80,278
Deferred rent (260) 10,057 9,538
------------------- ------------------ --------------------
Net cash used in operating activities (53,932) (103,512) (207,251)
------------------- ------------------ --------------------
Cash flows from Investing activities:
Purchase of property (5,650) (30,709) (36,359)
------------------- ------------------ --------------------
Net cash used in investing activities (5,650) (30,709) (36,359)
------------------- ------------------ --------------------
Cash flows from Financing activities:
Proceeds from officer loans 5,320 58,718 112,373
Repayment of officer loans (24,629) (8,043) (32,672)
Repayment of note payable (1,210) (998) (2,717)
Proceeds from sale of common stock, net 88,895 97,947 176,626
------------------- ------------------ --------------------
Net cash provided by financing activities 68,376 147,624 253,610
------------------- ------------------ --------------------
Net increase in cash 8,794 13,403 10,000
Cash, beginning of period 1,206 - -
------------------- ------------------ --------------------
Cash, end of period $ 10,000 $ 13,403 $ 10,000
=================== ================== ====================
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest paid $ 5,189 $ - $ 10,152
=================== ================== ====================
Income taxes paid $ - $ - $ -
=================== ================== ====================
Supplemental schedule of non-cash investing and
financing activities
Officer's payment of intangible costs $ - $ - $ 1,375
=================== ================== ====================
Acquisition of property through issuance
of long-term debt $ - $ 23,905 $ 23,905
=================== ================== ====================
See Accompanying Unaudited Condensed Consolidated Notes to Financial Statements
6
Universal Infotainment Systems Corporation and Subsidiary
(a development stage company)
Condensed Notes to Unaudited Consolidated Financial Statements
Six Months Ended October 31, 2009 (unaudited)
- --------------------------------------------------------------------------------
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Nature of Operations
- --------------------
Universal Infotainment Systems Corporation (UISC, we, us, our or, the Company)
is a Nevada corporation with its principal corporate offices in Naperville,
Illinois. In April 2008, the Company acquired its completed UNS Infotainment
Systems technology from an affiliated entity (Note 6) and is focusing its
efforts on raising sufficient additional capital to allow it to enter into
production agreements with potential manufacturing partners in order to begin
the commercializing of its technology and products.
The UNS Infotainment Systems technology combines the Company's proprietary GPS
system with aerial photographs, and audio and video communications capabilities
for internet, e-mail, text messaging and similar functions available on many
cellular telephones for use in passenger, commercial and governmental agency
vehicles.
The Company is organizing its technology offerings into three main product
lines: (1) UNS Infotainment and Navigation System for personal use, (2) UNS
Fleet Management and Tracking Application for corporate use, and (3) Stealth and
Covert Monitoring Systems for approved governmental agency use.
On June 17, 2009, the Company incorporated Global UNS Labs, Inc. as a
wholly-owned subsidiary in the State of Nevada. The subsidiary will be
responsible for the Company's research and development efforts.
Summary of Significant Accounting Policies
- ------------------------------------------
Basis of presentation of interim financial statements
The Company is presented as in the development stage from inception through
October 31, 2009. To-date, the Company's business activities during its
development stage consist solely of corporate formation, technology acquisition,
and raising capital.
The unaudited interim consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America and the rules and regulations of the U.S. Securities and Exchange
Commission for interim financial information. Accordingly, they do not include
all the information and footnotes necessary for a comprehensive presentation of
financial position and results of operations. Accordingly, these interim
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in our Form 10-K/A for the year
ended April 30, 2009.
It is management's opinion, however, that all material adjustments (consisting
of normal recurring adjustments and certain non-recurring adjustments) have been
made that are necessary for a fair financial statement presentation. The
results for the six-month period ended October 31, 2009 are not necessarily
indicative of the results that may be expected for the year ending April 30,
2010.
7
Universal Infotainment Systems Corporation and Subsidiary
(a development stage company)
Condensed Notes to Unaudited Consolidated Financial Statements
Six Months Ended October 31, 2009 (unaudited)
- --------------------------------------------------------------------------------
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
(continued)
- --------------------------------------------------------------------------------
Summary of Significant Accounting Policies (continued)
- ------------------------------------------------------
Use of estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Accordingly, actual results
could differ from those estimates used in the preparation of these consolidated
financial statements. Significant estimates in the accompanying consolidated
financial statements include the estimation of depreciable lives and valuation
of property and equipment, valuation of intangible assets, valuation of common
stock issued for services, valuation of non-cash contributed services, and
deferred income tax valuation allowance.
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, notes payable, accounts payable and accrued expenses, are
carried at historical cost basis, which approximates their fair values because
of the short-term nature of these instruments.
Principles of Consolidation
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its subsidiary, Global UNS Labs, Inc. All material
inter-company balances and transactions have been eliminated in consolidation.
Recent Accounting Pronouncements
In May 2009, the Financial Accounting Standards Board ("FASB") issued an
accounting standard that became part of ASC Topic 855, "Subsequent Events". ASC
Topic 855 establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. ASC Topic 855 sets forth (1) the
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements, (2) the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements and (3) the disclosures that
an entity should make about events or transactions that occurred after the
balance sheet date. ASC Topic 855 is effective for interim or annual financial
periods ending after June 15, 2009. The adoption of ASC Topic 855 did not have
a material effect on the Company's financial statements.
In June 2009, the FASB issued an accounting standard whereby the FASB Accounting
Standards Codification ("Codification") will be the single source of
authoritative nongovernmental U.S. generally accepted accounting principles.
Rules and interpretive releases of the SEC under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants. ASC Topic 105
is effective for interim and annual periods ending after September 15, 2009.
All existing accounting standards are superseded as described in ASC Topic 105.
All other accounting literature not included in the Codification is
non-authoritative. The Codification is not expected to have a significant
impact on the Company's consolidated financial statements.
8
Universal Infotainment Systems Corporation and Subsidiary
(a development stage company)
Condensed Notes to Unaudited Consolidated Financial Statements
Six Months Ended October 31, 2009 (unaudited)
- --------------------------------------------------------------------------------
Note 2 - Going Concern
- --------------------------------------------------------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the United States
of America, which contemplate continuation of the Company as a going concern.
For the six months ended October 31, 2009, the Company had a net loss of
$194,100 and net cash used in operations of $53,932. In addition, as of October
31, 2009, the Company was a development stage company with no revenues and a
deficit accumulated during the development stage of $595,453.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. These unaudited consolidated financial statements do not
include any adjustments to reflect the possible future effect on the
recoverability and classification of assets or the amounts and classifications
of liabilities that may result from the outcome of these uncertainties.
In order to execute its business plan, the Company will need to raise additional
working capital and generate revenues. There can be no assurance that the
Company will be able to obtain the necessary working capital or generate
revenues to execute its business plan.
Management's plan in this regard, include completing product development,
generating marketing agreements with product distributors and the additional
funds received through a private placement offering of Company common stock
during the first and second quarters of fiscal 2010.
Management believes its business development and capital raising activities will
provide the Company with the ability to continue as a going concern.
- --------------------------------------------------------------------------------
Note 3 - Concentrations
- --------------------------------------------------------------------------------
Our financial instruments that are potentially exposed to credit risk consist
primarily of cash. At certain times during the year our demand deposits held in
banks exceeded federally insured limits. As of October 31, 2009, there were no
amounts in excess of FDIC insured limits.
- --------------------------------------------------------------------------------
Note 4 - Property and equipment
- --------------------------------------------------------------------------------
Property and equipment consisted of the following:
October 31,
2009
(unaudited) April 30, 2009
-------------- ---------------
Office furniture and equipment $ 33,423 $ 33,423
Computer equipment 17,328 17,328
Telephone 3,863 3,863
Leasehold Improvements 5,650 -
-------------- ---------------
60,264 54,614
Less: accumulated depreciation 10,835 5,995
-------------- ---------------
Property and equipment, net $ 49,429 $ 48,619
============== ===============
9
Universal Infotainment Systems Corporation and Subsidiary
(a development stage company)
Condensed Notes to Unaudited Consolidated Financial Statements
Six Months Ended October 31, 2009 (unaudited)
- -------------------------------------------------------------------------------
Note 4 - Property and equipment (Continued)
- -------------------------------------------------------------------------------
Depreciation expense was $4,840 during the six month period ended October 31,
2009 and $5,995 during the year ended April 30, 2009.
- -------------------------------------------------------------------------------
Note 5 - Note Payable
- -------------------------------------------------------------------------------
Note payable consisted of the following:
October 31,
2009
(unaudited) April 30, 2009
-------------- ---------------
Note payable - furniture payable in monthly
installments for principal and interest of
$1,600 through February 2011 with a final
payment of $5,000 due by February 28, 2011.
The debt is secured by the furniture acquired. $ 21,188 $ 22,398
Less: current maturity 11,657 7,753
-------------- ---------------
Note payable, less current maturity $ 9,531 $ 14,645
============== ===============
Interest expense was $7,031 during the six month period ended October 31, 2009
and $11,334 during the year ended April 30, 2009.
Future maturities of long-term debt are as follows for the periods ending
October 31:
Total
-----------------
2010 $ 11,668
2011 9,520
-----------------
Total $ 21,188
=================
- --------------------------------------------------------------------------------
Note 6 - Related Party Transactions
- --------------------------------------------------------------------------------
On April 16, 2008, the Company acquired its UNS system and underlying technology
from Universal Global Corporation, an entity wholly-owned by the Company's
Chairman. Under the assignment agreement, Universal Global assigned all rights,
title and interest in the UNS system to the Company for its further development
and commercialization. There was no consideration required to be paid by the
Company in exchange for the UNS system. The assets were recorded by the Company
at their historical cost basis to Universal Global Corporation of zero.
On July 15, 2008, the Company entered into a sub-lease agreement with an
affiliate entity whose President is also the Chairman of our Company, for its
corporate offices under terms of a non-cancelable operating lease. The lease
term is from July 16, 2008 through October 31, 2013 and requires an escalating
monthly lease payment over the term of the lease ranging from $3,149 to $3,615.
Deferred rent aggregated $9,538 as of October 31, 2009. The lease required a
security deposit of $7,231.
10
Universal Infotainment Systems Corporation and Subsidiary
(a development stage company)
Condensed Notes to Unaudited Consolidated Financial Statements
Six Months Ended October 31, 2009 (unaudited)
- --------------------------------------------------------------------------------
Note 6 - Related Party Transactions (Continued)
- --------------------------------------------------------------------------------
As of October 31, 2009, the Company owed one of its officers an aggregate of
$81,076, which was comprised of initial startup costs, cash advances and other
expenses the officer paid on behalf of the Company net of repayments. The
balance of the Due to Officer account bears interest at a rate of 5%. Total
accrued interest as of October 31, 2009, amounted to $5,325 and is included in
"Due to officer - related party" in the accompanying consolidated financial
statements.
- --------------------------------------------------------------------------------
Note 7 - Stockholders' Equity (Deficit)
- --------------------------------------------------------------------------------
Capital structure
On April 14, 2008, the Company was originally incorporated with 500,000,000
shares of common stock authorized with a $0.0001 par value and 500,000,000
shares of preferred stock with a $0.0001 par value. Subsequently, on July 17,
2008, the Company amended its articles to 100,000,000 shares of common stock
authorized with a $0.0001 par value and 50,000,000 shares of preferred stock
with a $0.0001 par value.
All references in the accompanying unaudited consolidated financial statements
to the number of common and preferred shares, par values and per share amounts
have been retroactively adjusted to reflect these amendments.
Shares issued for cash
During the period from May 1, 2009 through October 31, 2009, the Company issued
922,000 shares of its common stock at $0.10 per share in a private placement,
raising $88,895, net of $3,305 of associated offering costs.
Issuance of Common Stock for Services - Employment Agreement
Effective May 2, 2009, the Company entered into an employment agreement with an
individual, which provides for cash compensation upon the Company successfully
raising a predetermined amount of capital. The agreement also provides an
execution bonus of 60,000 vested shares of Company common stock. The stock was
valued at $0.10, based on the contemporaneous cash sale price, resulting in a
total valuation and expense of $6,000.
Issuance of Common Stock for Services - Legal agreement
In May 2009, the company entered into an agreement requiring it to issue 300,000
common shares of its common stock in exchange for legal services for fiscal year
ending April 30, 2010. The shares are issuable quarterly in advance. 150,000
shares were issued during first and second quarters of fiscal 2010 pursuant to
this agreement. The stock valued at $.10 or $15,000 based on the
contemporaneous cash sale price.
11
Universal Infotainment Systems Corporation and Subsidiary
(a development stage company)
Condensed Notes to Unaudited Consolidated Financial Statements
Six Months Ended October 31, 2009 (unaudited)
- --------------------------------------------------------------------------------
Note 7 - Stockholders' Equity (Deficit) (Continued)
- --------------------------------------------------------------------------------
Contributed capital
For the six months ended October 31, 2009, the Company's Chairman of the board
and founding shareholder has provided services to the Company without the
expectation of receiving any compensating payment. The value of these services
was estimated at $57,500, based upon an existing compensation contract with the
director in which he has forgiven payments until such time as the Company has
sufficient operating funds. Accordingly, the Company has recorded the value of
these services as a charge to operations and a corresponding credit to
Additional Paid in Capital in these accompanying consolidated financial
statements. The agreement is renewable for additional five-year periods,
subject to certain conditions, and the initial fee is refundable to the
distributor if certain minimum quotas are met.
- --------------------------------------------------------------------------------
Note 8 - Commitments and Contingencies
- --------------------------------------------------------------------------------
Distribution Agreement
On April 20, 2009, the Company established a five-year distribution agreement
with Low Rider Establishment (LRE), a United Arab Emirate-domiciled entity. The
agreement provides LRE with the right to distribute future Company products as
they become available. The initial fee is approximately $21,500 and includes
product training and related materials, software, an advertising allowance, and
customer support. The agreement provides for a 5% royalty fee on gross sales
per year beginning with the second year of the agreement. The agreement is
effective upon its signing, however, payment of the initial fee has been
deferred verbally between the parties until the availability and delivery of the
Company's first products.
Employment Agreements
Effective May 2, 2008, the Company entered into various employment agreements
with its Chairman of the Board, Chief Executive Officer, Chief Operating
Officer, and Executive Vice President. These agreements were amended on May 5,
2008 to defer the effective date of the employment agreement to a time when the
Company is a publically-traded entity and has secured a predetermined amount of
capital.
Guarantee and Share Pledge Agreement
Pursuant to a Guarantee and Share Pledge agreement dated May 12, 2009, the
Company's Chairman guarantees the payment of a Company account payable
aggregating $12,000 as of April 30, 2009 by the extended due date, February 2,
2010. As security for the Company's liability, the Company's Chairman pledges a
first security interest in all of the rights, title, and interest in and to
1,000,000 shares of Company's Common Stock owned by the Company's Chairman.
12
Universal Infotainment Systems Corporation and Subsidiary
(a development stage company)
Condensed Notes to Unaudited Consolidated Financial Statements
Six Months Ended October 31, 2009 (unaudited)
Note 9 - Subsequent Events
- --------------------------
Issuance of Common Stock for Services - Legal agreement
In November 2009, the company is required to issue 75,000 shares of its common
stock in exchange for legal services for quarter ending January 31, 2010. These
shares will be issued in the third quarter of 2010.
Management evaluated all activity of the Company through December 21, 2010 (the
issue date of the Company's consolidated financial statements) and concluded
that no subsequent events have occurred that would require recognition in the
consolidated financial statements.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Forward-Looking Statements
- --------------------------
The following discussion and analysis is provided to increase the understanding
of, and should be read in conjunction with, the Financial Statements of the
Company and Notes thereto included elsewhere in this Report. Historical results
and percentage relationships among any amounts in these financial statements are
not necessarily indicative of trends in operating results for any future period.
The statements, which are not historical facts contained in this Report,
including this Plan of Operations, and Notes to the Financial Statements,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are based on currently
available operating, financial and competitive information, and are subject to
various risks and uncertainties. Future events and the Company's actual results
may differ materially from the results reflected in these forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, dependence on existing and future key strategic and strategic
end-user customers, limited ability to establish new strategic relationships,
ability to sustain and manage growth, variability of operating results, the
Company's expansion and development of new service lines, marketing and other
business development initiatives, the commencement of new engagements,
competition in the industry, general economic conditions, dependence on key
personnel, the ability to attract, hire and retain personnel who possess the
technical skills and experience necessary to meet the service requirements of
its clients, the potential liability with respect to actions taken by its
existing and past employees, risks associated with international sales, and
other risks described in the Company's other SEC filings.
The safe harbors of forward-looking statements provided by Section 21E of the
Exchange Act are unavailable to issuers of penny stock. As we issued securities
at a price below $5.00 per share, our shares are considered penny stock and such
safe harbors set forth under the Reform Act are unavailable to us.
Overview
- --------
We are a development stage company. We have generated no revenues to date. Our
auditors have raised substantial doubt as to our ability to continue as a going
concern. Although we will need only approximately $200,000 to $250,000 to remain
in business during the next 12 months with minimal operations, we will need
approximately $6,395,385 during the next 12 months to implement our business
plan to sell what we call UIS Infotainment Systems for use in passenger,
commercial and government agency vehicles. These systems combine our proprietary
GPS Navigation and Display Engine, combining aerial and satellite
imagery/photographs rather than traditional grid map displays, with
communications capabilities for 3G Communications Audio/Video, Internet
Browsing, E-mail, Fax, Text messaging and similar functions available today on
many cellular telephones. We call this combination of services "Infotainment."
14
Since our inception, we have devoted our activities to the following:
- Securing our agreements with the necessary third party data providers
with regards to our Product
- Developing our marketing strategy
- Created our prototype hardware equipment necessary to the UIS concept
- Securing the required manufacturing planning and implementation of our
proprietary hardware in Taiwan ROC
- Determining the market for our products and our manufacturing
activities;
- Developing a marketing plan; and
- Networking and indentifying future customers and projects.
Results of Operations
- ---------------------
We have generated no revenues during the period from inception on April 14, 2008
to October 31, 2009.
Development stage operating expenditures during the period from inception on
April 14, 2008 to October 31, 2009 were $595,453, which consisted of general and
administrative expenses related to our formation and legal, accounting and other
start-up costs of $266,480, compensation expense of $265,995, and research and
development expense of $39,500.
Other expenses aggregated $23,478 (net) and consisted primarily of interest
expense of $23,690.
Liquidity and Capital Resources
- -------------------------------
Our principal capital resources have been acquired through the sale of $176,626
of our common stock, net of offering costs and net advances from our founder
aggregating $81,076.
At October 31, 2009, we had total assets of $67,271 consisting of cash,
prepaid expenses, property and equipment, deposits and intangibles.
At October 31, 2009, our total liabilities were $239,790, consisting primarily
of accounts payable of $47,710, accrued compensation of $69,996, amounts due to
officer aggregating $81,076, and a note payable of $21,188.
15
We anticipate taking the following actions during the next 12 months, assuming
we receive the required funding:
Time After
Receiving
Expected Manner of Funding When
Occurrence or Step
Method of Should be
Milestone or Step Achievement Accomplished Cost of Completion
- --------------------------- ----------------------------- -------------- -------------------
Purchase office furniture Hire employees and begin 2 Months
and computers training $ 60,000
Software from Microsoft and Locate appropriate vendors to 2-3 Months
GIS software providers purchase the software's
including Advance Graphics needed.
Corporate editions from
Maya, Adobe, and others. $ 470,000
Formation and set up of Find and lease location for 4 Months
company and lab in Taiwan company offices & laboratory
ROC purchase equipment, and hire
employees.
Contract out the various Choose among the 30 OEM 5 Months
Components needed in factories those that can
creating the UNS Hardware produce the UNS Hardware in
in Taiwan ROC our time table. $ 540,000
Start Operations on the Sign Imagery and Navigable 2-4 Months $ 647,385
development of the North Data contracts with vendors, (This cost covers
America module of UNS begin processing staff
labor on the USA
images and USA
office expenses)
Start Marketing Phase Develop Sales Materials, 6 Months
Start Mailings and Product
Presentations $ 450,000
Begin testing of the North Test hardware and software, 7 Months
America UNS Module prepare the UNS calling
centers, field test UNS,
present UNS to the OEMs. $ 10,000
Begin production of Test Hardware Load software 6-7 months
Hardware for the Middle and deliver to the
East in Taiwan Distributor
In the Middle East $ 1,368,000
Order UNS Hardware from Finish and Ship UNS to USA 8 Months
UISC TW for the USA Work with distributors - set
market, begin by placing the logistics for the Cost for initial
3,000 units in the market distribution Channel, begin 3000 Units
via pre-contracted trade shows presence, media, To USA expected at:
Electronics Distributors and print advertising. $2,750,000
Contract with national Offers premiums in marketing 6 Months
brands distributors and sales to each major
Electronics Distributor in
each State so that market
penetration be achieved. $ 100,000
16
Cash Requirements
- -----------------
We intend to provide funding for our activities, if any, through a combination
of the private placement of our equity securities and the public sales of equity
securities. At October 31, 2009, our Chairman had net advances to us aggregating
$81,076. He has indicated that he does not intend to make additional advances to
us in the future. These funds were obtained by him through loans from his
parents pursuant to an oral agreement which bears no interest and is repayable
as mutually agreed with no due date. However, the advances from our Chairman to
us bear interest at the rate of 5%, and thus our Chairman will receive
additional compensation as a result. At October 31, 2009, the accrued interest
owed our Chairman was $5,325.
We are a development stage company. We have generated no revenues to date. Our
auditors have raised substantial doubt as to our ability to continue as a going
concern. Although we will need only approximately $200,000 to $250,000 to remain
in business during the next 12 months with minimal operations, we need
approximately $6,395,385 during the next 12 months to implement our business
plan as described above. The Company raised net, $176,626 through the sale of
its common stock in a recent private placement offering. The placement is
scheduled to run through November 30, 2009. This additional funding will permit
us to sustain minimal operations until approximately February, 2010. We have no
agreement, commitment or understanding to secure any such funding from any other
source.
There is uncertainty regarding our ability to commence operations or implement
our business plan without additional financing. We have a history of operating
losses, limited funds and no agreements, commitments or understandings to secure
additional financing. Our future success is dependent upon our ability to
commence operations, generate cash from operating activities and obtain
additional financing. There is no assurance that we will be able to commence
operations, generate sufficient cash from operations, sell additional shares of
common stock or borrow additional funds. Our inability to obtain additional cash
could have a material adverse affect on our ability to continue in business and
implement our business plan.
Commitments
- -----------
On July 15, 2008, we entered into a sub-lease agreement with Universal Global
Corp. whose President is Emanuel Pavlopoulos, our Chairman, for corporate
offices under terms of a non-cancelable operating lease. The lease term is from
July 16, 2008 through October 31, 2013 and requires an escalating monthly lease
payment over the term of the lease ranging from $3,149 to $3,615. The lease
required a $7,231 security deposit. The landlord has orally agreed to allow us
to assume the obligations under the lease directly following the dissolution of
Universal Global Corp.
17
Off-Balance Sheet Arrangements
- ------------------------------
We do not have any off balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
- ------------------------------------------------
We carried out an evaluation, under the supervision and with the participation
of our management, including our principal executive officer/principal financial
officer, of the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act (defined below)).
Based upon that evaluation, our principal executive officer/ principal financial
officer concluded that, as of the end of the period covered in this report, our
disclosure controls and procedures were effective to ensure that information
required to be disclosed in reports filed under the Securities Exchange Act of
1934, as amended (the "Exchange Act") is recorded, processed, summarized and
reported within the required time periods and is accumulated and communicated to
our management, including our principal executive officer/principal financial
officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our principal executive officer/principal financial
officer, does not expect that our disclosure controls and procedures or our
internal controls will prevent all error or fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints
and the benefits of controls must be considered relative to their costs. Due to
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected. Accordingly, management believes that the financial
statements included in this report fairly present in all material respects our
financial condition, results of operations and cash flows for the periods
presented.
Changes in Internal Control Over Financial Reporting
- ----------------------------------------------------
In addition, our management with the participation of our Principal Executive
Officer/Principal Financial Officer have determined that no change in our
internal control over financial reporting occurred during or subsequent to the
quarter ended October 31, 2009 that has materially affected, or is (as that term
is defined in Rules 13(a)-15(f) and 15(d)-15(f) of the Securities Exchange Act
of 1934) reasonably likely to materially affect, our internal control over
financial reporting.
18
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a) Unregistered Sales of Equity Securities.
From May 1st, 2009 to October 31, 2009, the Company sold 922,000 common shares
to 42 U.S. and 0 non U.S investors at a price of $0.10 per share for proceeds of
$88,895 and the company issued 210,000 common shares for services rendered to 2
U.S. and 0 non U.S service providers which we valued at a price of $0.10 per
share based upon recent cash sales.
We relied upon Section 4(2) of the Securities Act of 1933, as amended for the
above issuances to US citizens or residents.
We believed that Section 4(2) of the Securities Act of 1933 was available
because:
- None of these issuances involved underwriters, underwriting discounts
or commissions.
- Restrictive legends were and will be placed on all certificates
issued as described above.
- The distribution did not involve general solicitation or advertising.
- The distributions were made only to investors who were sophisticated
enough to evaluate the risks of the investment.
19
We relied upon Regulation S of the Securities Act of 1933, as amended for the
above issuances to non US citizens or residents.
We believed that Regulation S was available because:
- None of these issuances involved underwriters, underwriting discounts
or commissions;
- We placed Regulation S required restrictive legends on all
certificates issued;
- No offers or sales of stock under the Regulation S offering were made
to persons in the United States;
- No direct selling efforts of the Regulation S offering were made in
the United States.
In connection with the above transactions, although some of the investors may
have also been accredited, we provided the following to all investors:
- Access to all our books and records.
- Access to all material contracts and documents relating to our
operations.
- The opportunity to obtain any additional information, to the extent
we possessed such information, necessary to verify the accuracy of
the information to which the investors were given access.
20
Prospective investors were invited to review at our offices at any reasonable
hour, after reasonable advance notice, any materials available to us concerning
our business. Prospective Investors were also invited to visit our offices.
(b) Use of Proceeds.
During the fiscal quarter ended October 31, 2009, we used sale of common share
proceeds for general operating purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Registrant did not submit any matters to a vote of its security holders
during the six-months ended October 31, 2009.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS.
(a) Exhibits.
Exhibit
No. Document Description
- ------- --------------------
31.1 CERTIFICATION OF CEO/CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
32.1 CERTIFICATION OF CEO/CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. *
- ---------------------
* This exhibit shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934 or otherwise subject to the liabilities of that
section, nor shall it be deemed incorporated by reference in any filing under
the Securities Act of 1933 of the Securities Exchange Act of 1934, whether made
before or after the date hereof and irrespective of any general incorporation
language in any filings.
21
SIGNATURES
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.
Universal Infotainment Systems Corporation
SIGNATURE NAME TITLE DATE
/s/ Emanuel G. Pavlopoulos Emanuel G. Pavlopoulos Chairman 12/21/09
/s/ James Clark Beattie James Clark Beattie CEO, 12/21/09
Principal
Executive
Officer, Principal
Financial Officer/
Principal
Accounting Officer
22
EXHIBIT INDEX
Exhibit
No. Document Description
- ------- --------------------
31.1 CERTIFICATION OF CEO/CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
32.1 CERTIFICATION OF CEO/CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. *
- ---------------------
* This exhibit shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934 or otherwise subject to the liabilities of that
section, nor shall it be deemed incorporated by reference in any filing under
the Securities Act of 1933 of the Securities Exchange Act of 1934, whether made
before or after the date hereof and irrespective of any general incorporation
language in any filings.
23