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: March 31, 2002
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO _________
Commission file number: 000-30405
Universal Communication Systems, Inc.
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(Exact name of small business issuer as specified in its charter)
Nevada 4812 860887822
(State or jurisdiction (Primary Standard Industrial (IRS Employer
of incorporation Identification No.) Classification
or organization) Code No.)
407 Lincoln Rd, Suite 6K
Miami Beach, FL 33139
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(Address of principal executive offices)
(305) 672-6344
(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
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State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
Class Outstanding as of May 13, 2002
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Common Stock, $.001 par value 261,002,915
Transitional Small Business Disclosure Format: Yes No X
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TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
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Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet - September 30, 2001 and
March 31, 2002 3
Consolidated Statement of Operations for the three months
and six months Ended March 31, 2002 and 2001 4
Consolidated Statement of Cash Flows for the three months
and six months Ended March 31, 2002 and 2001 5
Notes to the Consolidated Financial Statements
March 31, 2002 6
Item 2. Management's Discussion and Analysis or Plan
of Operations 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Item 7. Signatures 12
2
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Universal Communication Systems, Inc. &
Subsidiaries
Condensed Consolidated Balance Sheets
March 31, September 30,
2002 2001
---- ----
(unaudited) (see note 1)
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Assets
Current Assets:
Cash & cash equivalents $ 81 $ 4,082
Other current assets -- 48,991
Total Current Assets 81 53,073
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Option on frequency licenses, net of impairment -- --
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Deposit in acquisition, net of impairment -- 197,506
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Due from related party 98,921 --
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Fixed Assets:
Equipment 52,971 300,670
Furniture and fixtures 20,580 20,580
Less: Accumulated depreciation & amortization (26,981) (99,779)
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Total Fixed Assets 46,570 221,471
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Investment in unconsolidated subsidiaries, net
of impairment -- --
Other assets 11,250 6,650
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Total Assets $ 156,822 $ 478,700
============ ============
Liabilities and Stockholders' Deficit
Current Liabilities:
Cash overdraft $ 1,658 $ --
Accounts payable, trade 2,058,412 840,520
Accrued expenses 136,087 1,124,751
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Total Current Liabilities 2,196,157 1,965,271
Convertible debentures 7,518,431 7,077,104
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Total Liabilities 9,714,588 9,042,375
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Commitments and Contingencies -- --
Stockholders' Deficit:
Committed common stock not issued 463 --
Common stock, par value $.001 per share,
300,000,000 shares authorized, 153,788,997 issued
and outstanding 153,789 137,993
Additional paid-in capital 19,500,719 19,576,098
Accumulated deficit (29,093,703) (28,158,732)
Accumulated other comprehensive loss (119,034) (119,034)
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Total Stockholders' Deficit (9,557,766) (8,563,675)
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Total Liabilities and Stockholders' Deficit $ 156,822 $ 478,700
============ ============
See notes to condensed consolidated financial statements.
3
Universal Communication Systems, Inc. &
Subsidiaries
Condensed Consolidated Statements of Operations
UNAUDITED
Three Months Ended March 31, Six Months Ended March 31,
---------------------------------- ----------------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Revenue $ -- $ 84,863 $ -- $ 401,454
Cost of goods sold -- 14,597 -- 270,793
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Gross profit -- 70,266 -- 130,661
Operating expenses 166,989 1,929,128 369,134 3,789,139
Write down of Inventory and Equipment 205,181 -- 205,181 --
Impairment loss on deposits 197,506 -- 197,506 --
------------- ------------- ------------- -------------
Operating (loss) (569,676) (1,858,862) (771,821) (3,658,478)
Interest (expense) (81,520) (46,363) (163,150) (78,013)
------------- ------------- ------------- -------------
Net loss $ (651,196) $ (1,905,225) $ (934,971) $ (3,736,491)
============= ============= ============= =============
Basic and diluted loss per
share $ (0.004) $ (0.02) $ (0.004) $ (0.04)
============= ============= ============= =============
Number of shares used in
computing basic and diluted
loss per share 146,579,269 94,730,295 150,293,874 94,730,295
============= ============= ============= =============
See notes to condensed consolidated financial statements.
4
Universal Communication Systems, Inc. &
Subsidiaries
Condensed Consolidated Statement of Cash Flows
UNAUDITED
For the For the
Six Months Six Months
Ended Ended
March 31, March 31,
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (934,971) $(3,736,491)
Adjustments to reconcile net loss from operations
to net cash used by operating activities:
Other comprehensive (loss) -- (2,922)
Common stock issued for services 6,000 106,250
Depreciation and amortization expense 18,712 166,167
Interest payable added to principal of
debentures 123,557 95,524
Loss on write down of assets 156,189 --
Impairment loss 197,506 --
Changes in operating assets and liabilities:
(Increase) decrease in prepaid and other 48,991 (220,799)
Decrease in accounts receivable -- 316,220
Increase (decrease) in accounts payable and
accrued expenses 229,228 578,593
Increase in cash overdraft 1,658 --
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Net Cash (Used) by Operating Activities (153,130) (2,697,458)
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CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of fixed assets -- (728,609)
Increase in due from related entities (98,921) --
Increase in other assets - deposits (4,600) --
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Net Cash (Used) by Investing Activities (103,521) (728,609)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of senior secured
convertible debentures, net 227,770 750,000
Sale of common stock 40,000 456,741
Other (15,120) --
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Net Cash Provided by Financing Activities 252,650 1,206,741
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NET (DECREASE) IN CASH AND CASH EQUIVALENTS (4,001) (2,219,326)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 4,082 3,111,150
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 81 $ 891,824
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SUPPLEMENTAL DISCLOSURES OF CASH:
Interest paid $ -- $ --
Income taxes paid $ -- $ --
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Interest accrued on debentures, added to
the principal of the debentures $ 123,557 $ 95,524
See notes to condensed consolidated financial statements.
5
UNIVERSAL COMMUNICATION SYSTEMS, INC. & SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - General and Summary of Business and Significant Accounting Policies.
Basis of Presentation
The accompanying unaudited condensed financial statements have
been prepared in accordance with U.S. generally accepted
accounting principles for interim financial information and with
instructions to Form 10-QSB and Regulation S-B. Accordingly, they
do not include all of the information and footnotes required by
U.S. generally accepted accounting principles for complete
consolidated financial statements included in this Form 10-QSB.
The results of operations for any interim period are not
necessarily indicative of results for the full year. These
statements should be read in conjunction with the audited
financial statements and accompanying notes for the year ended
September 30, 2001.
The balance sheet at September 30, 2001 has been derived from
audited financial statements, but does not include all of the
information and footnotes required by U.S. generally accepted
accounting principles for complete financial statements.
Organization
The consolidated financial statements presented are those of
Universal Communication Systems, Inc., (formerly, World Wide
Wireless Communications, Inc.), (the Company) and its
subsidiaries, Infotel Argentina, S.A. and Digital Way S.A. The
Company is engaged in activities related to advanced wireless
communications, including the acquisition of radio-frequency
spectrum both in the United States and internationally.
Consolidated Financial Statements
The accounts of the Company and its consolidated subsidiaries are
included in the consolidated financial statements after
elimination of significant intercompany accounts and
transactions. The consolidated subsidiaries, Infotel Argentina of
Argentina and Digital Way S.A. of Peru, are included in the
results for the quarter ended March 31, 2001 only (see note 3).
NOTE 2 - BASIC AND DILUTED NET LOSS PER SHARE CALCULATION
Loss per common share is calculated in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." Basic loss per share is computed by dividing the loss
available to common shareholders by the weighted-average number
of common shares outstanding. Diluted loss per share is computed
similar to basic loss per share, except that the denominator is
increased to include the number of additional common shares that
would have been outstanding if the potential common shares had
been issued and if the additional common shares were dilutive.
For the three and six months ended March 31, 2002 and 2001,
common stock equivalents have been excluded from the
aforementioned computations as their effect would be
anti-dilutive.
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NOTE 3 - OPERATING RESULTS BY COMPANY AND CONSOLIDATED FOR THE QUARTER ENDED
MARCH 31, 2002
During the fiscal year ended September 30, 2001, the Company had
lost management control of its two subsidiaries, Infotel
Argentina S.A. and Digital Way S.A. of Peru. Because of the
situation, the Company recognized an impairment of the Company's
remaining investments in those two subsidiaries, in the amount of
$5,555,254 at September 30, 2001. The Company has not been able
to regain management control at March 31, 2002, and therefor, is
unable to include the activities of the subsidiaries in the
results for the six months ended March 31, 2002.
NOTE 4 - FINANCIAL CONDITION AND LIQUIDITY
The Company's financial statements are prepared using U.S.
generally accepted accounting principles applicable to a going
concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The
Company has experienced losses since inception, and had an
accumulated deficit of $29,093,703 at March 31, 2002. Net losses
are expected for the foreseeable future. Management is
considering alternatives to its business strategy, including
modifications of its business plan and possible sale or licensing
of certain assets. Simultaneously, the Company is evaluating
whether to secure additional capital through sales of common
stock through the current operating cycle. There is no assurance
that management will be successful in its efforts.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the statements in this
report (including without limitation, statements indicating that the Company
"expects," "estimates," anticipates," or "believes" and all other statements
concerning future financial results, product offerings, proposed acquisitions or
combinations or other events that have not yet occurred) are forward-looking
statements that are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange
Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as
amended. Forward-looking statements involve known and unknown factors, risks and
Uncertainties, which are discussed below and in the Company's other filings with
the Securities and Exchange Commission, and which may cause the Company's actual
results in future periods to differ materially from forecasted results. Forward
looking statements are all based on current expectations, and the Company
assumes no obligation to update this information.
RISK FACTORS
We will require additional capital in the short term to remain a going
concern.
We will require substantial short term outside investment on a continuing
basis to finance our current operations and any limited capital expenditures
identified to protect existing investments. Our revenues for the foreseeable
future may not be sufficient to attain profitability. Since inception, we have
generated little revenue and have incurred substantial expenditures. We expect
to continue to experience losses from operations while we reorganize our
wireless Internet service system and possibly develop other technologies or
activities. In view of this fact, our auditors have stated in their report for
the period ended September 30, 2001 that our ability to meet our future
financing requirements, and the success of our future operations, cannot be
determined at this time. In order to finance our working capital requirements we
are negotiating equity investments, but there can be no assurance that we will
obtain the required capital or that it will be obtained on terms favorable to
us. If we do not obtain short term financing we may not be able to continue as a
viable concern. We do not have a bank line of credit and there can be no
assurance that any required or desired financing will be available through bank
borrowings, debt, or equity offerings, or otherwise, on acceptable terms, if at
all. If future financing requirements are satisfied through the issuance of
equity securities, investors may experience significant dilution in the net book
value per share of common stock.
We are subject to substantial governmental regulations that could
adversely affect our business.
BUSINESS AND ORGANIZATION
Universal Communication Systems, Inc., Inc., and its subsidiaries,
Infotel Argentina S.A. and Digital Way S.A. (collectively the "Company", "us" or
"we"), have been engaged in activities related to advanced wireless
communications, including the acquisition of radio-frequency spectrum
internationally. We also own a U. S. patent on our Distributed Wireless Call
Processing System technology. Following the change in management, as noted
below, we are now focused on acquisition and expansion of themed internet cafes
in selected high traffic markets.
8
PROPOSED ACQUISITION
On November 1, 2001, the Company signed a non-binding letter of intent
to acquire Hard Disk Cafe, Inc., a privately held Florida corporation which
intends to develop and license themed internet cafes. Terms call for the Company
to pay $1,000,000 in cash and 25 million shares of common stock for a total
value of $1,250,000. The acquisition is subject to the signing of a definitive
agreement, and to the availability of appropriate financing. See "Subsequent
Events" below.
OUTLOOK
On November 1, 2001, Michael J. Zwebner became our Chief Executive
Officer and Chairman of the Board of Directors. Along with his appointment, we
announced that Alexander Walker Jr. was appointed to the Board of Directors and
as Secretary to the corporation and Curtis Orgill was appointed to the Board of
Directors and as the Company's Chief Financial Officer. In the near term, new
management anticipates restructuring our obligations, disposing of
non-productive assets, re-aligning corporate resources into income and profit
producing activities and completing acquisitions to give us net revenue growth.
Management believes that with the proper restructuring and targeted growth by
acquisition, we will recover from our current financial condition and provide
growth and value to our shareholders.
As previously reported, our partners in Argentina have closed the
offices and the government has not restored our MMDS license. In Peru, we have
been advised by our partners that we have defaulted under the purchase agreement
for our operating subsidiary, and they have withheld information and access to
the activities of the subsidiary. However, see subsequent events below.
Accordingly, in both investments we recorded an impairment loss, in the fiscal
year ended September 30, 2001, resulting from our loss of control of those
subsidiaries and investments. We continue to pursue recovery of these assets and
are attempting to negotiate an equitable settlement on related obligations of
these entities.
SUBSEQUENT EVENTS
On May 10, 2002, an agreement was reached with the individuals in Peru
with respect to Digital Way S.A. Under the terms of the agreement, we
relinquished 73% of our holdings in the subsidiary, but retained the right to
the proceeds of any distributions or sale of 50% on the first $6,400,000.
Proceeds or distributions in excess of that amount will be divided on the basis
of shareholdings. All parties agreed to cancel any claims against each other and
to cooperate with each other in the promotion of the subsidiary's business.
On April 8, 2002, an agreement was signed finalizing the terms of the
acquisition of Hard Disc Cafe, Inc. The Agreement calls for the shareholders of
Hard Disc Cafe, Inc. to surrender their stock in exchange for three year
interest bearing notes totaling about $1 million and 25 million restricted
shares of the Company's common stock.
RESULTS OF OPERATIONS
Three Months and Six Months Ended March 31, 2002 Compared to the Three Months
and Six Months Ended March 31, 2001.
There were no revenues or cost of sales for the three months and six
months ended March 31, 2002 compared to $84,863 of revenues and $14,597 of cost
of sales for the three months ended March 31, 2001, and $401,454 of revenues and
$270,793 of cost of sales for the six months ended March 31, 2001. All revenues
in the prior year periods were derived from the sale of telephone system
integration and engineering in our Argentine subsidiary and through the
initiation of internet service in our Peruvian subsidiary. As previously noted,
our partners in those subsidiaries have withheld information for the current
reporting periods.
9
Operating expenses for the three months and six months ended March 31,
2002 amounted to $569,676 and $771,821, respectively, compared to $1,929,128 and
$3,789,139 for the three months and six months ended March 31, 2001. For the
current reporting period, these expenses were primarily consultants,
professional fees and rents, and write down of assets and impairment losses
totaling $402,687. For the prior year periods, the expenses were primarily
generated by our foreign subsidiaries and from the increased parent company
costs in expanding the business and managing the foreign subsidiaries.
Net losses for the three months ended March 31, 2002 were $651,196, as
compared with $1,905,225 for the three months ended March 31, 2001. Net losses
for the six months ended March 31, 2002 were $934,971, as compared with
$3,736,491 for the three months ended March 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 2002, we had cash and cash equivalents of $81 compared with
$4,082 as of September 30, 2001. During the six months ended March 31, 2002,
$227,770 was received from the sale of 8% senior secured convertible debentures
and $40,000 was received from the sale of common stock. These funds were used to
pay the cash operating expenses for the six month period ended March 31, 2002.
While management restructures the Company, current operating cash is
being provided by loans and the sale of common stock. The working capital
deficit at March 31, 2002 amounted to $2,196,076. Management is attempting to
reduce this deficit through arrangements with creditors. If we do not make
satisfactory arrangements with the creditors or obtain short term financing, we
may not be able to continue as a viable concern. We do not have a bank line of
credit and there can be no assurance that any required or desired financing will
be available through bank borrowings, debt, or equity offerings, or otherwise,
on acceptable terms, if at all. If future financing requirements are satisfied
through the issuance of equity securities, investors may experience significant
dilution in the net book value per share of common stock.
10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 20, 2001, WSI, Inc., a Puerto Rican corporation, and its principal
officer and shareholder Howard Hager, filed suit against the Company in the U.S.
District Court in Puerto Rico for breach of contract and damages in the amount
of $4,675,000. The claims arise out of an alleged agreement on the part of the
Company to acquire WSI and provide it with substantial financing. A default
judgment has been entered in WSI's favor. We do not believe that we are liable
for any material amount, and we are currently pursuing both legal options and
settlement negotiations in order to resolve the matter. We anticipate a
resolution in the near future.
ITEM 2. DEFAULTS ON SENIOR SECURITIES
On January 14, 2001, we entered into a Loan Agreement with our systems
integrator, Andrew Corporation, to repay costs incurred in purchasing their
services and equipment. Under the Loan Agreement, we agreed to pay the company
an initial payment of $100,000 and then an additional $100,000 each month until
the loan is repaid. The amount payable each month is subject to an increase if
we receive additional financing. In addition, we issued the company a warrant to
purchase no less than 200,000 shares and no greater than 500,000 shares of
common stock. The warrants are exercisable until January 24, 2005 at an exercise
price of $0.23 per share. The warrants were issued in lieu of interest. We are
required to register the shares underlying the warrants. Further, on July 23,
2001, we entered into an agreement with Andrew Corporation to resolve all our
remaining indebtedness including the monthly obligations above, to Andrew. This
agreement requires the return of all equipment previously shipped to Argentina,
most of which has been held in the duty free zone in La Plata, Argentina. This
agreement does not require the return of any equipment shipped by Andrew to
Peru. We have not been able to release the equipment from the authorities in
Argentina, in accordance with the agreement, however management is making every
effort to meet its obligation under the revised agreement with Andrew
Corporation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herewith:
EXHIBIT NO. DOCUMENT
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none.
(b) The Company filed the following reports on Form 8-K during the quarter for
which this form is filed:
none.
11
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.
Date: May 15, 2002 UNIVERSAL COMMUNICATION SYSTEMS, INC.
/s/ MICHAEL J. ZWEBNER
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Michael J. Zwebner
Chief Executive Officer, Chairman of the Board
12