SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): SEPTEMBER 29, 2003
UNIVERSAL COMMUNICATION SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
4812 Nevada 860887822
---- ------ ---------
(Commission File Number) (State or Other Jurisdiction (IRS Employer
of Incorporation) Identification No.)
407 LINCOLN RD, STE 6K, MIAMI BEACH, FL 33139
- --------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 305-672-6344
Item 2. Acquisition or Disposition of Assets.
On September 29, 2003, Universal Communication Systems, Inc., a Nevada
corporation ("Universal" or "Buyer"), completed its acquisition of Millennium
Electric TOU, Ltd., an Israeli corporation ("Millennium" or "Seller"). The
acquisition was made pursuant to a Stock Purchase Agreement, dated as of August
22, 2003 (the "Purchase Agreement").
Pursuant to the Purchase Agreement, Universal and Millenium released their
respective shares held in escrow to effect the transaction.
The specific terms of the agreement are as follows:
Four million four hundred thousand (4,400,000) shares of restricted common
stock of Buyer in the name of Sellers (the "Initial Stock").
Options to purchase additional eight million eight hundred thousands
(8,800,000) shares of Buyer common stock, at a price of $0.05/share, exercisable
for a period of five years from the date of the Closing (the "Initial Options"),
upon delivery of Draft Financial Statements of the Company for the 2002 fiscal
year, and Draft Interim Financial Statements through the quarter ended June 2003
(as further defined in Section 2.4). Within 7 days after receipt of a Revenue
Reports indicating the Company has achieved USD $1.3 million in Revenue, options
to purchase 13.2 million shares of Buyer common stock, exercisable during a
period of 36 months from the date of issuance, at:
USD $0.06 per share, if such Revenue is achieved at any time during the
fiscal year ending December 31, 2003; or
USD $0.07 per share if such Revenue is achieved accumulatively at any time
during the fiscal year ending December 31, 2004;
USD $0.08 per share if such Revenue is achieved accumulatively at any time
during the fiscal year ending December 31, 2005.
Within 7 days after receipt of a Revenue Report indicating the Company has
achieved USD $4.4 million in Revenue, options to purchase additional 13.2
million shares of Buyer common stock, exercisable during a period of 48 months
from the date of issuance, at:
USD $0.17 per share if such Revenue is achieved during the fiscal year
ending December 31, 2004;
USD $0.18 per share if such Revenue is achieved accumulatively at any time
during the fiscal year ending December 31, 2005; or
USD $0.19 per share if such Revenue is achieved accumulatively at any time
during the fiscal year ending December 31, 2006.
Within 7 days after receipt of a Revenue Report indicating the Company has
achieved USD $12.2 million in Revenue, options to purchase additional 13.2
million shares of Buyer common stock, exercisable during a period of 60 months
from the date of issuance, at:
USD $0.37 per share if such Revenue is achieved during the fiscal year
ending December 31, 2005; or
USD $0.38 per share if such Revenue is achieved accumulatively at any time
during the fiscal year ending December 31, 2006; or
USD $0.39 per share if such Revenue is achieved accumulatively at any time,
during the fiscal year ending December 31, 2007.
The description of the transactions contemplated by the Purchase Agreement
is qualified in its entirety by reference to the full text of the Purchase
Agreement, which is filed as Exhibit 2.1 hereto and incorporated by reference
herein.
The aggregate purchase price for all of the Shares of Millenium cannot be
determined at this time.
Item 7. Financial Statements and Exhibits
(a) Financial Statements.
Report of Independent Auditors F-1
Consolidated Balance Sheets as of September 30, 2003 and 2002 F-2
Consolidated Statements of Operations for the Years Ended
September 30, 2003 and 2002 F-3
Consolidated Statements of Changes in Shareholders' Equity (Deficiency)
for the Years Ended September 30, 2003 and 2002 F-4
Consolidated Statements of Cash Flows for the Years Ended
September 30, 2003 and 2002 F-5
Notes to Consolidated Financial Statements F-6 - F-13
(b) Pro Forma Financial Information
It is impracticable for Universal to file herewith the required pro forma
financial information in this Current Report on Form 8-K/A. The pro forma
financial information required by this item will be filed by amendment to this
Current Report on Form 8-K/A as soon as practicable, but no later than 30 days
after the date this Current Report on Form 8-K/A is required to be filed.
(c) Exhibits.
Exhibit
No. Exhibit
--- -------
2.1 Stock Purchase Agreement, dated as of August 22,
2003, by and among Universal Communication Systems,
Inc. and Shareholders of TOU Millennium Electric Ltd.:
Ami R. Elazari and Catlan Development Limited.*
99.1 Press Release, dated August 22, 2003.*
* Previously filed.
2
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 hereunto duly authorized.
Universal Communication Systems, Inc.
(Registrant)
By: /s/ Michael J. Zwebner
-----------------------------------
Michael J. Zwebner
Chairman and Chief Executive Officer
Dated: December 15, 2003
3
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MILLENNIUM ELECTRIC T.O.U. LTD.
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 AND 2002
REUBEN E. PRICE & COMPANY
PUBLIC ACCOUNTANCY CORPORATION
MILLENNIUM ELECTRIC T.O.U. LTD.
-------------------------------
CONTENTS
Page
Financial Statements:
Report of Independent Auditors F-1
Consolidated Balance Sheets as of September 30, 2003 and 2002 F-2
Consolidated Statements of Operations for the Years Ended
September 30, 2003 and 2002 F-3
Consolidated Statements of Changes in Shareholders' Equity (Deficiency)
for the Years Ended September 30, 2003 and 2002 F-4
Consolidated Statements of Cash Flows for the Years Ended
September 30, 2003 and 2002 F-5
Notes to Consolidated Financial Statements F-6 - F-13
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
MILLENNIUM ELECTRIC T.O.U. LTD.
We have audited the accompanying consolidated balance sheets of Millennium
Electric T.O.U. Ltd. (the Company) as of September 30, 2003 and 2002, and the
related consolidated statements of operations, consolidated changes in
shareholders' deficiency and consolidated statements of cash flows for the years
ended September 30, 2003 and 2002. The financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements of Millennium Electric
T.O.U. Ltd., as referred to above, present fairly, in all material respects, the
financial position of the Company as of September 30, 2003 and 2002, and the
results of its operations, changes in shareholders' deficiency and statements of
cash flows for the years ended September 30, 2003 and 2002, in conformity with
accounting principles generally accepted in the United States.
Reuben E. Price & Co.
December 11, 2003
F-1
MILLENNIUM ELECTRIC T.O.U. LTD.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
------------------------
2003 2002
--------- ----------
Assets
Current Assets:
Cash and cash equivalents $ 40,655 $ 290
Accounts receivable, net 105,859 61,730
Inventory 4,900 7,064
Prepaid expenses 25,050 --
--------- ---------
Total Current Assets 176,464 69,084
Equipment, Net 2,510 815
--------- ---------
Total Assets $ 178,974 $ 69,899
========= =========
Liabilities and Shareholders' (Deficiency)
Current Liabilities:
Short-term line of credit $ 25,721 $ 10,341
Accounts payable, trade 24,708 29,304
Accounts payable, related parties 93,308 44,943
Other 11,968 2,971
--------- ---------
Total Current Liabilities 155,705 87,559
--------- ---------
Long-Term Liabilities:
Loans from shareholders 50,000 --
Accrued severance payable 23,333 2,558
--------- ---------
Total Long-Term Liabilities 73,333 2,558
--------- ---------
Total Liabilities 229,038 90,117
--------- ---------
Commitments and Contingencies
Shareholders' (Deficiency):
Capital stock:
Ordinary shares of NIS 1 par value:
Authorized: 35,300 shares; Issued and outstanding:
100 shares as of September 30, 2003 and 2002 Management shares
of NIS 1 par value:
Issued and outstanding:
100 shares as of September 30, 2003 and 2002
Total Capital Stock 25 25
Accumulated deficit (62,337) (28,083)
Other comprehensive income 12,248 7,840
--------- ---------
Total Shareholders' (Deficiency) (50,064) (20,218)
--------- ---------
Total Liabilities and Shareholders' (Deficiency) $ 178,974 $ 69,899
========= =========
The accompanying notes are an integral part of the financial statements.
F-2
MILLENNIUM ELECTRIC T.O.U. LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30,
------------------------
2003 2002
--------- ---------
Revenues:
Sales $ 87,623 $ 111,390
Grants 74,443 20,303
--------- ---------
162,066 131,693
Cost of Revenues 58,270 36,146
--------- ---------
Gross Profit 103,796 95,547
--------- ---------
Operating Expenses:
Sales and marketing 19,877 38,041
General and administrative 110,733 19,959
--------- ---------
Total Operating Expenses 130,610 58,000
--------- ---------
Operating Income (Loss) (26,814) 37,547
Financial Expense (7,440) (2,719)
--------- ---------
Net Income (Loss) (34,254) 34,828
Other Comprehensive Income:
Foreign currency translation gain 4,408 7,840
--------- ---------
Total Comprehensive Income (Loss) $ (29,846) $ 42,668
========= =========
Basic and Diluted Net Income (Loss) per Ordinary Share $ (342.54) $ 348.28
========= =========
Basic and Diluted Weighted Average Shares Outstanding 100 100
========= =========
The accompanying notes are an integral part of the financial statements.
F-3
MILLENNIUM ELECTRIC T.O.U. LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY
ACCUMULATED
NUMBER OF OTHER
ORDINARY CAPITAL ACCUMULATED COMPREHENSIVE
SHARES STOCK DEFICIT INCOME TOTAL
------ ----- ------- ------ -----
Balance as of October 1, 2001 100 $ 25 $(62,911) $ -- $(62,886)
Net income -- -- 34,828 -- 34,828
Other comprehensive income:
Foreign currency adjustment -- -- -- 7,840 7,840
-------- -------- -------- -------- --------
Balance as of September 30, 2002 100 25 (28,083) 7,840 (20,218)
Net (loss) -- -- (34,254) -- (34,254)
Other comprehensive income:
Foreign currency adjustment -- -- -- 4,408 4,408
-------- -------- -------- -------- --------
Balance as of September 30, 2003 100 $ 25 $(62,337) $ 12,248 $(50,064)
======== ======== ======== ======== ========
The accompanying notes are an integral part of the financial statements.
F-4
MILLENNIUM ELECTRIC T.O.U. LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
------------------------
2003 2002
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(34,254) $ 34,828
Adjustments to reconcile net income/(loss) to net cash used in operating
activities:
Depreciation 384 326
Foreign currency translation gain 4,408 7,840
(Increase) in accounts receivable (44,129) (38,674)
Decrease (increase) in inventory 2,164 (5,208)
(Increase) in prepaid expenses (25,050) --
Increase (decrease) in accounts payables (4,596) 27,427
Increase in accounts payable, related parties 48,365 17,180
Increase (decrease) in other liabilities 8,997 (51,993)
Increase in accrued severance pay 20,775 2,558
-------- --------
Net cash used in operating activities (22,936) (5,716)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,079) --
-------- --------
Net cash used in investing activities (2,079) --
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term line of credit, net 15,380 6,006
Long-term loans from shareholders 50,000 --
-------- --------
Net cash provided by financing activities 65,380 6,006
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 40,365 290
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 290 --
-------- --------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 40,655 $ 290
======== ========
SUPPLEMENTAL DISCLOSURE - Cash Paid During the Year for:
Interest $ 4,832 $ 1,012
======== ========
The accompanying notes are an integral part of the financial statements.
F-5
MILLENNIUM ELECTRIC T.O.U. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE 1 - GENERAL
a. Millennium Electric T.O.U. Ltd. (Company) is an Israeli
corporation formed in March 1999, and commenced its operation
in April 2000. The Company is engaged in the research,
development and manufacture of solar systems worldwide.
b. In March 2000, the Company established a 65% owned subsidiary
- Millennium USA. The subsidiary is inactive, with no assets
or liabilities.
c. In September 2002, the Company established a 50% owned
subsidiary -Solar Style Ltd. (Solar). The subsidiary is
inactive, with no assets or liabilities.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with
accounting principles generally accepted in the United States.
a. Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
b. Functional currency, comprehensive income, and currency
translation:
The functional and reporting currency of the Company is the
U.S. dollar.
The Company's transactions are recorded in New Israeli Shekels
(NIS); however most of the Company's revenues are received in
U.S. dollars or linked to the U.S. dollar, and a substantial
portion of its costs is incurred in U.S. dollars. Accordingly,
the Company has determined the U.S. dollar as the currency of
its primary economic environment, and thus, is its functional
and reporting currency.
The Company's transactions and balances denominated in U.S.
dollars are presented at their original amounts. Non-dollar
transactions and balances have been remeasured to U.S. dollars
in accordance with Statement No. 52 of the Financial
Accounting Standards Board (FASB). All translation gains and
losses from remeasurement of monetary balance sheet items
denominated in non-dollar currencies are reflected in other
comprehensive income, as appropriate. The resulting cumulative
translation adjustments have been recorded as a separate
component of stockholders' equity. The sole component of other
comprehensive income is a foreign currency translation
adjustment.
c. Cash equivalents:
The Company considers all highly liquid investment instruments
originally purchased with maturity of three months or less to
be cash equivalents.
F-6
MILLENNIUM ELECTRIC T.O.U. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. Inventory:
Inventory is stated at the lower of cost or market value.
Inventory write-offs are provided to cover risks arising from
slow-moving items or technological obsolescence. Cost is
determined using the "first-in, first-out" method.
e. Property and equipment:
Property and equipment are stated at cost, less accumulated
depreciation.
Depreciation is calculated using the straight-line method over
the estimated useful lives of the assets, at the following
rates:
PERCENT PER YEAR
----------------
Computers and related equipment 15 - 33%
Office furniture and equipment 7%
The Company's long-lived assets are reviewed for impairment in
accordance with Statement of Financial Accounting Standard No.
144 "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS No. 144) whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of
an asset to the future undiscounted cash flows expected to be
generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the
fair value of the assets.
f. Revenue recognition:
Revenues from the sales of products are recognized in
accordance with Staff Accounting Bulletin No. 101 "Revenue
Recognition in Financial Statements" (SAB No. 101) when
persuasive evidence of an arrangement exists, delivery of the
product has occurred, provided the collection of resulting
receivable is probable, the price is fixed or determinable,
and no significant obligation exists. The Company does not
grant right of return.
Revenues from the Canadian Highways Investment Corporation
agreement are recognized in accordance with Statement of
Position 81-1 "Accounting for Performance of Construction
-Type and Certain Production -Type Contracts" (SOP 81-1),
using contract accounting on a percentage of completion
method, based on the relationship of actual working hours
incurred to total working hours estimated to be incurred over
the duration of the contract and in accordance with the "Input
Method". Provisions for estimated losses on uncompleted
contracts are made in the period in which losses are first
determinable, in the amount of the estimated loss on the
entire contract. As of September 30, 2003, no such estimated
losses were identified.
F-7
MILLENNIUM ELECTRIC T.O.U. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Grants from the Israeli Fund for Encouragement of Marketing
Activity are recognized at the time the Company is entitled to
such grants on the basis of the costs incurred. These grants
are royalty free.
g. Income taxes:
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes". This statement prescribes the
use of the liability method, whereby deferred tax asset and
liability account balances are determined based on the
differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are
expected to reverse. The Company provides a valuation
allowance, if necessary, to reduce deferred tax assets to
their estimated realizable value.
h. Fair value of financial instruments:
The following methods and assumptions were used by the Company
in estimating its fair value disclosures for financial
instruments:
The carrying amounts of cash and cash equivalents, trade
receivables, other accounts receivable, trade payables and
other accounts payable and accrued expenses, approximate their
fair values due to the short-term maturities of these
instruments.
i. Concentrations of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
cash equivalents. Cash and cash equivalents are deposited with
major banks in Israel. Management believes that the financial
institutions that hold the Company's investments are
financially sound, and, accordingly, minimal credit risk
exists with respect to these investments.
The Company has no significant off-balance-sheet concentration
of credit risk, such as foreign exchange contracts, option
contracts or other foreign hedging arrangements.
j. Severance pay:
The liability of the Company for severance pay is calculated
pursuant to the Israeli severance pay law based on the most
recent salary of the employees multiplied by the number of
years of employment as of the balance sheet date. Employees of
the Company are entitled to one month's salary for each year
of employment or a portion thereof. The Company's liability
for all of their employees is fully provided by an accrual.
The deposited funds include interest earnings accumulated up
to the balance sheet date. The deposited funds may be
withdrawn only upon the fulfillment of the provisions of the
Israeli severance pay law or labor agreements. The value of
the deposited funds is based on the cash surrendered value of
these policies and includes immaterial interest earnings.
Severance expenses for the years ended September 30, 2003 and
2002, were $ 20,775 thousand and $ 2,558 thousand,
respectively.
F-8
MILLENNIUM ELECTRIC T.O.U. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
k. Impact of recently issued accounting standards:
In November 2002, the EITF reached a consensus on Issue 00-21,
addressing how to account for arrangements that involve the
delivery or performance of multiple products, services, and/or
rights to use of assets. Revenue arrangements with multiple
deliverables are divided into separate units of accounting if
the deliverables in the arrangement meet the following
criteria: (1) the delivered item has value to the customer on
a standalone basis; (2) there is objective and reliable
evidence of the fair value of undelivered items; and (3)
delivery of any undelivered item is probable. Arrangement
consideration should be allocated among the separate units of
accounting based on their relative fair values, with the
amount allocated to the delivered item being limited to the
amount that is not contingent on the delivery of additional
items or meeting other specified performance conditions. The
final consensus will be applicable to agreements entered into
in fiscal periods beginning after June 15, 2003 with early
adoption permitted. The provisions of this Consensus will have
a certain effect on the Company's revenue recognition policy.
l. Principals of consolidation:
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries (See Note 1). All
significant intercompany transactions and balances have been
eliminated in consolidation.
NOTE 3 - ACCOUNTS RECEIVABLE
SEPTEMBER 30,
---------------------
2003 2002
-------- --------
Accounts Receivable:
Government authorities $ 5,811 $ 1,534
Grant receivables - Fund for Encouragement of
Marketing Activity -- 20,323
Grants receivable - European Community 67,899 --
Other 32,149 39,873
-------- --------
Accounts Receivable, Net $105,859 $ 61,730
======== ========
Accounts receivable is shown net of an allowance for doubtful accounts.
The Company establishes an allowance for estimated bad debts by
applying specified percentages to the different receivable aging
categories. No bad debt was experienced and thus, no expenses were
recognized, in the two periods presented, September 30, 2003 and 2002.
F-9
MILLENNIUM ELECTRIC T.O.U. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE 4 - EQUIPMENT
SEPTEMBER 30,
------------------
2003 2002
------ ------
Cost Basis:
Computers and related equipment $2,464 $1,379
Office furniture and equipment 994 --
------ ------
3,458 1,379
------ ------
Accumulated depreciation:
Computers and related equipment 901 564
Office furniture and equipment 47 --
------ ------
948 564
------ ------
Equipment, Net $2,510 $ 815
====== ======
Depreciation expenses for the years ended September 30, 2003 and 2002,
were $ 384 and $ 326, respectively.
NOTE 5 - OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
SEPTEMBER 30,
--------------------
2003 2002
------- -------
Employees and payroll accruals $ 3,187 $ 434
Accrued expenses 3,828 1,854
Other 4,953 683
------- -------
$11,968 $ 2,971
======= =======
NOTE 6 - LONG-TERM LIABILITIES, LOANS FROM SHAREHOLDERS
In September 2003, the Company received $50,000 from its shareholder.
The terms of the loan have not yet been determined.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
a. The facilities of the Company are rented under operating
leases for periods ending in 2005.
Future minimum lease commitments under non-cancelable
operating leases for the years ended September 30, are as
follows:
YEAR
----
2004 $ 60,180
2005 55,165
--------
$115,345
========
As of September 30, 2003, the Company has provided guarantees
for the fulfillment of the lease commitments in the
approximate amount of $16,000.
F-10
MILLENNIUM ELECTRIC T.O.U. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONT.)
b. The Company rents a car under an operating lease. The lease is
for a period of 36 months commencing as of October 2003, for a
monthly fee of $1,126, linked to the Israeli Consumer Price
Index.
Rent expenses for the years ended September 30, 2003 and 2002
were zero.
c. In September 2003, the Company signed a consulting agreement
for a period of six months, according to which the Company
shall pay the consultant a total aggregate amount of $37,000.
As of September 30, 2003, the remaining contingent obligation
is $18,000.
d. In September 2003, the Company signed a consulting agreement
according to which the Company shall pay the consultant the
amount of $118,000. As of September 30, 2003, the remaining
contingent obligation is $96,000.
e. The Company participates in five programs sponsored by the
European community for research, technological development and
demonstration activities ("EC"), for the support of research
and development projects for a period of 24 months. As of
September 30, 2003, the Company has received a grant in the
amount of $11,600. The entitlement to receive such grants is
dependent upon approval of the interim and final progress
reports filed with the EC. As of September 30, 2003, the
Company recorded grants receivable in the amount of $74,000,
which represent 75% of the total grant the Company is entitled
to receive (see Note 3).
NOTE 8 - SHARE CAPITAL
The rights, preferences and restrictions of the Ordinary and Management
shares are as follows:
1. Dividends: The holders of Ordinary shares shall be entitled to
receive dividends as declared by the Company.
2. Voting: The holders of Management shares shall have the right
to appoint and dismiss directors.
Consequently, the Ordinary and Management shares taken together
constitute the equivalent of 100 shares of common stock.
NOTE 9 - TAXES ON INCOME
a. Losses for tax purposes:
As of September 30, 2003, the Company had loss carry forwards
of approximately $ 30,000, which may be carried forward and
offset against taxable income in the future for an indefinite
period.
b. Deferred income taxes:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial purposes and the amounts used for
income tax purposes. Significant components of the Company's
deferred tax liabilities and assets are as follows:
F-11
MILLENNIUM ELECTRIC T.O.U. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE 9 - TAXES ON INCOME (CONT.)
SEPTEMBER 30,
----------------------
2003 2002
-------- ---------
Deferred tax assets:
Loss carry forward $ 10,800 $ --
Provision for vacation and severance pay 8,393 931
-------- --------
Deferred tax assets, net 19,193 931
Deferred tax liabilities:
Valuation allowance (19,193) (931)
-------- --------
Net deferred tax asset $ -- $ --
======== ========
As of September 30, 2003, the Company has provided valuation
allowance of approximately $19,000 in respect of deferred tax
assets resulting from tax loss carry forwards. Management
currently believes that since the Company has a history of
losses, it is more likely than not that the deferred tax
regarding the loss carry forwards and other temporary
differences will not be realized in the foreseeable future.
c. Measurement of results for tax purposes under the Income Tax
Law (Inflationary Adjustments), 1985:
Results for tax purposes of the Company are measured in terms
of earnings in NIS after certain adjustments for increases in
the Israeli Consumer Price Index (CPI). As explained in Note
2b, the financial statements are presented in U.S. dollars.
The difference between the annual change in the Israeli CPI
and in the NIS/dollar exchange rate results in a difference
between taxable income and the income before taxes shown in
the financial statements. This is because taxable income is
measured in NIS adjusted for inflation and translated into
U.S. dollars at the applicable exchange rate for tax purposes,
while income before tax for financial statement purposes is
measured in U.S. dollars. In accordance with paragraph 9(f) of
SFAS No. 109, the Company has not provided deferred income
taxes on this difference between the reporting currency and
the tax bases of assets and liabilities.
NOTE 10 - RELATED PARTIES - TRANSACTIONS AND BALANCES
a. Balances due to related parties:
SEPTEMBER 30,
-------------------
2003 2002
------- -------
Accounts payable to related parties
(Shareholders and employees) $93,308 $44,943
======= =======
Long-term loans payable to shareholders (1) $50,000 --
======= =======
---------
(1) The terms have not yet been determined.
b. Transactions with related parties:
SEPTEMBER 30,
-------------------
2003 2002
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Consulting fee to related party $25,833 $ --
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F-12
MILLENNIUM ELECTRIC T.O.U. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE 11 - SELECTED STATEMENTS OF OPERATIONS DATA
SEPTEMBER 30,
-------------------
2003 2002
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a. Financial Expense:
Interest $(4,832) $(1,012)
Others (2,608) (1,707)
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$(7,440) $(2,719)
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b. Other Comprehensive Income:
Foreign Currency Translation Gains $4,408 $7,840
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NOTE 12 - SUBSEQUENT EVENTS
On August 22, 2003, the Company's shareholders signed an agreement
to sell all of their shares of the Company to Universal
Communication Systems, Inc., a Nevada corporation (Buyer). The
transaction was completed on September 29, 2003. The terms
included an initial transfer of 4,400,000 shares of the Buyer's
restricted common stock, valued at $752,000 on the date of
transfer, with options to purchase an additional 22,000,000 shares
at various exercise prices, to be granted under various conditions
related to certain future events and future Company performance
standards.
F-13