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: December 31, 2003
------------------
[ ] 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.
----------------------------------------
(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.)
MICHAEL J. ZWEBNER
407 Lincoln Rd, Suite 12F
Miami Beach, FL 33139
-----------------------
(Address of principal executive offices)
(305) 672-6344
(Issuer's telephone number)
(Issuer's former telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
------ ------
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
Class Outstanding as of February 14, 2004
----- -----------------------------------
Common Stock, $.001 par value 125,031,613
Transitional Small Business Disclosure Format: Yes No X
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TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
----
Item 1. Consolidated Financial Statements:
Balance Sheet - September 30, 2003 and
December 31, 2003 3
Statement of Operations for the three months
Ended December 31, 2003 and 2002 4
Statement of Cash Flows for the three months
Ended December 31, 2003 and 2002 5
Notes to the Financial Statements
December 31, 2003 6
Item 2. Management's Discussion and Analysis or Plan
of Operations 7
Item 3. Evaluation Of Disclosure Controls And Procedures 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Item 7. Signatures 14
2
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Universal Communication Systems, Inc. & Subsidiaries
Condensed Consolidated Balance Sheets
December 31 September 30,
2003 2003
(unaudited)
------------ ------------
ASSETS
Current Assets:
Cash & cash equivalents $ 117,561 $ 144,682
Accounts receivable, net 36,986 105,859
Note and other receivable 339,211 116,782
Inventory 21,325 4,900
Prepaid expenses 39,064 35,185
------------ ------------
Total Current Assets 554,147 407,408
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Fixed Assets:
Furniture and equipment 148,387 65,786
Less: Accumulated depreciation 22,858 22,527
------------ ------------
Total Fixed Assets, Net 125,529 43,259
------------ ------------
Other Assets:
Intangibles 606,650 606,714
Deposits 19,206 4,600
------------ ------------
Total Other Assets 625,856 611,314
------------ ------------
Total Assets 1,305,532 $ 1,061,981
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Notes payable $ 352,373 $ 344,746
Line of credit 41,662 25,721
Accounts payable 1,172,076 1,142,332
Accrued expenses 306,158 180,489
Due to officer 78,239 11,368
Due to other related parties - 93,308
------------ ------------
Total Current Liabilities 1,950,508 1,797,964
Long-term Liabilities:
Convertible debentures 3,916,513 4,446,996
------------ ------------
Total Liabilities 5,867,021 6,244,960
------------ ------------
Commitments and Contingencies -- --
------------ ------------
Stockholders' Deficit:
Preferred stock, par value $.001 per share , 10,000,000 shares
authorized, no shares Issued and outstanding -- --
Common stock, par value $.001 per share,
800,000,000 shares authorized, 106,039,736 and 76,911,053
shares issued and outstanding 106,040 76,911
Additional paid-in capital 27,423,029 26,126,640
Accumulated deficit (32,217,619) (31,453,282)
Capital stock subscriptions 127,061 66,752
------------ ------------
Total Stockholders' Deficit (4,561,489) (5,182,979)
------------ ------------
Total Liabilities and Stockholders' Deficit $ 1,305,532 $ 1,061,981
============ ============
See notes to condensed financial statements.
3
Universal Communication Systems, Inc. & Subsidiaries
Condensed Consolidated Statements of Operations
UNAUDITED
Three Months Three Months
Ended December 31, Ended December 31,
2003 2002
----------------- ------------------
Revenue and other income $ 177,276 $ -
Cost of goods sold (14,572) -
----------------- ------------------
Gross profit 162,704 -
Operating expenses
Sales and Marketing 244,649 -
Product Development 95,904 -
General and Administrative 496,536 179,899
----------------- ------------------
Operating income (loss) (674,385) (179,899)
Interest income (expense) (39,863) (49,888)
----------------- ------------------
Net loss $ (714,248) $ (229,787)
================= ==================
Basic And Diluted Loss Per
Share $ (0.008) $ (0.034)
================= ==================
Basic and Diluted Weighted
Average Shares Outstanding 91,475,396 6,835,651
================= ==================
See notes to condensed financial statements.
4
Universal Communication Systems, Inc. and Subsidiaries
Condensed Statement of Cash Flows
UNAUDITED
For the For the
Three Months Three Months
Ended Ended
December 31, December 31,
2003 2002
------------------ -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (714,248) $ (229,787)
Adjustments to reconcile net loss from operations
to net cash used by operating activities:
Depreciation and amortization expense 1,796 1,422
Interest payable added to principal of
debentures 34,066 39,758
Interest added to principal of note payable 7,627 7,627
Stock issued for services 241,764 104,280
Changes in operating assets and liabilities:
(Increase) in prepaid and other (3,879) -
Decrease in accounts receivable 68,873 -
(Increase) in note receivable (222,429) -
(Increase) in inventory (16,425) -
Increase in note payable 7,627 -
Increase in line of credit 15,941 -
Increase in accrued expenses 125,669 3,746
Increase in accounts payable 29,744 14,077
(Decrease) in due to related entities (26,437) 50,775
Other 22,626 -
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Net Cash (Used) by Operating Activities (427,685) (8,102)
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CASH FLOWS FROM INVESTING
ACTIVITIES:
Decrease in advances from related parties - 7,501
Purchase of fixed assets (82,601) -
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Net Cash (Used) by Investing Activities (82,601) 7,501
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock 483,165 -
------------------ -----------------
Net Cash Provided by Financing Activities 483,165 -
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NET (DECREASE) IN CASH AND CASH EQUIVALENTS (27,121) (601)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 144,682 874
------------------ -----------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 117,561 $ 273
================== =================
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 $ 34,066 $ 39,758
See notes to condensed financial statements.
5
Universal Communication Systems, Inc. and 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, 2003.
The balance sheet at September 30, 2003 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.
Background
The Company is currently focusing its operations on the design,
manufacture and sale of water production and generation systems
along with solar power systems.
Reverse Stock Split
The Company completed a one-for-one-thousand reverse stock split
on August 23, 2002. All share and per share information reflects
this reverse stock split.
NOTE 2 - GOING CONCERN AND SIGNIFICANT RISKS AND UNCERTAINTIES
The Company's financial statements are prepared using 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 as such, there is
substantial doubt as to the Company's ability to continue as a
going concern. The Company is continuing 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.
NOTE 3 - 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 months ended December 31, 2003 and 2002, common
stock equivalents have been excluded from the aforementioned
computations as their effect would be anti-dilutive.
6
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 may cause our actual results in future periods to differ
materially from forecasted results. Forward looking statements are all based on
current expectations, and we assume 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 identify and execute
alternative business plans 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, 2003 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 currently focusing our operations on the design, manufacture and
sale of water production and generation systems along with solar power systems.
There are no assurances that this business activity will be successful, that we
will be able to identify and sell to the market and that the market will respond
to our product line.
BUSINESS AND ORGANIZATION
Universal Communication Systems, Inc. (collectively the "Company", "us" or
"we"), prior to 2002, was engaged in activities related to advanced wireless
communications, including the acquisition of radio-frequency spectrum
internationally. Currently, our activities related to the advanced wireless
communications are conducted only by our investment in Digital Way, S.A., a
Peruvian communication company and former wholly owned subsidiary. We currently
hold a twenty seven percent interest in Digital Way, S.A., however, due to a
lack of cooperation from their management, our financial results do not include
our interest in their activities.
Early in 2003, we identified a new business venture and adopted a new
business plan. We formed a wholly owned subsidiary, AirWater Corporation, whose
purpose and mission is to design, build and market machines that produce
drinkable water from the air. The first step in the endeavor was to obtain
licensing rights to the technology. To that end, we acquired four patents by
agreement dated March 24, 2003, relating to this technology from J. J. Reidy
Company of Holden, Massachusettes. Under the terms of the agreement, we paid
$400,000, and we are obligated to pay a royalty payment of between 5 to 7.5% on
all sales of equipment which uses the patented technology. Of $400,000, the
company paid $100,000 in cash, and the balance of $300,000 was settled by the
issuance of restricted common shares.
7
From March 2003 through August 2003, we entered into various consulting,
marketing and sales agreements with several international entities, in the US,
France, Brazil and Israel. The activities covered by these agreements include,
product design, electrical and mechanical engineering, systems integration,
research and development, conceptual designs, global contacts, mergers and
acquisitions, product and company publicity, marketing, sales and general
business consulting.
In certain global areas where electricity and or gas power sources are
either not available or in short supply, there is a need for a power alternative
to conventional sources. As previously mentioned, on September 29, 2003 we
completed the acquisition of Millennium Electric T.O.U., Ltd. to fulfill this
technological need of providing Photo Voltaic (PV) Electric Energy to provide
the necessary power for the air-water system.
This company and its president, Mr. Ami Elazari, are one of Israel's
foremost entities operating in the latest high technology field of solar energy,
solar panels, and solar powered consumer products. The company and Mr. Elazari
are the holders of more than 21 international patents relating to both Photo
Voltaic ("PV") and solar energy systems and products. They have for many years
been involved in multi million dollar projects on a world wide basis.
Since June of 2003, we have worked to design, research and develop as well
as source the manufacture of our AirWater machines. The result of this search
has concluded with manufacturing and licensing agreements with entities in
Israel and Brazil, and more recently in Australia. We have now embarked on a
worldwide sales and marketing program.
NEW PRODUCTS
In line with our new business plans, AirWater contracted engineers and
product development experts to both enhance existing technologies, and to
develop new systems and applications. In this regard, the company announced on
October 23, 2003 that it had developed a new special Multi Head Dispenser Air to
Water system for the marine and Boating industry.
INTERNATIONAL SALES AND MARKETING
As a result of marketing and sales efforts, the company secured an
invitation issued by the Government of Gabon in Africa, to attend meetings in
the capital Libreville, in order to explore the possibility of setting up a
local manufacturing and or assembly plant there for local production of AirWater
machines. Negotiations continue in this regard.
Since the company started marketing AirWater Machines and Systems, we have
made inroads into many international markets. Sample machines have been shipped
to Mexico, Los Angeles, Huntsville, Brazil, France, Cameroon, Australia, China,
Switzerland, Jordan, Iraq, etc. Several orders for machines have been secured,
and more are expected.
The company is concentrating its sales and marketing efforts on making
large "country sized" sales to governments, federal and local authorities, as
well as to aid agencies the world over. The company has entered into numerous
agreements with sales and marketing corporations, agencies and local entities,
located all over the world. The company has realized that because of the
complexity of the product, the sales cycle of the Air Water products and systems
are somewhat longer that was previously expected. However, management remains
confident that large international orders for the machines will commence and
flow in 2004.
As part of ongoing product development and production, the company has
secured an agreement with local manufacturers of De-Humidifiers and Air
Conditioners in Sao Paulo Brazil. Currently the company is co-operating with the
Brazilians and the first prototypes have been produced.
As a result of the company's efforts and activities, the AirWater Machines
will now be made in Brazil, Israel and Australia. This will allow the company to
offer faster and more efficient sales and deliveries.
8
OVERSEAS LICENSES
On November 20, 2003, Millennium Electric TOU Limited, a wholly owned
subsidiary of UCSY, entered into a memorandum of understanding and Licensing
Agreement with a local Brazilian company Heliotek, to license the manufacture of
Multi Solar System Photo Voltaic Solar Panels in that country.. The License
calls for a one time license payment of $200,000 with Royalty residuals of
between 5 and 10 percent on all manufactured and sold products. Negotiations
continue in this regard. It is expected that the conclusion of this agreement
will be done by end of Quarter 1 of fiscal year ending September, 2004, with
revenues flowing in Quarter two.
On December 15, 2003, we entered into a licensing transaction with an
Australian Group for the manufacture and or assembly of AirWater machines and PV
Solar Panels in Australia. This transaction, as with the Brazilian agreement,
secured a one time license payment of $200,000 with Royalty residuals of between
5 and 10 percent on all manufactured and sold products. Negotiations continue in
this regard. It is expected that the conclusion of this agreement will be done
by end of Quarter 1 of fye 2004, with revenues flowing in Quarter 2 of the same
period. In early January, 2004, the company received a first installment payment
of $10,000 pursuant to this agreement.
LISTING ON FOREIGN EQUITIES EXCHANGE
On December 1, 2003, the company obtained a listing on the Berlin Exchange
in Germany. The company was allocated a trading symbol UCV. By the end of
December, no trading had yet been generated in this new market. Subsequent to
this, we have engaged the services of the Geneva Group, an entity with expertise
in marketing and corporate promotions, to bring to the German investor an
awareness of our business, as well as an awareness of our stock listing in the
German exchange. It is expected that active trading on the Berlin Exchange will
commence around the end of February, 2004.
OVERSEAS OFFICES.
In line with marketing and sales needs of AirWater and PV Solar Products,
we have opened operational offices in Geneva Switzerland and Paris France. In
addition, we have set up representation in Mexico, Brazil, Morocco, China, and
in several countries in Africa. Further, through our subsidiary Solar One
Corporation, we have set up offices in Baltimore, Maryland for the sales and
marketing of Solar Products and Systems.
ACQUISITIONS
On September 17, 2003, we announced that we have entered into a letter of
intent to acquire a 51% interest in GiraSOLAR, BV, a Dutch company that operates
and specializes in the photo voltaic solar energy industry. This Dutch group is
composed of two separate operating subsidiaries, with projected combined sales
in excess of $25 million.
On December 15, 2004, we concluded negotiations for the acquisition of
GIRASOLAR BV. Management of GIRASOLAR has indicated that their company has had
operating revenues of about EUR 20 million, (about $25 million US) in fiscal
2003, with an operating profit of about $800,000. The company is currently doing
its due diligence and legal preparatory work, in anticipation of closing the
acquisition by the end of March 2004.
NEW PRODUCT LIFESAVER
We announced the company's new innovative product the LIFESAVER, the
world's first PV Solar Energy powered AirWater Machine. Recognizing the lack of
adequate electric or other power in certain areas of the world that have shown
serious interest in the AirWater machines, the company has developed a system
wherein the AirWater Machine will operate solely from Electric Energy generated
by PV Solar Panels. We are producing new promotional literature, along with
sales and marketing brochures. Following completion of technical and safety
testing of the product and system, sales of this unique product will commence in
Quarter 2 2004.
LITIGATION
On August 7, 2003, Electric Gas & Technology of Dallas, Texas ("ELGT"),
published a press announcement claiming that a complaint and $60 million lawsuit
had been filed in Federal court in Texas. Their press release stated that we had
infringed on their patents. Counsel has advised us that the claims lack
substance. On November 24, 2003, the court granted our motion for dismissal due
to lack of Texas jurisdiction. ELGT has similar suits filed against other
companies in the same industry. We have filed counter claims relating to Patent
Infringement in the US District Court of Southern Florida, disputing ELGT's
claims of patent infringement and as a result of statements made by ELGT, we
have filed a Defamation and Libel claim for $118 million in damages for false,
defamatory and libelous statements. In early December, ELGT issued a false press
release in relation to the ongoing litigation cases. The company responded with
its own press release, detailing factual responses, backed up by official court
orders.
9
As a result of the failure of ELGT to properly comply with the court
orders, and their failure to file timely responses of substance to the Federal
Court in South Florida, the case of "Defamation & Libel" as filed by UCSY Et Al
against ELGT et al, and its president Mr. Dan Zimmerman, has effectively been
'won', with our company securing a default order against all the defendants. At
a hearing on February 12th 2004, the court set a date in early March 2004 for a
hearing on damages, that will form the final judgment against ELGT & Mr. Dan
Zimmerman. In addition, on February 11th 2004, the court dismissed as moot, all
motions to dismiss as filed by ELGT in the patent infringement case. We fully
intend to see all these litigation cases through to the end, and secure fair
justice and compensation for the company.
RESULTS OF OPERATIONS
Three Months Ended December 31, 2003 Compared to the Three Months Ended December
31, 2002.
Revenues and cost of sales for the three months ended December 31, 2003 are
earned by our subsidiary, Millenium Electric T. O. U.
Operating expenses for the three months ended December 31, 2003 amounted to
$837,089 compared to $179,899 for the three months ended December 31, 2002.
These expenses were primarily consultants, professional fees and rents.
Net losses for the three months ended December 31, 2003 were $714,248, as
compared with $229,787 for the three months ended December 31, 2002.
On September 29, 2003, we completed an agreement to purchase 100% of the
stock of Millennium Electric T.O.U. Ltd (Millennium), an Israeli company
specializing in the development and installation of solar power systems
worldwide. Terms included an initial transfer of 5 million shares of our common
stock, valued at $250,000, with options for the sellers to purchase an
additional 22 million shares at various exercise prices, ranging from $0.05 to
$0.39 per share, to be granted under various conditions related to certain
future events and future performance standards for Millennium.
Our purchase cost plus net liabilities assumed, resulted in $300,064 of
intangibles in the form of patent costs, for which no impairment has been
recognized. No amortization is recorded in the year ended September 30, 2003, or
the three months ended December 31, 2003.
We created a new wholly-owned US subsidiary, Solar One, Inc, to market the solar
systems.
Millennium's assets and liabilities are included in our consolidated
balance sheets at September 30, 2003 and December 31, 2003. Millennium's results
of operations are included in our consolidated statements of operations for the
three months ended December 31, 2003. However, Millennium's results are not
included in our consolidated statements of operations for the three months ended
December 31, 2002.
The following pro forma data is presented on a combined basis, as if
Millennium had been acquired as of October 1, 2002:
For the three months ended December 31: 2003 2002
----------- -----------
Revenues $ 177,276 $ 17,114
Expenses 891,524 249,139
----------- -----------
Net (Loss) $ (714,248) $ (232,025)
=========== ===========
Basic & Diluted Loss per Share $ (0.008) $ (0.034)
=========== ===========
10
LIQUIDITY AND CAPITAL RESOURCES
On December 31, 2003 the Company had cash and cash equivalents of $117,561
compared with $144,682 as of September 30, 2003. During the three months ended
December 31, 2003, $483,165 was received from the sale of common stock. These
funds were used to pay the cash operating expenses for the three month period
ended December 31, 2003.
While management builds the AirWater business, current operating cash is
being provided by the sale of common stock and other equity arrangements. There
was a working capital deficit at December 31, 2003. Management is attempting to
reduce this deficit through arrangements with creditors and infusion of equity
investments. We have reached favorable agreements with a number of the
creditors, but have not had the resources to satisfy the obligation under the
revised debt. If we do not make satisfactory arrangements with all of 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.
ITEM 3. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The management of the Company including Mr. Michael J. Zwebner as Chief
Executive Officer and Mr. Curtis Orgil as Chief Financial Officer have evaluated
the Company's disclosure controls and procedures. Under rules promulgated by the
SEC, disclosure controls and procedures are defined as those "controls or other
procedures of an issuer that are designed to ensure that information required to
be disclosed by the issuer in the reports filed or submitted by it under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Commission's rules and forms." Based on the evaluation
of the Company's disclosure controls and procedures, it was determined that such
controls and procedures were effective as of January 30, 2004, the date of the
conclusion of the evaluation.
Further, there were no significant changes in the internal controls or in
other factors that could significantly affect these controls after January 30,
2004, the date of the conclusion of the evaluation of disclosure controls and
procedures.
11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 26, 1999, we filed suit against Credit Bancorp, in U.S. District
Court in San Francisco, regarding improprieties on the part of Credit Bancorp
relating to a loan. The case was settled on October 11, 1999. As part of the
settlement agreement, Credit Bancorp agreed to convert the original loans
granted to us to a convertible debenture in the amount of $740,000. On October
11, 1999, we issued a convertible unsecured debenture for $740,000 to Credit
Bancorp in settlement of this obligation. The terms of this convertible
unsecured debenture are 7% interest per annum payable, semiannually on the last
day of February and September, with the principal due September 30, 2002. All
amounts of unpaid principal and accrued interest of this debenture are
convertible at any time at the conversion price of $1,600 per share of
unregistered, restricted shares of our common stock. Credit Bancorp has agreed
to convert principal and accrued interest owing on the debenture into 483 shares
of our common stock.
In November 1999, the SEC filed suit against Credit Bancorp alleging
violations of various securities laws in connection with its actions in relation
to us and others, and seeking various forms of relief including disgorgement of
its illegal gains. A receiver has been appointed to administer the affairs of
Credit Bancorp. We have been informed that the appointed receiver denies that
such a conversion request was made and the Company may be subject to further
liability.
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 was entered in WSI's favor. On November 26, 2002 a settlement agreement
was reached with Mr. Hager and the trustee in bankruptcy for WSI. Under the
agreement, we issued $200,000 in value of shares of common stock, which are
restricted from sale for a one-year period. In addition to the stock, $50,000
was paid to the trustee of WSI in two installments of $25,000 each, and a
two year consulting contract, valued at $120,000, was signed with Mr.
Hager. The settlement has a total cost of $370,000.
12
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
The Company's annual meeting of stockholders was held on October 22, 2003.
The directors elected at the meeting were:
For Withheld
------------ ------------
Curtis A. Orgil 69,211,779 66,828
Ramsey Sweis 69,211,779 66,828
Alexander H. Walker, Jr. 69,211,779 66,828
Michael J. Zwebner 69,211,779 66,828
Ami Elazari 68,711,779 566,828
Ratification of the selection of Reuben E. Price, P.A., as the
Company's independent auditors for the fiscal year ending September
30, 2003:
For Against Withheld
------------ -------------- ------------
63,670,279 31,997 6,715
The foregoing matters are described in detail in the Company's proxy
statement dated September 30, 2003 for the 2003 Annual Meeting of
Stockholders.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herewith:
Exhibit 31.1 - Certification of Chief Executive Officer of Universal
Communication Systems, Inc. required by Rule 13a-14(1) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 31.2 - Certification of Chief Financial Officer of Universal
Communication Systems, Inc. required by Rule 13a-14(1) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32.1 - Certification of Chief Executive Officer of Universal
Communication Systems, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 and Section 1350 of 18 U.S.C. 63.
Exhibit 32.2 - Certification of Chief Financial Officer of Universal
Communication Systems, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 and Section 1350 of 18 U.S.C. 63.
(b) The Company filed the following reports on Form 8-K during the quarter for
which this form is filed:
None
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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: February 23, 2004 UNIVERSAL COMMUNICATION SYSTEMS, INC.
/s/ MICHAEL J. ZWEBNER
----------------------------
Michael J. Zwebner
Chief Executive Officer,
Chairman of the Board
14