U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB/A
Amendment Number 1
[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
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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 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to Vote of Security Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Item 7. Signatures 18
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
Due from officer (net) 22,026 --
Note and other receivable 339,211 116,782
Inventory, finished goods 21,325 4,900
Prepaid expenses 39,064 35,185
------------ ------------
Total Current Assets 576,173 407,408
------------ ------------
Property, Plant and Equipment
Furniture and equipment 148,387 64,838
Less: Accumulated depreciation 22,858 21,579
------------ ------------
Total Fixed Assets, Net 125,529 43,259
------------ ------------
Other Assets:
Patents 606,714 606,714
Deposits 19,206 4,600
------------ ------------
Total Other Assets 625,920 611,314
------------ ------------
Total Assets $ 1,327,622 $ 1,061,981
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank overdraft advance $ 41,662 $ 25,721
Accounts payable 225,282 195,538
Accrued expenses 492,803 360,805
Notes payable 352,373 344,746
Liabilities of discontinued operations 946,794 946,794
Due to related parties 50,265 93,308
Due to officer -- 11,363
------------ ------------
Total Current Liabilities 2,109,179 1,978,280
Long-term Liabilities:
Convertible debentures 3,916,513 4,446,996
------------ ------------
Total Liabilities 6,025,692 6,425,276
------------ ------------
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,
107,146,000 and 81,223,000
shares issued and outstanding 107,146 81,223
Additional paid-in capital 27,668,853 26,482,580
Accumulated deficit (32,502,131) (31,833,598)
Capital stock subscriptions 121,562 --
Account receivable stockholder (93,500) (93,500)
------------ ------------
Total Stockholders' Deficit (4,698,070) (5,363,295)
------------ ------------
Total Liabilities and
Stockholders' Deficit $ 1,327,622 $ 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 Ended
December 31, 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 229,649 --
Research and Development 95,904 --
General and Administrative 496,536 179,899
------------ -----------
Total Operating Expenses 822,089 179,899
------------ -----------
Operating income (loss) (659,385) (179,899)
Interest income (expense) (61,193) (49,888)
------------ -----------
Net loss $ (720,578) $ (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 $(720,578) $(229,787)
Adjustments to reconcile net loss from operations
to net cash used by operating activities:
Depreciation expense 1,796 1,422
Interest payable added to principal of
debentures 55,395 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 131,998 3,746
Increase in accounts payable 29,744 14,077
(Decrease) in due to related entities (43,043) 50,775
Other (14,606) --
--------- ---------
Net Cash (Used) by Operating Activities (417,152) (8,102)
--------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Decrease in advances from related parties (33,394) 7,501
Purchase of property, plant and equipment (84,065) --
Other (33,504) --
--------- ---------
Net Cash (Used) by Investing Activities (150,963) 7,501
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock 584,037 --
Decrease in due from related parties (43,043) --
--------- ---------
Net Cash Provided by Financing Activities 540,994 --
--------- ---------
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 $ 55,395 $ 39,758
Interest accrued on the note payable, added
to the principal of the note $ 7,627 $ 7,627
Debentures converted to capital stock $ 560,000 $ --
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
For the past two fiscal years we have had minimal revenues. We have a
history of losses, and an accumulated shareholder deficit of $32,502,131.
Because of our recurring losses, our independent auditors have expressed doubt
as to our ability to continue as a going concern.
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 develop the Air - Water and photo voltaic businesses. 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. Although one of
our subsidiaries has a bank account overdraft facility, 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.
7
PLAN OF OPERATION FOR THE NEXT 12 MONTHS
- ----------------------------------------
Our cash position at December 31, 2003 is $117,561. This is only
sufficient to provide coverage for two months of operating cash needs, based on
the current reporting period's negative cash flow from operations. However, our
Chairman, in connection with Port Universal Ltd., a company in which he owns a
one third interest, has agreed to provide funding as needed until our sales
activities are sufficient to cover our cash flow needs. This agreement by our
Chairman and Port Universal is not a binding obligation; we have no assurances
that this funding will continue beyond the short term. Further, we anticipate
that by December 31, 2004, our subsidiaries will have sufficient revenues that
we will not require funding from equity sales.
With the acquisition of Millennium (described later) and the company's
new business focus, we have been able to obtain private placement funding to
finance our activities in these fields. We anticipate continuing to receive
operating funds from these private placements until such time as sales are
sufficient to support the organization, however no assurances can be made that
we will be able to find willing investors. We are also relying upon the same
private placement funding to provide the cash required to consumate the proposed
GiroSolar acquisition described earlier.
Except for the GiroSolar acquisition, described later, we do not have
any major expenditures planned, nor do we anticipate the purchase or sale of
plant and / or significant equipment. Our plan calls for the use of third party
contract manufacturers, thus avoiding the allocation of our resources into
manufacturing operations. We anticipate funding any sizeable orders for either
AirWater equipment or Photovoltaic installations, through deposits and advances
from customers.
We do not anticipate any significant changes in the number of employees
in the near term for our existing operations.
On January 14, 2001, we entered into a settlement agreement with our
systems integrator, Andrew Corporation. At that time, we owed Andrew Corporation
$1,400,000 for their services and equipment. Under the agreement, we paid an
initial $100,000 and we were obligated to pay $100,000 per month until the
balance was paid. We did not make any of the scheduled payments. On September 3,
2002, we reached a settlement agreement for all amounts due, by issuing a note
in the amount of $300,000 which is due April 30, 2004. We secured this note with
300,000 shares of our common stock. If we are not able to pay the $300,000 on
April 30, 2004, the obligation will revert to the balance due of $1,300,000. We
do not have sufficient cash to meet this obligation at December 31, 2003. We
will rely upon additional sales of our common stock under private placement
transactions to satisfy this obligation. Subsequent to March 31, 2004, we paid
Andrew Corporation $270,000 in cash and released the 300,000 shares of common
stock held in escrow to them in satisfaction of this obligation.
We have several potential sizeable contracts in the sales process.
Should these contracts be awarded, we will need to raise additional equity or
arrange for financing vehicles to fund those contracts. Any equity raised could
result in dilution of existing shareholders. Additionally, we are uncertain as
to the availability of sufficient financing on acceptable terms.
To date, we have not incurred any production costs with respect to the
AirWater product line as we have only produced prototypes.
8
BUSINESS AND ORGANIZATION
Universal Communication Systems, Inc. (collectively the "Company", "us"
or "we"), prior to 2003, 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.
We currently have three channels of activity, each conducted by a
wholly owned subsidiary. Air Water Corporation, ("AirWater") a Florida
corporation formed in March, 2003, has been established to design, manufacture
(utilizing contract manufacturing organizations) and market systems that perform
water extraction from air. Millennium Electric T.O.U. Ltd., ("Millennium") an
Israeli company, acquired September, 2003, specializes in the development and
installation of solar power systems worldwide, primarily to government and
industrial users. Solar One, Inc., ("Solar One") a Florida corporation, formed
in July, 2003, manufactures (subcontracted to third parties) and markets
portable photovoltaic cells in leather cases for consumer electronic products.
Solar One was formed to source the manufacturing and to market the product line
of photovoltaic consumer energy panel products designed by Solar Style, Ltd., an
Israeli company 50% owned by us. We have recently combined the technology of the
photovoltaic system of Millenium and the water extraction systems of Air Water
and developed a self powered air water machine.
Airwater's initial action 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 $300,000, 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 the $300,000, $100,000 was paid
in cash, and the balance of $200,000 was settled by the issuance of restricted
common shares.
Beginning in March 2003 we pursued various consulting, marketing and
sales agreements. 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.
Our plan for development of the Air Water and Photovoltaic product lines call
for utilizing outside consultants and agents to assist and/or perform the
manufacturing, marketing, sales and integration of our products to the end
users.
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 to fulfill this technological need of
providing Photo Voltaic (PV) Electric Energy to provide the necessary power for
the air-water system.
Millennium and its president, Mr. Ami Elazari, operate in the forefront
of the 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.
9
NEW PRODUCTS
In line with our new business plans, AirWater engaged 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
We are focusing our sales efforts in the European, African, Middle
Eastern and Asian government and industrial markets for the Air Water and
Millenium product and service offerings. Solar One is targeting the North
American and European consumer markets. Our sales strategy is to engage
independent sales consultants, who are commission based, and thus create a more
extensive marketing and networking program than that which could be achieved
using an employee based salesforce alone.
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. We have received positive feedback from
these demo placements, with an indication of order placements to be forthcoming.
Although we have received a few orders, we have not recognized any sales nor
shipped any units other than demos, as the current costing structure could not
justify small shipments.
We are concentrating our sales and marketing efforts on making large
"country sized" sales to governments, federal and local authorities, as well as
to international aid agencies. We recognize that because of the complexity of
the product, the sales cycle of the Air Water products and systems are somewhat
longer than was previously projected. However, management remains confident that
sizeable international orders for the machines will occur in 2004.
As part of our efforts to identify third party manufacturers for the
Air Water machines, who are strategically located, we reached a preliminary
agreement with a manufacturer of dehumidifiers and air conditioners in Sao
Paulo, Brazil. Although prototypes have been produced, relations with this
source have not been conducive to a mutually beneficial arrangement and
management will continue to evaluate this resource.
10
OVERSEAS LICENSES
On November 20, 2003, Millennium entered into a memorandum of
understanding and Licensing Agreement with a 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 between 5 and 10 percent on all manufactured and sold
products. Negotiations continue in this regard.
On December 15, 2003, we signed a memorandum of understanding to effect
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 technology fee,
due to us, of $200,000 with Royalty residuals of 5 percent on all manufactured
and sold products. In early January, 2004, we received the first installment
payment of $10,000 pursuant to this agreement. The balance is due over the
following eighteen months at intervals not greater than 90 days.
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 trading on the Berlin Exchange will improve
as a result of the services of the Geneva Group. We have been advised that we do
not have any regulatory filings in connection with this listing beyond what is
required for our United States securities filings.
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 through strategic partnerships with existing businesses in those locals.
In addition, we have set up representation in Mexico, Brazil, Morocco, China,
and in several countries in Africa. Our subsidiary, Solar One, has 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, Stroomwerk Energy
(SWE) and Solar Service Buro (SSB).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 product, the LIFESAVER, a 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. Following
completion of technical and safety testing of the product and system, sales of
this product are planned to commence in the latter part of 2004.
11
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
were earned entirely by our subsidiary, Millenium.
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. The increase of $657,190 was due to marketing expenses, legal fees, R&D
costs and travel expense which was not incurred in the prior period as a result
of the Air Water and Millenium activities new to the company.
Net losses for the three months ended December 31, 2003 were $720,578,
as compared with $229,787 for the three months ended December 31, 2002.
As previously noted, we completed the agreement to purchase 100% of the
stock of Millennium Electric T.O.U. Ltd (Millennium), an Israeli company on
September 29, 2003. Millenium specializes in the development and installation of
solar power systems to international markets. 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 897,854 249,139
----------- -----------
Net (Loss) $ (720,578) $ (232,025)
=========== ===========
Basic & Diluted Loss per Share $ (0.008) $ (0.034)
=========== ===========
12
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. This represents a cash
decrease of $27,121 from the cash position at September 30, 2003. This decrease
resulted primarily from cash used in operations in the amount of $417,152, cash
used to purchase fixed assets and fund related party debt increase amounted to
$150,963, and offset by funds received in private placements of our common stock
in the amount of $584,037. Related party debt increase of $33,394 was due to
advance payments in error on service contracts and travel expenses. We are
entirely dependent on equity investments at this time and recognize that without
these investments we would not be able to continue as a going concern. As noted
above, cash used in operations for the three months ended December 31, 2003 was
$417,152. We have had negative cash flows from operations in the past and do not
anticipate that revenues will contribute substantially to our cash flows in the
short term. We do not have sufficient resources to meet current obligations
without continuing equity investments. Prior financing arrangements, as
disclosed on our SB-2 filed March 15, 2001, are no longer in effect. We must
obtain approval from our current debenture holders to place additional debt
against our assets. There are no assurances that we would be able to secure that
approval, if we did have the opportunity to secure additional debt. We are
attempting to negotiate with trade creditors to convert existing obligations,
including any accrued interest, to common stock in satisfaction of those
obligations. We have received agreement from our current debenture holders to
convert their existing debt to equity, but there are no requirements for the
debt holders to adhere to that consent.
During the three months ended December 31, 2003, we received equity
investments of $584,037. These investments were in the form of issuance of our
common stock in various private placements. These proceeds were used to fund our
operating deficit and equipment purchases.
While management builds the AirWater and photovoltaic businesses,
current operating cash is being provided by the sale of common stock under
private placements. There was a working capital deficit at December 31, 2003 in
the amount of $1,439,506. 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 any off-balance sheet arrangements.
ITEM 3. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our Chief Executive
Officer, Mr. Michael J. Zwebner and Chief Financial Officer, Mr. Curtis Orgil,
we carried out an evaluation of the effectiveness of our disclosure controls and
procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as of December 31, 2003 (the "Evaluation
Date"). Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that as of the Evaluation Date, our disclosure
controls and procedures were effective to provide reasonable assurance that the
information required to be disclosed in our reports filed or furnished under the
Exchange Act are recorded, processed, summarized and reported, within the
periods specified in the SEC's rules and forms. We believe that a controls
system, no matter how well designed and operated, cannot provide absolute
assurance that the objectives of the controls system are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected.
There have not been any changes in our internal control over financial
reporting during the fiscal quarter ended December 31, 2003 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
13
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 463 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 liable for the
principal plus accrued interest. We have not provided for this liability in our
financial statements, as we believe the receiver's claim lacks an authoritative
basis.
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 (identified in the court records as
Federal District Court, Northern District of Texas -- Dallas Division Cause No.
3-03CV-1798-G). Their press release stated that we had infringed on their
patents. Counsel has advised us that their claims lacked 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 filed a counter claim in the United States District Court, Southern
District of Florida, case number 03-22196-Civ-Seitz, disputing ELGT's claims of
patent infringement and as a result of statements published in their press
releases, we included in our complaint $118 million in damages for their false,
defamatory and libelous statements. On January 24, 2004, we were granted a
default judgement against ELGT as a result of their failure to appear, answer or
respond to the complaint.
14
ITEM 2. CHANGES IN SECURITIES.
Sales of Unregistered Securities
- --------------------------------
We have issued and sold unregistered securities that have not previously been
reported as set forth below. An underwriter was not utilized in any of these
transactions. The recipients of securities in each transaction represented their
intention to acquire the securities without a view to distribution. All the
issued securities were restricted securities under Rule 144, Reg. D or Reg. S
regulations, and appropriate restrictive legends were affixed to the securities
in each transaction. All sales of securities were to accredited investors in
private placements, and accordingly all of the sales complied with Section 4(2)
as well as 4(6) of the Securities Act of 1933.
On October 21, 2003, we issued 791,669 shares of common stock under private
placement subscriptions at $0.05 per share. These securities were issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance on Sections 4(2) and 4(6) of the Securities Act of 1933. In connection
with these transactions, we paid a commission of 10% to a third party.
On November 3, 2003, we issued 2,350,205 shares of common stock under private
placement subscriptions at $0.05 per share. These securities were issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance on Sections 4(2) and 4(6) of the Securities Act of 1933. In connection
with these transactions, we paid a commission of 10% to a third party.
On November 11, 2003, we issued 162,000 shares of common stock under a private
placement subscription at $0.05 per share. These securities were issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance on Sections 4(2) and 4(6) of the Securities Act of 1933. In connection
with this transaction, we paid a commission of 10% to a third party.
On November 19, 2003, we issued 200,000 shares of common stock under a private
placement subscription at $0.05 per share. These securities were issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance on Sections 4(2) and 4(6) of the Securities Act of 1933. In connection
with this transaction, we paid a commission of 10% to a third party.
On December 3, 2003, we issued 1,250,000 shares of common stock under a private
placement subscription at $0.04 per share. These securities were issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance on Sections 4(2) and 4(6) of the Securities Act of 1933.
On December 18, 2003, we issued 3,424,434 shares of common stock under private
placement subscriptions at various prices ranging from $0.03 per share to $0.06
per share. These securities were issued in transactions exempt from registration
under the Securities Act of 1933 in reliance on Sections 4(2) and 4(6) of the
Securities Act of 1933. In connection with these transactions, we paid a
commission of 10% to a third party.
15
On December 19, 2003, we issued 858,000 shares of common stock under private
placement subscriptions at $0.05 per share. These securities were issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance on Sections 4(2) and 4(6) of the Securities Act of 1933. In connection
with these transactions, we paid a commission of 10% to a third party.
Other Securities Transactions
- -----------------------------
Pursuant to the April 14, 2000 Securities Purchase Agreement (the 4% convertible
debentures) and the March 29, 2001 Securities Purchase Agreement (the 8% Senior
Secured Convertible Debentures), the investors converted $560,000 of debentures
into 12,200,000 of the Company's common stock on various dates between November
7 and December 22, 2003, at various prices ranging from $0.0375 per common share
to $0.075 per common share.
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.
16
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
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amended report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: June 29, 2004 UNIVERSAL COMMUNICATION SYSTEMS, INC.
/s/ MICHAEL J. ZWEBNER
------------------------
Michael J. Zwebner
Chief Executive Officer,
Chairman of the Board
18