-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RZryiBZG/FD5hmznjLukVlpZkUbJ0lRy1SCSJ9WLagtpFKL937v+65LCioVg0NM1 G4T10EA07V4OnuPop6P9qA== 0001116502-02-000709.txt : 20020516 0001116502-02-000709.hdr.sgml : 20020516 20020516173105 ACCESSION NUMBER: 0001116502-02-000709 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIVERSAL COMMUNICATION SYSTEMS INC CENTRAL INDEX KEY: 0001098207 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 860887822 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-30405 FILM NUMBER: 02655480 BUSINESS ADDRESS: STREET 1: 407 LINCOLN ROAD STREET 2: SUITE 6K CITY: MIAMI STATE: FL ZIP: 33139 BUSINESS PHONE: 5108396100 MAIL ADDRESS: STREET 1: 407 LINCOLN ROAD STREET 2: SUITE 6K CITY: MIAMI STATE: FL ZIP: 33139 FORMER COMPANY: FORMER CONFORMED NAME: WORLD WIDE WIRELESS COMMUNICATIONS INC DATE OF NAME CHANGE: 20000124 10QSB 1 universal-10qsb.txt QUARTERLY REPORT U.S. SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2002 ------------------ [ ] 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.) 407 Lincoln Rd, Suite 6K Miami Beach, FL 33139 ----------------------- (Address of principal executive offices) (305) 672-6344 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date. Class Outstanding as of May 13, 2002 ----- ----------------------------------- Common Stock, $.001 par value 261,002,915 Transitional Small Business Disclosure Format: Yes No X -------- --------- TABLE OF CONTENTS PART I FINANCIAL INFORMATION Page ---- Item 1. Consolidated Financial Statements: Consolidated Balance Sheet - September 30, 2001 and March 31, 2002 3 Consolidated Statement of Operations for the three months and six months Ended March 31, 2002 and 2001 4 Consolidated Statement of Cash Flows for the three months and six months Ended March 31, 2002 and 2001 5 Notes to the Consolidated Financial Statements March 31, 2002 6 Item 2. Management's Discussion and Analysis or Plan of Operations 8 PART II OTHER INFORMATION Item 1. Legal Proceedings 11 Item 6. Exhibits and Reports on Form 8-K 11 Item 7. Signatures 12 2 Part I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Universal Communication Systems, Inc. & Subsidiaries Condensed Consolidated Balance Sheets
March 31, September 30, 2002 2001 ---- ---- (unaudited) (see note 1) ------------ ------------ Assets Current Assets: Cash & cash equivalents $ 81 $ 4,082 Other current assets -- 48,991 Total Current Assets 81 53,073 ------------ ------------ Option on frequency licenses, net of impairment -- -- ------------ ------------ Deposit in acquisition, net of impairment -- 197,506 ------------ ------------ Due from related party 98,921 -- ------------ ------------ Fixed Assets: Equipment 52,971 300,670 Furniture and fixtures 20,580 20,580 Less: Accumulated depreciation & amortization (26,981) (99,779) ------------ ------------ Total Fixed Assets 46,570 221,471 ------------ ------------ Investment in unconsolidated subsidiaries, net of impairment -- -- Other assets 11,250 6,650 ------------ ------------ Total Assets $ 156,822 $ 478,700 ============ ============ Liabilities and Stockholders' Deficit Current Liabilities: Cash overdraft $ 1,658 $ -- Accounts payable, trade 2,058,412 840,520 Accrued expenses 136,087 1,124,751 ------------ ------------ Total Current Liabilities 2,196,157 1,965,271 Convertible debentures 7,518,431 7,077,104 ------------ ------------ Total Liabilities 9,714,588 9,042,375 ------------ ------------ Commitments and Contingencies -- -- Stockholders' Deficit: Committed common stock not issued 463 -- Common stock, par value $.001 per share, 300,000,000 shares authorized, 153,788,997 issued and outstanding 153,789 137,993 Additional paid-in capital 19,500,719 19,576,098 Accumulated deficit (29,093,703) (28,158,732) Accumulated other comprehensive loss (119,034) (119,034) ------------ ------------ Total Stockholders' Deficit (9,557,766) (8,563,675) ------------ ------------ Total Liabilities and Stockholders' Deficit $ 156,822 $ 478,700 ============ ============
See notes to condensed consolidated financial statements. 3 Universal Communication Systems, Inc. & Subsidiaries Condensed Consolidated Statements of Operations UNAUDITED
Three Months Ended March 31, Six Months Ended March 31, ---------------------------------- ---------------------------------- 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Revenue $ -- $ 84,863 $ -- $ 401,454 Cost of goods sold -- 14,597 -- 270,793 ------------- ------------- ------------- ------------- Gross profit -- 70,266 -- 130,661 Operating expenses 166,989 1,929,128 369,134 3,789,139 Write down of Inventory and Equipment 205,181 -- 205,181 -- Impairment loss on deposits 197,506 -- 197,506 -- ------------- ------------- ------------- ------------- Operating (loss) (569,676) (1,858,862) (771,821) (3,658,478) Interest (expense) (81,520) (46,363) (163,150) (78,013) ------------- ------------- ------------- ------------- Net loss $ (651,196) $ (1,905,225) $ (934,971) $ (3,736,491) ============= ============= ============= ============= Basic and diluted loss per share $ (0.004) $ (0.02) $ (0.004) $ (0.04) ============= ============= ============= ============= Number of shares used in computing basic and diluted loss per share 146,579,269 94,730,295 150,293,874 94,730,295 ============= ============= ============= =============
See notes to condensed consolidated financial statements. 4 Universal Communication Systems, Inc. & Subsidiaries Condensed Consolidated Statement of Cash Flows UNAUDITED
For the For the Six Months Six Months Ended Ended March 31, March 31, 2002 2001 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (934,971) $(3,736,491) Adjustments to reconcile net loss from operations to net cash used by operating activities: Other comprehensive (loss) -- (2,922) Common stock issued for services 6,000 106,250 Depreciation and amortization expense 18,712 166,167 Interest payable added to principal of debentures 123,557 95,524 Loss on write down of assets 156,189 -- Impairment loss 197,506 -- Changes in operating assets and liabilities: (Increase) decrease in prepaid and other 48,991 (220,799) Decrease in accounts receivable -- 316,220 Increase (decrease) in accounts payable and accrued expenses 229,228 578,593 Increase in cash overdraft 1,658 -- ----------- ----------- Net Cash (Used) by Operating Activities (153,130) (2,697,458) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets -- (728,609) Increase in due from related entities (98,921) -- Increase in other assets - deposits (4,600) -- ----------- ----------- Net Cash (Used) by Investing Activities (103,521) (728,609) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of senior secured convertible debentures, net 227,770 750,000 Sale of common stock 40,000 456,741 Other (15,120) -- ----------- ----------- Net Cash Provided by Financing Activities 252,650 1,206,741 ----------- ----------- NET (DECREASE) IN CASH AND CASH EQUIVALENTS (4,001) (2,219,326) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,082 3,111,150 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 81 $ 891,824 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH: Interest paid $ -- $ -- Income taxes paid $ -- $ -- SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Interest accrued on debentures, added to the principal of the debentures $ 123,557 $ 95,524
See notes to condensed consolidated financial statements. 5 UNIVERSAL COMMUNICATION SYSTEMS, INC. & SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE 1 - General and Summary of Business and Significant Accounting Policies. Basis of Presentation The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete consolidated financial statements included in this Form 10-QSB. The results of operations for any interim period are not necessarily indicative of results for the full year. These statements should be read in conjunction with the audited financial statements and accompanying notes for the year ended September 30, 2001. The balance sheet at September 30, 2001 has been derived from audited financial statements, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. Organization The consolidated financial statements presented are those of Universal Communication Systems, Inc., (formerly, World Wide Wireless Communications, Inc.), (the Company) and its subsidiaries, Infotel Argentina, S.A. and Digital Way S.A. The Company is engaged in activities related to advanced wireless communications, including the acquisition of radio-frequency spectrum both in the United States and internationally. Consolidated Financial Statements The accounts of the Company and its consolidated subsidiaries are included in the consolidated financial statements after elimination of significant intercompany accounts and transactions. The consolidated subsidiaries, Infotel Argentina of Argentina and Digital Way S.A. of Peru, are included in the results for the quarter ended March 31, 2001 only (see note 3). NOTE 2 - BASIC AND DILUTED NET LOSS PER SHARE CALCULATION Loss per common share is calculated in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Basic loss per share is computed by dividing the loss available to common shareholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. For the three and six months ended March 31, 2002 and 2001, common stock equivalents have been excluded from the aforementioned computations as their effect would be anti-dilutive. 6 NOTE 3 - OPERATING RESULTS BY COMPANY AND CONSOLIDATED FOR THE QUARTER ENDED MARCH 31, 2002 During the fiscal year ended September 30, 2001, the Company had lost management control of its two subsidiaries, Infotel Argentina S.A. and Digital Way S.A. of Peru. Because of the situation, the Company recognized an impairment of the Company's remaining investments in those two subsidiaries, in the amount of $5,555,254 at September 30, 2001. The Company has not been able to regain management control at March 31, 2002, and therefor, is unable to include the activities of the subsidiaries in the results for the six months ended March 31, 2002. NOTE 4 - FINANCIAL CONDITION AND LIQUIDITY The Company's financial statements are prepared using U.S. generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has experienced losses since inception, and had an accumulated deficit of $29,093,703 at March 31, 2002. Net losses are expected for the foreseeable future. Management is considering alternatives to its business strategy, including modifications of its business plan and possible sale or licensing of certain assets. Simultaneously, the Company is evaluating whether to secure additional capital through sales of common stock through the current operating cycle. There is no assurance that management will be successful in its efforts. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Except for historical information contained herein, the statements in this report (including without limitation, statements indicating that the Company "expects," "estimates," anticipates," or "believes" and all other statements concerning future financial results, product offerings, proposed acquisitions or combinations or other events that have not yet occurred) are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Forward-looking statements involve known and unknown factors, risks and Uncertainties, which are discussed below and in the Company's other filings with the Securities and Exchange Commission, and which may cause the Company's actual results in future periods to differ materially from forecasted results. Forward looking statements are all based on current expectations, and the Company assumes no obligation to update this information. RISK FACTORS We will require additional capital in the short term to remain a going concern. We will require substantial short term outside investment on a continuing basis to finance our current operations and any limited capital expenditures identified to protect existing investments. Our revenues for the foreseeable future may not be sufficient to attain profitability. Since inception, we have generated little revenue and have incurred substantial expenditures. We expect to continue to experience losses from operations while we reorganize our wireless Internet service system and possibly develop other technologies or activities. In view of this fact, our auditors have stated in their report for the period ended September 30, 2001 that our ability to meet our future financing requirements, and the success of our future operations, cannot be determined at this time. In order to finance our working capital requirements we are negotiating equity investments, but there can be no assurance that we will obtain the required capital or that it will be obtained on terms favorable to us. If we do not obtain short term financing we may not be able to continue as a viable concern. We do not have a bank line of credit and there can be no assurance that any required or desired financing will be available through bank borrowings, debt, or equity offerings, or otherwise, on acceptable terms, if at all. If future financing requirements are satisfied through the issuance of equity securities, investors may experience significant dilution in the net book value per share of common stock. We are subject to substantial governmental regulations that could adversely affect our business. BUSINESS AND ORGANIZATION Universal Communication Systems, Inc., Inc., and its subsidiaries, Infotel Argentina S.A. and Digital Way S.A. (collectively the "Company", "us" or "we"), have been engaged in activities related to advanced wireless communications, including the acquisition of radio-frequency spectrum internationally. We also own a U. S. patent on our Distributed Wireless Call Processing System technology. Following the change in management, as noted below, we are now focused on acquisition and expansion of themed internet cafes in selected high traffic markets. 8 PROPOSED ACQUISITION On November 1, 2001, the Company signed a non-binding letter of intent to acquire Hard Disk Cafe, Inc., a privately held Florida corporation which intends to develop and license themed internet cafes. Terms call for the Company to pay $1,000,000 in cash and 25 million shares of common stock for a total value of $1,250,000. The acquisition is subject to the signing of a definitive agreement, and to the availability of appropriate financing. See "Subsequent Events" below. OUTLOOK On November 1, 2001, Michael J. Zwebner became our Chief Executive Officer and Chairman of the Board of Directors. Along with his appointment, we announced that Alexander Walker Jr. was appointed to the Board of Directors and as Secretary to the corporation and Curtis Orgill was appointed to the Board of Directors and as the Company's Chief Financial Officer. In the near term, new management anticipates restructuring our obligations, disposing of non-productive assets, re-aligning corporate resources into income and profit producing activities and completing acquisitions to give us net revenue growth. Management believes that with the proper restructuring and targeted growth by acquisition, we will recover from our current financial condition and provide growth and value to our shareholders. As previously reported, our partners in Argentina have closed the offices and the government has not restored our MMDS license. In Peru, we have been advised by our partners that we have defaulted under the purchase agreement for our operating subsidiary, and they have withheld information and access to the activities of the subsidiary. However, see subsequent events below. Accordingly, in both investments we recorded an impairment loss, in the fiscal year ended September 30, 2001, resulting from our loss of control of those subsidiaries and investments. We continue to pursue recovery of these assets and are attempting to negotiate an equitable settlement on related obligations of these entities. SUBSEQUENT EVENTS On May 10, 2002, an agreement was reached with the individuals in Peru with respect to Digital Way S.A. Under the terms of the agreement, we relinquished 73% of our holdings in the subsidiary, but retained the right to the proceeds of any distributions or sale of 50% on the first $6,400,000. Proceeds or distributions in excess of that amount will be divided on the basis of shareholdings. All parties agreed to cancel any claims against each other and to cooperate with each other in the promotion of the subsidiary's business. On April 8, 2002, an agreement was signed finalizing the terms of the acquisition of Hard Disc Cafe, Inc. The Agreement calls for the shareholders of Hard Disc Cafe, Inc. to surrender their stock in exchange for three year interest bearing notes totaling about $1 million and 25 million restricted shares of the Company's common stock. RESULTS OF OPERATIONS Three Months and Six Months Ended March 31, 2002 Compared to the Three Months and Six Months Ended March 31, 2001. There were no revenues or cost of sales for the three months and six months ended March 31, 2002 compared to $84,863 of revenues and $14,597 of cost of sales for the three months ended March 31, 2001, and $401,454 of revenues and $270,793 of cost of sales for the six months ended March 31, 2001. All revenues in the prior year periods were derived from the sale of telephone system integration and engineering in our Argentine subsidiary and through the initiation of internet service in our Peruvian subsidiary. As previously noted, our partners in those subsidiaries have withheld information for the current reporting periods. 9 Operating expenses for the three months and six months ended March 31, 2002 amounted to $569,676 and $771,821, respectively, compared to $1,929,128 and $3,789,139 for the three months and six months ended March 31, 2001. For the current reporting period, these expenses were primarily consultants, professional fees and rents, and write down of assets and impairment losses totaling $402,687. For the prior year periods, the expenses were primarily generated by our foreign subsidiaries and from the increased parent company costs in expanding the business and managing the foreign subsidiaries. Net losses for the three months ended March 31, 2002 were $651,196, as compared with $1,905,225 for the three months ended March 31, 2001. Net losses for the six months ended March 31, 2002 were $934,971, as compared with $3,736,491 for the three months ended March 31, 2001. LIQUIDITY AND CAPITAL RESOURCES On March 31, 2002, we had cash and cash equivalents of $81 compared with $4,082 as of September 30, 2001. During the six months ended March 31, 2002, $227,770 was received from the sale of 8% senior secured convertible debentures and $40,000 was received from the sale of common stock. These funds were used to pay the cash operating expenses for the six month period ended March 31, 2002. While management restructures the Company, current operating cash is being provided by loans and the sale of common stock. The working capital deficit at March 31, 2002 amounted to $2,196,076. Management is attempting to reduce this deficit through arrangements with creditors. If we do not make satisfactory arrangements with the creditors or obtain short term financing, we may not be able to continue as a viable concern. We do not have a bank line of credit and there can be no assurance that any required or desired financing will be available through bank borrowings, debt, or equity offerings, or otherwise, on acceptable terms, if at all. If future financing requirements are satisfied through the issuance of equity securities, investors may experience significant dilution in the net book value per share of common stock. 10 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On July 20, 2001, WSI, Inc., a Puerto Rican corporation, and its principal officer and shareholder Howard Hager, filed suit against the Company in the U.S. District Court in Puerto Rico for breach of contract and damages in the amount of $4,675,000. The claims arise out of an alleged agreement on the part of the Company to acquire WSI and provide it with substantial financing. A default judgment has been entered in WSI's favor. We do not believe that we are liable for any material amount, and we are currently pursuing both legal options and settlement negotiations in order to resolve the matter. We anticipate a resolution in the near future. ITEM 2. DEFAULTS ON SENIOR SECURITIES On January 14, 2001, we entered into a Loan Agreement with our systems integrator, Andrew Corporation, to repay costs incurred in purchasing their services and equipment. Under the Loan Agreement, we agreed to pay the company an initial payment of $100,000 and then an additional $100,000 each month until the loan is repaid. The amount payable each month is subject to an increase if we receive additional financing. In addition, we issued the company a warrant to purchase no less than 200,000 shares and no greater than 500,000 shares of common stock. The warrants are exercisable until January 24, 2005 at an exercise price of $0.23 per share. The warrants were issued in lieu of interest. We are required to register the shares underlying the warrants. Further, on July 23, 2001, we entered into an agreement with Andrew Corporation to resolve all our remaining indebtedness including the monthly obligations above, to Andrew. This agreement requires the return of all equipment previously shipped to Argentina, most of which has been held in the duty free zone in La Plata, Argentina. This agreement does not require the return of any equipment shipped by Andrew to Peru. We have not been able to release the equipment from the authorities in Argentina, in accordance with the agreement, however management is making every effort to meet its obligation under the revised agreement with Andrew Corporation. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following exhibits are included herewith: EXHIBIT NO. DOCUMENT ----------- -------- none. (b) The Company filed the following reports on Form 8-K during the quarter for which this form is filed: none. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 15, 2002 UNIVERSAL COMMUNICATION SYSTEMS, INC. /s/ MICHAEL J. ZWEBNER ---------------------------- Michael J. Zwebner Chief Executive Officer, Chairman of the Board 12 -----END PRIVACY-ENHANCED MESSAGE-----