10QSB 1 ucsy10qsb.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: December 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.) MICHAEL J. ZWEBNER 407 Lincoln Rd, Suite 6K 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, 2003 ----- ----------------------------------- Common Stock, $.001 par value 10,117,517 Transitional Small Business Disclosure Format: Yes No X -------- --------- TABLE OF CONTENTS PART I FINANCIAL INFORMATION Page ---- Item 1. Consolidated Financial Statements: Balance Sheet - September 30, 2002 and December 31, 2002 3 Statement of Operations for the three months Ended December 31, 2002 and 2001 4 Statement of Cash Flows for the three months Ended December 31, 2002 and 2001 5 Notes to the Financial Statements December 31, 2002 6 Item 2. Management's Discussion and Analysis or Plan of Operations 7 Item 3. Evaluation Of Disclosure Controls And Procedures 9 PART II OTHER INFORMATION Item 1. Legal Proceedings 10 Item 2. Changes in Securities 11 Item 3. Defaults Upon Senior Securities 11 Item 4. Submission of Matters to Vote of Security Holders 11 Item 5. Other Information 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. Condensed Balance Sheets December 31, September 30, 2002 2002 ---- ---- (unaudited) (see note 1) ----------- ------------ Assets Current Assets: Cash & cash equivalents $ 273 $ 874 -------------------- --------------------- Total Current Assets 273 874 -------------------- --------------------- Due from related party, net 27,955 35,456 -------------------- --------------------- Fixed Assets: Equipment 25,259 25,259 Furniture and fixtures 1,917 1,917 Less: Accumulated depreciation & amortization (17,311) (15,889) -------------------- --------------------- Total Fixed Assets 9,865 11,287 -------------------- --------------------- Investment in Digital Way (Peru), net of impairment - - -------------------- --------------------- Other assets 11,250 11,250 -------------------- --------------------- Total Assets $ 49,342 $ 58,867 ==================== ===================== Liabilities and Stockholders' Deficit Current Liabilities: Current maturities of convertible debentures $ 886,449 $ 886,449 Accounts payable, trade 1,093,019 1,078,941 Accrued expenses 160,724 156,978 Due to related entities 80,564 29,791 -------------------- --------------------- Total Current Liabilities 2,220,756 2,152,159 Long Term Liabilities: Note Payable 261,864 254,237 Convertible debentures, net of current maturities 4,163,173 4,123,415 -------------------- --------------------- Total Long Term Liabilities 4,425,037 4,377,652 -------------------- --------------------- Total Liabilities 6,645,793 6,529,811 -------------------- --------------------- 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, 7,209,155 issued and outstanding 7,209 5,968 Additional paid-in capital 23,174,585 23,071,546 Accumulated deficit (29,778,245) (29,548,458) -------------------- --------------------- Total Stockholders' Deficit (6,596,451) (6,470,944) -------------------- --------------------- Total Liabilities and Stockholders' Deficit $ 49,342 $ 58,867 ==================== =====================
See notes to condensed financial statements. 3
Universal Communication Systems, Inc. Condensed Statements of Operations UNAUDITED Three Months Three Months Ended December 31, Ended December 31, 2002 2001 ------------------ ------------------- Revenue $ - $ - Cost of goods sold - - ------------------ ------------------- Gross profit - - Operating expenses 179,899 202,145 ------------------ ------------------- Operating income (loss) (179,899) (202,145) Interest income (expense) (49,888) (81,630) ------------------ ------------------- Net loss $ (229,787) $ (283,775) ================== =================== Basic And Diluted Loss Per Share $ (0.034) $ (0.002) ================== =================== Basic and Diluted Weighted Average Shares Outstanding 6,835,651 137,531 ================== ===================
See notes to condensed financial statements. 4 Universal Communication Systems, Inc. Condensed Statement of Cash Flows UNAUDITED
For the For the Three Months Three Months Ended Ended December 31, December 31, 2002 2001 ------------------ ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (229,787) $ (283,775) Adjustments to reconcile net loss from operations to net cash used by operating activities: Depreciation and amortization expense 1,422 15,548 Interest payable added to principal of debentures 39,758 123,557 Interest added to principal of note payable 7,627 - Stock issued for services 104,280 - Changes in operating assets and liabilities: (Increase) decrease in prepaid and other - - Decrease in accounts receivable - - (Decrease) in accrued expenses 3,746 (1,016,485) Increase in accounts payable 14,077 1,004,381 Increase in due to related entities 50,775 94,933 ------------------ ----------------- Net Cash (Used) by Operating Activities (8,102) (61,841) ------------------ ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in advances from related parties 7,501 - ------------------ ----------------- Net Cash (Used) by Investing Activities 7,501 - ------------------ ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of senior secured convertible debentures - 60,000 ------------------ ----------------- Net Cash Provided by Financing Activities - 60,000 ------------------ ----------------- NET (DECREASE) IN CASH AND CASH EQUIVALENTS (601) (1,841) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 874 4,082 ------------------ ----------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 273 $ 2,241 ================== ================= 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 $ 39,758 $ $123,557
See notes to condensed financial statements. 5 Universal Communication Systems, Inc. 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, 2002 The balance sheet at September 30, 2002 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 actively engaged in efforts to revise its business plan, de-emphasize participation in the wireless internet market, and seek new business activities. 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 had an accumulated deficit of $29,778,245 at December 31, 2002. Net losses are expected for the foreseeable future. As such, there is substantial doubt as to the Company's ability to continue as a going concern. 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 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, 2002 and 2001, 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, 2002 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. 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 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 also own a U. S. patent on our Distributed Wireless Call Processing System technology. 7 PROPOSED ACQUISITION On June 12, 2002, we entered into a letter of intent to acquire Card Universal Corporation, Inc., a privately held development stage Florida corporation in the business of providing and marketing prepaid "Stored Money Cards." Management is currently evaluating its options as to the future plans for the Company, its operations and assets. The acquisition is subject to the signing of a definitive agreement, valuation by a third party and to the availability of appropriate financing. OUTLOOK We will require short-term outside investment on a continuing basis to finance our current operations and capital expenditures. 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 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. Under the auspices of new management installed November, 2001, we have made considerable progress in restructuring prior obligations and removing debt. We are actively engaged in a number of efforts to revise our business plan to develop new revenue sources and direction for the Company. We plan to de-emphasize our participation in the wireless internet market, sell assets for cash and/or advance our remaining businesses through joint ventures, continue our negotiations with creditors to compromise, extend, convert and/or forgive debt, and seek new businesses that can take advantage of our extensive shareholder base and status as a public company. Management is hopeful that it can continue to reach agreements with vendors and foreign partners to resolve disputes and balances due. Management hopes that once these issues are dealt with and the acquisition of Card Universal Corporation is consummated, this will provide for the financial stability of the Company. No assurances can be made that these events will successfully take place. Management expects to meet minimal operating expenses during this period, through a combination of loans, sale of assets and private placement funds. RESULTS OF OPERATIONS Three Months Ended December 31, 2002 Compared to the Three Months Ended December 31, 2001. There were no revenues or cost of sales for the three months ended December 31, 2002 and 2001. Operating expenses for the three months ended December 31, 2002 amounted to $179,899 compared to $202,145 for the three months ended December 31, 2001. These expenses were primarily consultants, professional fees and rents. Net losses for the three months ended December 31, 2002 were $229,788, as compared with $283,775 for the three months ended December 31, 2001. 8 LIQUIDITY AND CAPITAL RESOURCES On December 31, 2002, the Company had cash and cash equivalents of $273 compared with $874 as of September 30, 2002. During the three months ended December 31, 2002, $7,501 was received from the sale of assets securing advances made to the Hard Disc Cafe, Inc. and $46,500 was advanced by the Chairman of the Company, Michael Zwebner. These funds were used to pay the cash operating expenses for the three month period ended December 31, 2002. While management restructures the Company, current operating cash is being provided by loans from related entities and the Chairman of the Company. The working capital deficit at December 31, 2001 amounted to $1,595,898. Management is attempting to reduce this deficit through arrangements with creditors. 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, 2003, 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, 2003, the date of the conclusion of the evaluation of disclosure controls and procedures. 9 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. The Securities and Exchange Commission commenced an informal inquiry on the Company in August, 2000. We have voluntarily complied with their requests for information and we intend to fully cooperate with the inquiry. No further requests have been made since that date. In December 1999, we entered into an amended lease agreement regarding a lease for the license covering Concord, California and the surrounding area. We have received a Notice of Default from the lessor. The Notice of Default is based on a requirement in the amended agreement that the balance of the purchase price for the assignment of the license be paid by December 1, 2000. Our management has been advised by counsel that payment of the balance of the purchase price prior to the FCC's consent to the assignment of the license may constitute a premature assignment in violation of the FCC's rules. The assignment application has not been filed with the FCC for the FCC to make a definitive ruling on this issue. At this point, no formal legal action has been taken by the lessor. We are no longer pursuing the license or the lease of the facility. 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 will be paid to the trustee of WSI in two installments of $25,000 each, and a two year consulting contract, valued at $120,000, has been signed with Mr. Hager. The settlement has a total cost of $370,000. 10 ITEM 2. CHANGES IN SECURITIES. None ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS. None ITEM 5. OTHER INFORMATION. None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following exhibits are included herewith: Exhibit 99.1 Certification fo Chief Executive Officer Exhibit 99.2 Certification fo Chief Financial Officer (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: February 17, 2003 UNIVERSAL COMMUNICATION SYSTEMS, INC. /s/ MICHAEL J. ZWEBNER ---------------------------- Michael J. Zwebner Chief Executive Officer, Chairman of the Board 12 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report on Form 10-QSB of Universal Communication Systems, Inc. (the "Company") for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Michael Zwebner, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. section 1350, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Michael Zwebner Dated: February 17, 2003 ______________________________ Michael Zwebner Chief Executive Officer 13 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report on Form 10-QSB of Universal Communication Systems, Inc. (the "Company") for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Curtis Orgil, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. section 1350, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Curtis Orgil Dated: February 17, 2003 ______________________________ Curtis Orgil Chief Financial Officer 14