-----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, OmhkoxnoDfwDp4QwuEvJP2yjeVD2T36DSOLRH8Pr9LfmEZ90OznfEPsFtjuTnW8D t0B5wgqGwVKcF62Y/gOttg== 0001116502-04-001687.txt : 20040630 0001116502-04-001687.hdr.sgml : 20040630 20040630111223 ACCESSION NUMBER: 0001116502-04-001687 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20040630 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: 10KSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-30405 FILM NUMBER: 04890372 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 10KSB/A 1 univ10ksb-a.txt ANNUAL REPORT ENDED 9-30-2003 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB/A Amendment Number 1 [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 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. ---------------------------------------- (Name of small business issuer in its charter) Nevada 860887822 ------ --------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 407 Lincoln Road, Ste 12F, Miami Beach, Florida 33139 - ------------------------------------------- ----- (Address of principal executive offices) (Zip Code) 407 Lincoln Road, Ste 6K, Miami Beach, Florida 33139 - ------------------------------------------------ ----- (Address of former principal executive offices) (Zip Code) Issuer's telephone number: (305) 672-6344 Name of each exchange on which registered: OTC Bulletin Board under the trading symbol UCSY Securities registered under Section 12(b) of the Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.001 par value per share (Title of class) 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 [ ]. Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] Issuer's revenues for its most recent fiscal year: $0 Aggregate market value of voting stock held by non-affiliates of the issuer as of December 30, 2002: $5,670,640 State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 103,123,070 shares of common stock as of December 30, 2003. Documents incorporated by reference: None. Transitional Small Business Disclosure Format: Yes [ ] No [X] Universal Communication Systems, Inc. Index to Annual Report on Form 10-KSB For The Fiscal Year Ended September 30, 2003 Page ITEM 1. DESCRIPTION OF BUSINESS.............................................3 ITEM 2. DESCRIPTION OF PROPERTY.............................................6 ITEM 3. LEGAL MATTERS.......................................................7 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................7 ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............8 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.........11 ITEM 7. FINANCIAL STATEMENTS...............................................16 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.............. ..........................16 ITEM 8A. CONTROLS AND PROCEDURES...........................................16 ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT ...............17 ITEM 10. EXECUTIVE COMPENSATION.............................................19 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....19 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................20 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K...................................21 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.............................22 SIGNATURES....................................................................23 -2- PART I Introductory Statement - ---------------------- All statements contained herein that are not historical facts, including but not limited to, statements regarding the Company's current business strategy, the Company's projected sources and uses of cash, and the Company's plans for future development and operations, are based upon current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties. Actual results may differ materially. Among the factors that could cause actual results to differ materially are the following: the availability of sufficient capital to finance our business plans on terms satisfactory to us; competitive factors; changes in labor, equipment and capital costs; changes in regulations affecting our business; future acquisitions or strategic partnerships; general business and economic conditions; and factors described from time to time in the reports filed by us with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on any such forward-looking statements, which statements are made pursuant to the Private Litigation Reform Act of 1995 and, as a result, are pertinent only as of the date made. All of the share price information presented herein has been adjusted to reflect the 1 for 1,000 reverse split of our outstanding common stock effective August 23, 2002. ITEM 1. DESCRIPTION OF BUSINESS Introduction For the past two fiscal years we have had minimal revenues. We have a history of losses, and an accumulated shareholder deficit of $31,833,598. Because of our recurring losses, our independent auditors have expressed doubt as to our ability to continue as a going concern. 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, although our subsidiary has a checking account overdraft facility, 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. 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., ("Millenium") 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. We are focusing our sales efforts in the European, African, Middle Eastern and Asian government and industrial markets for Air Water and Millenium product and service offerings. Solar One is targeting the North American and European consumer markets. We have discontinued, effective January, 2003, our previous telecommunication and wireless broad band business activities to focus on the water extraction and photovoltaic technology. -3- History In February of 1997, Worldwide Wireless, Inc., a Nevada corporation, was formed to coordinate the operations of TSI Technologies, Inc., a Nevada corporation, and National Micro Vision Systems, Inc., a Nevada corporation. Its purpose was to complete the development of its patented advanced distributed wireless telephone and network designs and to finance, manufacture, and market these units and systems. TSI Technologies, Inc. was the research and development company formed for the purpose of creating and developing the distributed wireless call processing system. National Micro Vision Systems, Inc. was formed to operate a network of wireless Internet sites. In April of 1998, Worldwide Wireless, Inc., TSI Technologies, Inc. and National Micro Vision Systems, Inc. acquired Upland Properties, Inc., a Nevada corporation, for stock and transferred their assets to Upland Properties, Inc. Upland Properties, Inc. then changed its name to World Wide Wireless Communications, Inc. and began trading on the OTC Bulletin Board (OTC:BB)under the symbol WLGS. On February 10, 2000 we acquired all of the shares of Digital Way, S.A., a Peruvian telecommunications company. In June of 2001, we received a notice of default from the sellers of Digital Way, claiming a breach of the terms of our purchase agreement. On May 10, 2002, we executed a settlement agreement with those sellers. Under the terms of the agreement, we re-aligned the stock ownership of Digital Way, by returning 73% of the common shares owned by us to the former owners. In addition, we retained a 50% interest in the first $6.2 million of equity value of Digital Way, in the event of a sale or other disposition. Any value beyond the first $6.2 million will be divided based on shareholdings. Our chairman, Michael Zwebner, remains on the Board of Directors of Digital Way, S. A. The settlement agreement fully cancels all debts, claims and counter claims between us and the sellers, and allows for future co- operation in the ongoing development or sale of Digital Way. Although we have reached this settlement, management of Digital Way has not provided the necessary financial information for Digital Way to be included in our financial reporting, and the results of the Company's investment in Digital Way is unclear at this time. The Company has fully impaired this investment. Management is now actively seeking a third party buyer for our 27% interest in Digital Way SA. On November 1, 2001, current management took control of the company. During the fiscal year ended September 30, 2002, we moved our offices from Oakland, California to Miami Beach, Florida and changed our name to Universal Communication Systems, Inc. We then changed our symbol to UCSI. Following our one for one thousand reverse stock split on August 23, 2002, our symbol was changed to UCSY. In January, 2003, we identified a new business venture, abandoned the telecommunication and wireless business and adopted a new business plan. We formed a wholly owned subsidiary, AirWater Corporation, whose purpose and mission is to design, build and market machines that produce drinkable water from the air. The first step in the endeavor was to obtain licensing rights to the technology. To that end, we acquired the rights to four patents by an agreement dated March 24, 2003, relating to this technology from J. J. Reidy Company of Holden, Massachusetts. AirWater Patents Corporation was formed to hold our acquired licensed patent rights. 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 purchase price, the company paid $100,000 in cash, and the balance of $200,000 was settled by issuing 4,000,000 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. Key agreements include the following: - - We entered into a commission based agreement with Natra Advanced Technologies (1995) Ltd. an Israeli company, for the marketing of our Air Water Products. - - We engaged the services of an Israeli business consulting company, Otzarot Tarshish Nechasim Limited for general business development, covering possible mergers and potential acquisitions. The terms of this agreement called for a cash payment of 10% of the value of any closed transaction, along with five year warrants at the closing price of the transaction, in total value equal to 10% of the transaction value. - - We entered into a services agreement with Perfect Securities Limited, of Ramat Gan, Israel, for Investor Relations, and to actively promote the company and publicize its new products and services. - We signed a General Marketing Agreement with AirWater Afrique, a company established in Paris, France, who will market both our Air Water and PV Solar Energy products mainly in the continent of Africa and some countries in the middle east on a sales commission basis. On April 30, 2003 we executed a letter of intent to acquire CinemaElectric, Inc., a Los Angeles based multimedia messaging service company for a purchase price of $10 million. On August 12th, 2003, and by mutual agreement, we withdrew from this Letter Of Intent. We withdrew our letter of intent so that Brenex Oil Corporation could issue their letter of intent to acquire CinemaElectric, Inc., which they did on August 12, 2003. Under the proposed transaction, we will receive 10% of the entity resulting from the acquisition of CinemaElectric by Brenex Oil Corporation. Our Board of Directors is evaluating distributing these shares to our shareholders. We completed an agreement to purchase all of the stock of Millennium on September 29, 2003. As part of the Millenium acquisition, we acquired 50% of Solar Style, Ltd. ("Solar"). Solar is an inactive Israeli company that holds certain rights to manufacture and market solar power products. In connection with the Millenium / Solar acquisitions, a new U. S. subsidiary, Solar One Corporation, was formed to market solar power products and systems. Millenium 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. Our strategy Under the auspices of new management, we have made considerable progress in restructuring prior obligations and removing debt. We have concentrated our activities, as previously mentioned, on the Air-Water product and the photo voltaic product lines. We have withdrawn from the wireless internet market, disposed of assets for cash and we continue our negotiations with creditors to compromise, extend, convert and/or forgive debt owed by the company prior to the new management. -4- For the six months prior to year end, we have worked to design, research and develop as well as source the manufacture of our AirWater machines. The result of this search has lead to the final stage of negotiating manufacturing and licensing agreements with entities in Israel and Brazil, and more recently in Australia. Our next step is to embark on a worldwide sales and marketing program, focusing on the markets listed above. Air-Water technology and competition The applications for the Air-Water System technology are extensive. It is our belief that the initial product should be the model that offers the easiest entry into the marketplace, gains the quickest exposure, and generates a substantial cash flow. To this end, we believe that a residential 5-gallon-per-day model would best fit this goal. Our reasoning is as follows: o The bottled water market is approximately a $7.1+ billion marketplace with projected growth in excess of 10% per year. Its cost to the consumer, inconvenience and logistical aggravation and the fluctuation in the quality of the water make bottled water vulnerable to an alternative, Air-Water Products for example, which is cheaper per gallon on the order of 1-2 kW per gallon, has consistent quality and is convenient. o It is the easiest model to take to market thus maximizing its exposure. o It would be readily accepted by foreign customers, where size is often very important. o It would create a very lucrative aftermarket sector for serviceable parts such as water filters, containers and ultra-violet light bulbs. We believe that the global market for Air Water machines is largely untapped and undeveloped. The Air Water technology and system is very new, and much of the initial sales efforts that we are currently engaged in are dedicated to education, and the detailed explanation of the machines, the built in safety systems and their general operation. Operational safety and computer managed user maintenance is built into every Air~Water System by the use of a patented, inexpensive, programmable chip. The water filtration industry is reliant upon voluntary user discipline in the important issue of safety, and the periodic changing of the machine filters. The Air~Water System knows when an air filter needs cleaning, or is missing, when the UV bulb becomes ineffective, when the water filter needs changing and if the user accidentally tries to use an expired water filter. The Air~Water System will not operate if any of those factors exist and displays to the user the reason on a small electronic display panel. Management further believes that there are a number of specific market segments that the Air Water Products can be introduced to and marketed to. First is the home consumer product market, to which the company is addressing a Small Office / Home Office ("SOHO") styled product. Next is the commercial market, for such users as small hospitals, local field clinics, small farms, factories and so on. And then there is the larger customer such as International Aid Agencies, Governments, The United Nations, The Red Cross, Local Towns and Villages, and Military Forces worldwide all in areas and countries where water is scarce, or difficult to transport. At this time, the company is aware of very limited competition. The company has identified a Dallas Texas based company, called Electric Gas & Technologies Inc, and World Wide Water Inc., of Los Angeles California. In addition, the company has seen a similar product sold in the US Market, made or offered for sale by a company called Liquid Air Inc, also based in California. Almost in all cases, these companies are in various stages of "start up" mode, having been in the Water from Air business less than a year, and just starting to offer machines to customers. We believe that as the Air Water products and Systems become more engrained in the global marketplace, and are more publicized and accepted, that there will be additional companies entering this industry, thus creating increased competition. We further believe that our patents and intellectual property rights will place us at a competitive advantage. 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. Our subsidiary, Millennium, has designed the system to fulfill this technological need of providing Photo Voltaic (PV) Electric Energy to provide the necessary power to the air water units. Following our acquisition, Millennium's management is currently primarily focused on re-organizing the company. This included moving to new offices, purchasing new computer systems, the addition of several new personnel for key positions including operations officer, marketing manager and regional marketing manager . Millennium is also conducting educational seminars for potential clients, by targeting architects, elected officials and military personnel. Millennium's Strategic vision for sales is to create a group of international independent sales consultants to provide a more extensive marketing and networking program than that which could be achieved by an employee based sales force. Solar Style Inc. USA, ("Solar") formed as part of Solar One, Inc. with offices in Baltimore as well as a new warehouse, will form the basis of the planned North American Distribution network of the Solar Style (Israel) product line. We acquired 50% of Solar Style Limited (an Israeli Company) upon the completion of the acquisition of Millennium. We are currently in negotiations to acquire the remaining 50% equity of Solar Style Ltd. There can be no assurance that we will be successful in our current negotiations to conclude this transaction. Solar is offering PV Solar Chargers for a wide range of products, including Laptop computers, Palms, Walkmans and Discmans, as well as a wide range of cellular phones. The PV Solar Chargers negate the need for consumer electronic products to be connected to the electric grid, in order to charge or recharge the appliance. Solar Style (Israel) has a manufacturing agreement with a Hong Kong firm. The products are targeted at the portable consumer electronic market. Solar Style's technology converts solar energy into electricity in a packaged solution that recharges mobile electronic devices by a small portable photovoltaic solar panel, which is specially designed to fit in an elegant leather case. Solar Style manufactures the panels and carrying-cases, which are then assembled and sold as a unit. The panels can easily be plugged in to solar cells and charged outdoors by sunlight and indoors by electric light. The photovoltaic cells act as battery chargers allowing a non-dependant use of the mobile device, making batteries / battery-chargers unnecessary. Solar's value proposition spans two levels: The practical and the environmental. On the practical level, Solar Style's products enable consumers to use their mobile devices without having to worry about plugs and connectors. On the Environmental level, in today's "green-aware" world, where environmental concerns have come to be very important to consumers, Solar Style offers mobile device users a reliable environmentally friendly power source. We plan to establish distribution and sales channels for the existing products, and to continue research and development of improvements on existing and creation of new products, concurrent with ongoing sales. Solar is already in the process of various negotiations regarding its products, and is considering two basic modes of operation: A "traditional" manufacturer-distributor value chain, by which it will have control over manufacturing and distribution, and sell its products through large distributors. A licensing option, limited by time and dependant on results, by which its involvement at the manufacturing stage will be minimal (just enough to preserve unique knowledge and enable further product development), while distribution, promotion, and sales management are left to a licensee /business partner. Solar will choose its preferred course of action according to potential partnerships and customers. Its initial product line has already been developed. Initial marketing activities are in process, so once negotiations are finalized and funding is secured, it can start operations. Management favors the distribution model over the licensing model, as under the distribution model the company will have greater sales potential. -5- Pending Acquisition 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 made up of two separate operating subsidiaries. As of December 30, 2003, both parties are conducting due diligence in connection with this acquisition. We anticipate acquiring the stock of GiraSolar BV, with a combination of our restricted common stock and cash. At this time, the amount of shares and the amount of cash to be paid, are still under negotiation pending completion of the due diligence process. We will have to obtain an equity investment to fund the cash required for this acquisition. We may not be able to raise the required equity investment and accordingly may not be able to consumate this transaction. Patents/Intellectual Property We currently hold a patent for our distributed wireless call processing system. As we have exited this business, we are looking to license this technology to a third party developer in order to potentially create a royalty stream of income. However, we cannot guarantee that we will enter into such an agreement. As previously mentioned, we hold the exclusive global patent and licensing rights to four air to water patents under an agreement with J.J. Reidy Company, relating to atmospheric extraction of water and its purification process. These patents, numbered: 05106512-00, 05149446-00, 05203989-00, and 05366705-00, were issued by the US Government Patent Office. Two of these licenses were issued in 1992 and the other two in 1993 respectively. These patents relate to the Air Water Products not only in the USA, but in countries covered by the PCT global agreements. The Patent Cooperation Treaty (PCT) simplifies and reduces the cost of obtaining international patent protection and facilitates public access to a wealth of technical information relating to inventions. By filing one international patent application under the PCT you can simultaneously seek protection for an invention in over one hundred countries, including developing countries throughout the world. The Patent Cooperation Treaty (PCT) has over the past three decades emerged as a major international filing system for seeking patent protection worldwide in a cost effective and efficient manner. In addition, through the dissemination of latest technical information contained in published PCT applications, the PCT system has been actively contributing to the development of science and technology. The company fully intends to utilize the patents and intellectual property rights in its pursuit and ongoing development of the business. Further, through our Millenium subsidiary, we own 21 international patents in the photo voltaic solar power and energy system area. Employees As of September 30, 2003, we had four employees, all located in our Millenium office in Israel. As of December 31, 2003, we had no full time employees in the United States. No employee is represented by a labor union and the company believes its employee relations to be good. ITEM 2. DESCRIPTION OF PROPERTY We own no real estate. Effective February 1, 2002, we leased a 1400 square foot corporate and administrative office facility at 407 Lincoln Road, Suite 6K, Miami Beach, FL 33139. The lease provides for a three-year term. The lease provided for cancellation with ninety days notice after the first year. On November 1, 2002 we exercised this provision and rented on a month to month basis with the landlord at the same address. On October 1, 2003 we moved our office to suite 12F in the same building. Millenium Electric T.O.U., Ltd., rents administration and manufacturing offices in the Herzliah Industrial zone in Israel under a lease which ends in 2005. The minimum remaining payments under this lease are $60,180 for 2004 and $55,165 for 2005. -6- ITEM 3. LEGAL MATTERS 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 that the principal amount and accrued interest of the debenture are due. We currently carry the 483 share obligation in our equity under escrowed shares. 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 (Federal District Court, Northern District of Texas, Dallas Division). Their press release stated that we had infringed on their patents. Counsel has advised us that the claims lack substance. On November 24, 2003, the court granted our motion for dismissal due to lack of Texas jurisdiction. ELGT has similar suits filed against other companies in the same industry. We have filed counter claims in the US District Court of Southern Florida, disputing ELGT's claims of patent infringement and as a result of statements made by ELGT, we have filed a claim for $118 million in damages for false, defamatory and libelous statements. Our counter claims and damage lawsuits are still ongoing. Although we initiated negotiations with businesses in Puerto Rico and Portugal in 1999, no further negotiations or affiliations are currently pending in those areas. 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. In addition to the stock, $50,000 was paid to the trustee of WSI and a two year consulting contract, valued at $120,000, was executed with Mr. Hager. The settlement had a total cost of $370,000 and is included in our general and administrative expense for the fiscal year ended September 30, 2003. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of the security holders through the solicitation of proxies or otherwise. -7- PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Prior to April 3, 2002, our common stock was traded on the over the counter Bulletin Board market under the symbol "WLGS". From April 4, 2002 through August 22, 2002 our common stock was traded on the over the counter Bulletin Board market under the symbol "UCSI". From August 23, 2002 to the present, our common stock is trading on the over the counter Bulletin Board market under the symbol "UCSY". The following table sets forth the range of high and low closing bid prices for each period indicated as reported by the National Association of Securities Dealers composite feed or other qualified interdealer quotation medium. The quotations provided reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. All of the share price information presented below has been adjusted to reflect the 1 for 1,000 reverse split of our outstanding common stock effective August 23, 2002. Price Range for Common Stock - ---------------------------- FISCAL YEAR SEPT 30, 2004 High Low -------- -------- First Quarter $ 0.115 $0.060 FISCAL YEAR SEPT 30, 2003 High Low -------- -------- First Quarter $ 0.170 $0.100 Second Quarter 0.100 0.045 Third Quarter 0.230 0.030 Fourth Quarter 0.115 0.060 FISCAL YEAR SEPT 30, 2002 High Low -------- -------- First Quarter $21.000 $5.599 Second Quarter 14.000 2.000 Third Quarter 10.000 0.799 Fourth Quarter 2.700 0.100 -8- Since our shares began trading on the OTC Bulletin Board in 1997, the prices for our shares have fluctuated widely. There may be many factors which may explain these variations, but we believe that the following are some of these factors: o the demand for our common stock; o the number of market makers for our common stock; o developments in the market for broadband Internet access and wireless transmission in particular; and o changes in the performance of the stock market in general. In recent years, the stock market has experienced extreme price and volume fluctuations that have had a substantial effect on the market prices for many telecommunications, Internet and emerging growth companies such as ours, which may be unrelated to the operating performances of the specific companies. Companies that have experienced volatility in the market price of their stock have been the object of securities class action litigation. If we become the object of securities class action litigation, it could result in substantial costs and a diversion of our management's attention and resources and have an adverse effect on our business, financial condition and results of operations. In addition, holders of shares of our common stock could suffer substantial losses as a result of fluctuations and declines in the stock price. There are approximately 495 holders of record and an estimated 8,000 holders in street name of our common stock as of September 30, 2003. The trading of our shares is subject to limitations set forth in Rule 15g-9 of the Securities Exchange Act. This rule imposes sales practice requirements on broker-dealers who sell so-called penny stocks to persons other than established customers, accredited investors or institutional investors. Accredited investors are generally defined to include individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouses during the previous two years and expected annual income of that amount during the current year. For sales of shares to other persons, broker-dealers must make special suitability determinations, and obtain the written consent of the purchaser to the sale prior to consummating the sale and are generally prohibited from making cold-calls or other unsolicited inquiries to purchasers without complying with these rules. These rules may adversely affect the ability of broker-dealers and others to sell our shares or to sell shares in the secondary market. No cash dividends have been declared to date on our Company's common stock. We expect that all earnings, if any, will be retained to finance the growth of our Company and that no cash dividends will be paid for the foreseeable future. On May 21, 2002, stockholders approved a measure to increase the number of authorized common shares from 300 million to 800 million. EQUITY COMPENSATION PLAN INFORMATION - ------------------------------------
Number of Weighted- Number of securities securities to be average exercise remaining available for issued upon price of future issuance under exercise of outstanding equity compensation outstanding options, plans (excluding options, warrants warrants and securities reflected in Plan Category and rights rights column (a)) - ------------------------------------------------------------------------------------------------------------ (a) (b) (c) - ------------------------------------------------------------------------------------------------------------ Equity compensation plans approved by 0 n/a 0 security holders - ------------------------------------------------------------------------------------------------------------ Equity compensation plans not approved by 257,250 $0.095 6,706,917 (1) security holders - ------------------------------------------------------------------------------------------------------------ Total 257,250 $0.095 6,706,917 - ------------------------------------------------------------------------------------------------------------
(1) Pursuant to form S-8, dated 12/27/03. Submitted under plan, 11,000,000 shares, issued, 4,293,083. Description of Equity Compensation Options issued were issued pursuant to the 2001 Stock Option Plan and also provided as motivation and incentives to individuals considered important to the Company's success. The 2001 plan was approved by our board of directors, but not submitted to a vote of stockholders. The total number of options granted and outstanding at September 31, 2003, and the average exercise price and expiration dates for each year are as follows: Total Exercise Year Options Price Expiration Date ---- ------- -------- ----------------- 2001 251,150 $0.095 December 31, 2006 6,100 $602.00 December 31, 2006 -------- Total 257,250 -9- 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 April 9 - 11, 2003, we issued 4,253,847 shares of common stock under private placement subscriptions at $0.04 per share, based on the average closing price for the three days prior to April 8, 2003, at a 25 percent discount. 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. On April 11, 2003, we issued 575,000 shares of common stock under private placement subscriptions at $0.035 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 July 3, 2003, we issued 2,350,043 shares of common stock under private placement subscriptions at prices ranging from $0.028 per share to $0.055 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. We paid a 10% commission in connection with this private placement. On July 7, 2003, we issued 1,905,625 shares of common stock under private placement subscriptions at prices ranging from $0.042 per share to $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. We paid a 10% commission in connection with this private placement. On July 9, 2003, we issued 1,410,647 shares of common stock under private placement subscriptions at prices ranging from $0.042 per share to $0.055 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. We paid a 10% commission in connection with this private placement. On July 10, 2003, we issued 525,577 shares of common stock under private placement subscriptions at prices ranging from $0.026 per share to $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. We paid a 10% commission in connection with this private placement. On July 15, 2003, we issued 714,096 shares of common stock under private placement subscriptions at prices ranging from $0.042 per share to $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. We paid a 10% commission in connection with this private placement. On July 18, 2003, we issued 2,304,944 shares of common stock under private placement subscriptions at prices ranging from $0.026 per share to $0.055 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. We paid a 10% commission in connection with this private placement. On July 23, 2003, we issued 172,591 shares of common stock under private placement subscriptions at prices ranging from $0.05 per share to $0.055 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. We paid a 10% commission in connection with this private placement. -10- On August 13, 2003, we issued 155,000 shares of common stock under a private placement subscription at a price of $0.045 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. We paid a 10% commission in connection with this private placement. On August 14, 2003, we issued 1,600,000 shares of common stock under a private placement subscription at a price of $0.10 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. On September 3, 2003, we issued 1,000,000 shares of common stock under a private placement subscription at a price of $0.10 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. Other Securities Transactions - ----------------------------- Pursuant to the April 14, 2000 Securities Purchase Agreement (the 4% convertible debentures), the investors converted $769,094 of debentures into 23,486,734 of the Company's common stock on various dates between March 3 and September 24, 2003, at various prices ranging from $0.0253 per common share to $0.1275 per common share. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The following should be read in conjunction with the "Risk Factors," "Introductory Statement" contained in Part I and the "Financial Statements" and the Notes thereto. New Business Activities and Plan of Operations - ---------------------------------------------- The business of AirWater Corporation is that of extracting (drinkable) water from the air, the manufacturing of the machines and systems that facilitate this, and the global marketing and distribution of the patented technology, systems and products. We will pursue these activities with a focus on large scale government sales of the water from air technology and through Millenium, the sale of the technology and consulting on the implementation and utilization of Photovoltaic solar systems. Since February, 2003 we have pursued the design, manufacture, sale, licensing and distribution of equipment that extracts and purifies water from the atmosphere. Although we have received letters and purchase orders for our equipment, we have not recorded any sales during this reporting period, as we have only manufactured and shipped demonstration units. The availability and safety of drinking water has become a global problem, in the United States as well as countless other areas of the world. Current attempts to meet this need have created a $7.1+ billion bottled water market, a $60+ Billion point-of-use water treatment industry, and wherever practical, incredibly expensive desalination plants with huge infrastructures and severe geographical restrictions. All of these methods require traditional sources of water and each has inherent weaknesses and disadvantages. Even existing municipal water systems experience repeated shortages and contamination problems. At any given moment the earth's atmosphere contains 4,000 cubic miles of water, which is just .000012% of the 344 million cubic miles of water on earth. Nature maintains this ratio by accelerating or retarding the rates of evaporation and condensation (the Hydrologic Cycle), irrespective of the activities of man. It is the sole source and means of regenerating wholesome water for all forms of life on earth. -11- Man has been extracting water vapor from the air for generations. Most often it is intentional and the water collected is treated as wastewater, such as with dehumidifiers and air conditioners. The common mechanics include traditional refrigerant systems, but other technologies are available such as thermo-electrics (Peltier) and thermo acoustics. While all these technologies are used for extracting water vapor from the air and are common knowledge, the subsequent methods employed to produce potable water from tapping into nature's hydrologic cycle are unique and are patented in the USA and in other nations. The technology used in the AirWater Series of variously sized models is the result of 13 years of research and field-testing and involves many United States and a number of international patents. The AirWater System, regardless of the model size, sterilizes each drop of water within 5-6 seconds of its formation by exposure to ultra-violet light. UV light waves fracture the DNA strands within bacteria, virus, and other microorganisms, which kills them instantly. This sterilized water is then passed through a unique patented 1-micron activated carbon water filter. (The average size of bacteria is 5 microns). This filter removes any possible solid particles, toxic chemicals, volatile organics, and other contaminates as well as any odors, taste, or discoloration. This filtration is followed by a 2nd UV exposure and sterilization. The same bulb bathes the exit port, also patented, in UV light creating a sterile exit. The AirWater System maintains an enclosed sterile environment throughout its water treatment, from the first drop in to the last drop out -- into a water tank or removable container. It is imperative to any marketing success that this water be handled safely and aesthetically, which no other method can do. We have coupled this water extraction system with the photo voltaic systems developed by our wholly owned subsidiary, Millenium Electric T.O.U., Ltd., to create a self sustaining system. Our equipment, by combining these two technologies, has been of great interest to governmental and humanitarian organizations. Further, we have developed a unit specifically aimed at the boating and recreational vehicle industry. Millennium Electric TOU Inc., one of Israel's high technology companies, is an enterprise focusing on practical applications of solar energy. Millennium is well versed in designing, developing, installing and providing solar energy related products and services. The sophisticated solar energy devices are economical, clean and an environment friendly source of energy/power with a wide variety of practical applications in many fields. Millennium's skills encompass planning, design, construction and installation services and applications not connected to the electric power grid. Millennium's fully computerized systems serve remote housing, villages, street lighting installations, computerized irrigation, communication and various military systems. The company's total system capabilities have been proven in large-scale projects performed for Israel's Ministries of Energy, Housing and Defense. The company's mission is to continue to design and establish solar systems for communities on a worldwide basis, based on the "MSS," a unique patented system that utilizes advanced photovoltaic and storage technology combined with flat-plate solar water -12- collectors to provide electricity and hot air/water and air-conditioning for residential and industrial buildings. Being modular, the average basic system can provide from 1kw up to 100 Megawatt of useful power utilizing solar energy products and services, for a more economical, cleaner, and safer environment. Plan of Operation for the next 12 months - ---------------------------------------- Our current cash position is only sufficient to carry us for about three months based upon our current cash needs. 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. With the acquisition of Millenium 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, 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 September 30, 2003. We will rely upon additional sales of our common stock under private placement transactions to satisfy this obligation. We have no assurances that we will be able to obtain this funding. Millenium has 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 as we have only produced prototypes. Results of Operations - --------------------- We did not generate any revenues during fiscal 2003 and 2002. However, our Peruvian subsidiary had revenues which are not reported as a result of a lack of cooperation from our subsidiary's management. General and administrative expenses totaled $1,785,431 in the fiscal year ended September 30, 2003 and $807,033 in the fiscal year ended September 30, 2002. The increase in expenses resulted from activities associated with the entrance into the air-water technology industry. General and administrative expenses for the fiscal years ended September 30, 2003 and 2002 were comprised of the following items: 2003 2002 ---------- ---------- Abandoned acquisitions and fees $ 171,397 $ - Consultants and outside services 609,977 484,843 Depreciation 5,690 22,036 FCC licensing and site expenses - 1,338 Financing costs and fund raising expense 120,804 5,501 Legal expense 228,661 85,059 Miscellaneous and other expenses 42,478 33,568 Professional fees 136,154 91,570 Rent 27,650 37,462 Salaries - 14,614 Travel 72,620 31,042 Settlement loss - WSI, Inc. 370,000 - ---------- ---------- $1,785,431 $ 807,033 ========== ========== Liquidity and Capital Resources - ------------------------------- As of September 30, 2003 our total working capital was deficient in the amount of $1,390,556. This represents a $760,729 decrease over our September 30, 2002 deficiency of $2,151,285. Until revenues commence from the sale of our AirWater equipment, we will need to obtain funding from external sources to finance our current operations. We anticipate revenues in the second quarter of fiscal year September 30, 2004. -13- Since we began operations, we have generated minor revenues and have incurred substantial expenditures and operating losses. In view of this fact, our auditors have stated in their report for the fiscal year ended September 30, 2003 and 2002 that there is substantial doubt about our ability to continue as a going concern, dependent upon our ability to meet our future financing requirements, and the success of our future operations, the outcome of which cannot be determined at this time. In order to finance our working capital requirements, we have and continue to negotiate equity investments with several sophisticated investors, but there can be no assurance that we will obtain this capital in the future, 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, although Millenium does have a bank overdraft facility, 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. On June 6, 2003, we defaulted on the January 6, 2003 12% notes with a principal value of $60,000, which came due on that date. The holders of the Notes, who also hold a portion of our 4% convertible debentures, did not take action to foreclose on the Notes. These notes have been included in a proposed negotiated settlement whereby the notes and the debentures will be converted into shares of common stock at a fixed conversion price. 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. We have negative cash flows and do not anticipate any significant revenues 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 fiscal years ended September 30, 2003 and 2002, we received equity investments and advances of $1,054,577 and $383,291 respectively. These investments and advances were in the form of issuance of our common stock in various private placements. Our long term debt is composed of the following debt obligations: 4% subordinated convertible debentures, issued April 14, 2000, maturing April 14, 2005. These debentures are convertible at 85% of the average of the three lowest bid prices for the 22 trading days prior to the date of conversion $3,380,548 8% senior secured convertible debentures, issued March 29, 2001, maturing March 29, 2005. These debentures are convertible at 85% of the average of the three lowest bid prices for the 22 trading days prior to the date of conversion $1,066,449 ---------- Total $4,446,997 Commitments We do not have any material commitments for capital expenditures, although we recognize that should we receive substantial orders which are currently in our sales process, we will need to establish material commitments in order to complete these orders. We anticipate contracting our production requirements to third parties, as we do not have any facilities of our own. -14- Risk Factors - ------------ - -We will require additional capital in the short term to remain a going concern We will require short term outside investment on a continuing basis to finance our current operations and any expansion of activities. Since we began operations, we have generated virtually no revenues and have incurred substantial expenditures. We expect to continue to experience losses from operations while we develop our new revenue source, consummate acquisitions and develop other technologies. 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 existing equity investments and new investments, but there can be no assurance that we will obtain this 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 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 dependent on the services of key individuals and the loss of any of these individuals could significantly affect our ability to operate our business - -We may be unable to protect our intellectual property rights Our success depends in part on our ability to protect our proprietary technologies. We rely on a combination of patent, copyright and trademark laws, trade secrets and confidentiality and other contractual provisions to establish and protect our proprietary rights. However, our patents may not be of sufficient scope or strength, others may independently develop similar technologies or products, duplicate any of our products or design around our patents, and the patents may not provide us competitive advantages. Litigation, which could result in substantial costs and diversion of effort by us, may also be necessary to enforce any patents issued or licensed to us or to determine the scope and validity of third-party proprietary rights. Any such litigation, regardless of outcome, could be expensive and time consuming, and adverse determinations in any such litigation could seriously harm our business. - -We may not be able to successfully market and develop the air from water systems required by the market we are focusing our sales efforts on. Governments and humanitarian organizations are subject to political influences which can change without notice. Needs, as defined by these groups, may also change. If we cannot design, build and modify the systems to meet these changes, our marketing efforts may not be productive. - -We may not be able to successfully defend against Credit Bancorp receiver's assertions. As more fully described in Item 3. Legal Matters, the Receiver for Credit Bancorp denies that a conversion request was made with respect to a convertible, unsecured debenture we issued October 11, 1999, in the amount of $740,000. If we are unsuccessful in defending against the Receiver's position, we may have to pay the unpaid principal and accrued interest. -15- - -Other risk issues We have pursued, are currently pursuing and, in the future may pursue, new technologies and businesses internally and through acquisitions and combinations which involve significant risks. Any such acquisition or combination may involve, among other things, the issuance of equity securities, the payment of cash, the incurrence of contingent liabilities and the amortization of expenses related to goodwill and other intangible assets, and transaction costs, which have adversely affected, or may adversely affect, our business' results of operations and financial condition. Our ability to integrate and organize any new businesses and/or products, whether internally developed or obtained by acquisition or combination, will likely require significant expansion of our operations. There is no assurance that we will have or be able to obtain the necessary resources to satisfactorily effect such expansion, and the failure to do so could have a material adverse effect on our business, financial condition and results of operations. In addition future acquisitions and or combinations by the Company involve risks of, among other things, entering markets or segments in which we have no or limited prior experience, the potential loss of key employees of the acquired company and/or difficulty, delay or failure in the integration of the operations, management, personnel and business of any such new business with our business and operating and financial difficulties of any new or newly combined operations, any of which could have a materially adverse effect on our business, financial condition and results of operations. Moreover, there can be no assurance that the anticipated benefits of any specific acquisition or of any internally developed new business segment or business combination will be realized. Other Matters - ------------- Subsequent to September 30, 2003, a majority of the debenture holders have tentatively agreed to convert their holdings into shares of common stock at various amounts and under various terms. It is our intention to reach agreements with the debenture holders in order to equitize the outstanding debentures and associated interest on those debentures. ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Financial Statements on page F-1. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS There have been no changes in or disagreements with our independent auditors regarding accounting and financial disclosure required to be reported under this item. ITEM 8A. CONTROLS AND PROCEDURES Our management carried out an evaluation pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as amended, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Report. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or furnish under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. During the period covered by this report on Form 10-KSB, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. -16- PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Our executive officers and directors and their ages as of December 30, 2003 are as follows: Name Age Position Period of Service - ----- --- -------- ----------------- Michael J. Zwebner...... 51 Chairman of the Board November 2001-present and CEO Curtis Orgil........... 51 CFO and Director November 2001-present Ramsey Sweis............ 37 Director May 1998-present Alexander Walker, Jr. .. 76 Director November 2001-present Ami R. Elazari.......... 51 Director October 2003-present Certain biographical information concerning the Directors and executive officers of the Company as of December 30, 2003 is set forth below. Such information was furnished by them to the Company. Michael Zwebner has served as a Director since November, 2001 and is the Chairman of the Board of Directors. He is the founder of Talk Visual Corporation and has served as a Director and its Chairman of the Board of Directors since September, 1998 until March, 2002. Mr. Zwebner is the President of Card Universal Corporation, a privately held Florida corporation which we had issued a letter of intent to acquire. Card Universal has ceased operations and we have withdrawn and abandoned our letter of intent to acquire. From 1974 to 1986, Mr. Zwebner founded and ran a travel and tourism company and a charter airline, specializing in the areas of air charter travel, wholesale ticketing and general business and tourist travel. From 1986 to 1990, Mr. Zwebner owned and operated several real estate companies as well as managed a chain of five family restaurants and related catering services in England. From 1991 to 1997, Mr. Zwebner founded and served as Vice-President of Cardcall International Holdings Inc. (USA) and Operating Manager of Cardcall (UK) Ltd. for which he designed and developed telecommunications and marketing concepts and organized the prepaid phone card operations. Mr. Zwebner also coordinated corporate finance activities for Cardcall. Mr. Walker has served as a Director of the Company since November, 2001. Mr. Walker has served as Chairman of the Board of the Nevada Agency and Trust Company in Reno, Nevada, a licensed and registered trust company and transfer agent in business since 1903. He received his B.A. from Waynesburg College in 1950 and his J.D. from the University of Pittsburgh School of Law in 1952. From 1956 to date, he has maintained a private practice as an attorney. Curtis A. Orgil has served as a Director of the Company since November, 2001. He received his Bachelor of Science degree in 1974 from Brigham Young University. He worked for Deloitte Haskins & Sells in Salt Lake City, Utah. Later he transferred to Reno, Nevada where he helped establish their new office. While in Reno, Mr. Orgil was the Partner-in-Charge of the tax department there and was the senior tax partner in the state of Nevada. While with Deloitte, Mr. Orgil was on its National Industry Teams for Qualified Retirement Plans and Agribusiness. Since 1995, he has been a principal with Bartig, Basler & Ray, CPA's, Inc., a regional accounting firm with headquarters in Sacramento, -17- California. He is the treasurer of the Northern Nevada International Center and of the BYU Management Society of Northern Nevada. He has chaired the Taxation Committee for the Nevada Society of Certified Public Accountants. He is a former treasurer and board member of the Nevada Museum of Art, the American Lung Association of Reno, the Economic Development Authority of Western Nevada, and the Northern Nevada Development Authority. He was a founding board member of the Nevada World Trade Council and was a member of the Advisory Council for the University of Nevada, Reno College of Business. Ramsey Sweis has served as a Director since May, 1998. He has had extensive experience in management and in the product design industry. He has been a leader and developer of high performance teams by enabling, training and motivating team members. In the recent past he has provided computer and engineering services to General Motors and Chrysler Corporation. In connection with those activities Mr. Sweis has developed designs between engineering, prototype models, tooling and vendor sources. Mr. Sweis resides in Roseville, Michigan. He currently operates a financial services company. From 1997 to 1999 Mr. Sweis served as a designer for Computer and Engineering Services of Auburn Hills, Michigan. From 1991 to 1997, Mr. Sweis was a design leader for Megatech Engineering of Warren, Michigan, contracted to General Motors of Warren, Michigan. Ami R. Elazari, is the founder, President and CEO of Millennium Electric T.O.U. Ltd. He is a Lt. Col. (Res.) in the Israeli army and served in the IDF Intelligence special unit. Mr. Elazari is an energy and computer engineer and holds a BA in Psychology and an MBA with honors. He is the Vice Chairman of the Israel Export Institute Environmental Technology Center and the Vice Chairman of the Israel Export Institute Start-Up Company Center. Mr. Elazari represents Israel in the IEA and holds a number of world patents in his name, mainly in renewable energy. Between 1990-1995 Mr. Elazari managed Amitec Energy and Computer Industries, from 1995-1999 he managed the PV division of Chromagen Solar Systems. He is a member of the Israeli Financial forum, High tech forum and has published numerous articles in his field of expertise. Director Compensation Directors do not have a plan of compensation for serving as directors, except that the following common stock grants were issued for the fiscal year ended September 30, 2003: Number of Shares Name Granted - --------------- --------------- Alex Walker, Jr. 500,000 - for legal services Curtis Orgil 200,000 - for financial services Limitation of Liability and Indemnification Matters Our Bylaws provide that we may indemnify any director, officer, agent or employee against all expenses and liabilities, including counsel fees, reasonably incurred by or imposed upon them in connection with any proceeding in which they may become involved by reason of their being or having been a director, officer, employee or agent of our Company. Moreover, our Bylaws provide that we shall have the right to purchase and maintain insurance on behalf of any such persons whether or not we would have the power to indemnify such person against the liability insured against. Insofar as indemnification may be afforded for liabilities arising under the Securities Act, we have been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. -18- Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 requires our Company's officers and directors, and persons who own more than 10% of a registered class of our Company's equity securities, to file reports of ownership and changes in ownership with respect to the securities of our Company with the SEC and to furnish copies of these reports to our Company. We believe that during fiscal year 2003, Alex Walker, Ramsey Sweis and Curtis Orgil have not filed the required Form 4s. ITEM 10. EXECUTIVE COMPENSATION Employment Agreements There are no employment agreements in force at September 30, 2003. The Company entered into a three year consulting agreement with Overseas Communications Limited on November 2, 2001, for the management and business advisory services provided by Mr. Michael Zwebner, Chairman and CEO of the Company. The Agreement calls for annual payments of $240,000, payable in cash or the Company's common stock. For the fiscal year ended September 30, 2003, the Company paid $80,000 in cash and issued 3,160,742 shares of common stock under this agreement. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding beneficial ownership of our common stock as of December 30, 2003, by: o each person who is known by us to own beneficially more than 5% of the outstanding shares of our common stock; o each of our directors; and o all our directors and executive officers as a group. Applicable ownership is based on 106,123,070 shares of common stock outstanding as of December 30, 2003. Beneficial ownership is determined in accordance with the rules of the SEC. Shares of common stock subject to options or warrants that are presently exercisable or exercisable within 60 days of December 30, 2003 are deemed outstanding for the purpose of computing the percentage ownership of the person or entity holding options or warrants, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person or entity. The persons listed below have sole voting and investment power with respect to all shares of common stock shown as being beneficially owned by them, subject to community property laws, where applicable. The number of shares column in the table includes shares issuable upon exercise of options and warrants exercisable within 60 days of December 30, 2003. The number of options -19- and warrants exercisable within 60 days of December 30, 2003 are listed in the shares issuable upon exercise of options or warrants column.
Shares Issuable Name of Named Executive Officer, Number of Percentage Upon Exercise of Director, or Beneficial Owner Shares Ownership Options or Warrants - ------------------------------ ------ --------- ------------------- Michael J. Zwebner (3) 4,977,910 (1) 4.7% 0 Alexander Walker, Jr. (3) 557,000 * 0 Ramsey Sweis (3) 1,723,970 1.6% 500,000 Curtis Orgil (3) 251,000 * 0 Ami R. Elazari (3) 2,200,000 2.1% Executive Officers and Directors 9,709,880 9.1% as a Group - 5 individuals Endeavour Capital 10,506,184 9.9% 7,992,654 (2) c/o Endeavour Advisors, Ltd. P.O.B. 57116 Jerusalem 91570 Amro International S. A. 10,506,184 9.9% 8,200,276 (2) Grossmuenster Platz 26 Zurich, Switzerland CH8022 Esquire Trade & Finance Inc. 5,635,114 5.3% 4,500,114 (2) Trident Chambers, Road Town Tortola, BVI Celeste Trust Reg 3,028,530 2.9% 3,009,843 (2) Trevisa-Treuhand-Anstalt Landstrasse 8, 9496 Furstentums Balzers, Liechtenstein
- ------------------------------------------- * Less than 1% (1) Includes 23 shares beneficially held by Overseas Communications Limited, 534,014 shares beneficially held by Overseas Development Holdings Limited and 204,167 shares beneficially held by Port Universal. (2) Represents shares convertible under the 4%, due April 14, 2005, $3,380,548 and 8%, due March 29, 2005, $1,066,449 convertible debentures held, but not more than 9.9% of total outstanding, as per the provision of the debentures. (3) The address of each such person is c/o the Company, 407 Lincoln Rd., Ste 12F, Miami Beach, FL 33139 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Commencing November 1, 2001, we engaged the services of the Chairman Michael Zwebner under a consulting agreement through Overseas Development Holdings Corporation, a foreign corporation. The annual payment is $240,000. Overseas Development Holdings Corporation is 33% owned by our Chairman. Alexander Walker, Jr., a Director and the Secretary of our company, is Chairman of the Board and a shareholder of Nevada Agency and Trust Company, our transfer agent since November 6, 2001. During the fiscal year ended September 30, 2003, we incurred fees aggregating $6,963 to Nevada Agency and Trust Company. In addition, 500,000 shares of common stock were issued to Mr. Walker as payment for legal services. -20- Curtis Orgil, a Director and the Chief Financial Officer of our company, received 200,000 shares of common stock for his financial services. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits ITEM (601) DOCUMENT ---------- -------- (i) 3.1 Articles of Incorporation. (i) 3.2 Amendment to Articles of Incorporation (i) 3.3 Amendment to Articles of Incorporation. (i) 3.4 By-laws. (iv) 3.5 Amendment to Articles of Incorporation. (i) 4.1 Form of Certificate Evidencing shares of Common Stock of Universal Communication Systems, Inc. (i) 4.2 Convertible Unsecured Debenture for $740,000 issued by World Wide Wireless Communications, Inc. to Credit Bancorp. (v) 10.1 Stock Purchase Agreement dated November 30, 1999 Between Infotel Argentina S.A. and Universal Communication Systems, Inc. (v) 10.3 Security Purchase Agreement Among World Wide Wireless Communications, Inc. and the Purchasers Named Therein. (v) 10.4 Registration Rights Agreements Among World Wide Wireless Communications, Inc. and the Purchasers Named Therein. (v) 10.5 Escrow Agreement Among the Purchasers Named Therein, the Representative of the Purchasers and the Escrow Agent. (v) 10.6 Form of Debenture of Universal Communication Systems, Inc. with Respect to the 4% Convertible Debenture Due 2005. (v) 10.7 Form of Warrant to Purchase Shares of World Wide Communications, Inc. Issued in the Offering. (vi) 10.8 Amendment to the Securities Purchase Agreement entered into between World Wide Wireless Communications and the selling shareholders named therein. (ii) 10.9 Second Amendment to the Securities Purchase Agreement entered into between World Wide Wireless Communications and the selling shareholders name therein. (ii) 10.11 World Wide Communications, Inc. Incentive Stock Option Plan (iii) 10.12 Agreement between Overseas Communication Limited and World Wide Wireless Communications, Inc. (vii) 10.13 Stock Purchase Agreement by Universal Communication Systems, Inc. and Ami R. Elazari and Caltan Development, Ltd., dated August 22, 2003. 10.14 Consulting Agreement - Dorit Elazari 10.15 Consulting Agreement - Joseph Moore 10.16 Consulting Agreement - Otzarot Nechasim Vehashkaot, Ltd. 21.1 Subsidiaries 31.1 Certification Pursuant to 18 USC Section 302 for Michael Zwebner. 31.2 Certification Pursuant to 18 USC Section 302 for Curtis Orgil. 32.1 Certification Pursuant to 18 USC Section 1350 as adopted pursuant to Section 906 of Sarbanes- Oxley Act of 2002 for Michael Zwebner. 32.2 Certification Pursuant to 18 USC Section 1350 as adopted pursuant to Section 906 of Sarbanes- Oxley Act of 2002 for Curtis Orgil. - ------------------ (i) Filed with the registration statement on Form SB-2 with the Securities and Exchange Commission on May 31, 2000. -21- (ii) Filed with the registration statement on Form SB-2 with the Securities and Exchange Commission on December 15, 2000. (iii) Filed with Form 10-KSB for the period September 30, 2002. (iv) Filed with Form DEF14A on April 25, 2002. (v) Filed with the registration statement on Form SB-2 with the Securities and Exchange Commission on May 31, 2000. (vi) Filed with Form 10-KSB for the period September 30, 2000. (vii) Filed with Form 8-K on October 14, 2003. (b) The following Form 8-K was filed during the fourth quarter. September 29, 2003, Item 2. Acquisition or Disposition of Assets. Reporting the completion of the acquisition of Millenium Electric T.O.U., Ltd, pursuant to a stock purchase agreement dated August 22, 2003. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Pursuant to SEC Release No. 33-8183 (as corrected by Release No. 33-8183A), the disclosure requirements of this Item are not effective until our Annual Report on Form 10-KSB for our first fiscal year ending after December 15, 2003. -22- SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this amendment to the report to be signed on its behalf by the undersigned, thereunto duly authorized, on June 29, 2004. Universal Communication Systems, Inc. By: /s/ MICHAEL ZWEBNER ------------------- Michael J. Zwebner Chief Executive Officer In accordance with the requirements of the Securities Exchange Act of 1934, this amendment to the report has been signed below by the following persons on behalf of the Registrant in the capacities indicated on June 29, 2004: Signature Title Date - --------- ----- ---- /s/ MICHAEL J. ZWEBNER Director, Chief Executive Officer, June 29, 2004 - ---------------------- and Chairman of the Board Michael J. Zwebner /s/ ALEXANDER WALKER JR Director and Secretary June 29, 2004 - ----------------------- Alexander Walker, Jr. /s/ RAMSEY SWEIS Director June 29, 2004 - ----------------------- Ramsey Sweis /s/ CURTIS ORGIL Director and Chief Financial Officer June 29, 2004 - ----------------------- (Principal Financial and Accounting Curtis Orgil Officer) /s/ AMI R. ELAZARI Director June 29, 2004 - ----------------------- Ami R. Elazari -23- INDEX TO FINANCIAL STATEMENTS Page ---- Report of Independent Auditor F-2 Consolidated Balance Sheet F-3 Consolidated Statements of Operations F-4 Statements of Stockholders' Deficit F-5 Consolidated Statements of Cash Flows F-6-F-7 Notes to the Consolidated Financial Statements F-8-F-24 F-1 REUBEN E. PRICE & CO. REUBEN E. PRICE, C.P.A. (1904-1986) PUBLIC ACCOUNTANCY CORPORATION MEMBERS ------- FOUNDED 1942 AMERICAN INSTITUTE OF RICHARD A. PRICE, C.P.A. CERTIFIED PUBLIC ACCOUNTANT 703 MARKET STREET ------ SAN FRANCISCO, CA 94103 SECURITIES AND EXCHANGE ------------- COMMISSION PRACTICE SECTION (415) 982-3556 OF THE AMERICAN INSTITUTE OF FAX (415) 957-1178 CERTIFIED PUBLIC ACCOUNTANTS ------ CALIFORNIA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT Board of Directors Universal Communication Systems, Inc. We have audited the accompanying consolidated balance sheet of Universal Communication Systems, Inc. and subsidiaries (the Company), as of September 30, 2003, and the related consolidated statements of operations, stockholders' deficit and cash flows, for the years ended September 30, 2003 and 2002. The consolidated financial statements of Universal Communication Systems, Inc. and subsidiaries are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with The Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects, the financial position of Universal Communication Systems, Inc. and subsidiaries, as of September 30, 2003 and the results of their operations and their cash flows for the years ended September 30, 2003 and 2002, in conformity with accounting principles generally accepted in the United States. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3, the Companys current liabilities exceed current assets by nearly $1.4 million, and it has suffered recurring losses that raise substantial doubt about its ability to continue as a going concern. Realization of a major portion of the assets is dependent upon the Company's ability to meet its future financing requirements, and the success of future operations, the outcome of which cannot be determined at this time. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Reuben E. Price & Co. June 2, 2004 F-2 Part I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS UNIVERSAL COMMUNICATION SYSTEMS, INC. & SUBSIDIARIES Consolidated Balance Sheet September 30, 2003 ------------- ASSETS Current Assets: Cash & cash equivalents $ 144,682 Accounts receivable, net 105,859 Note receivable 116,782 Inventory, finished goods 4,900 Prepaid expenses 35,185 ------------ Total Current Assets 407,408 ------------ Property, Plant and Equipment: Furniture and equipment 64,838 Less: Accumulated depreciation 21,579 ------------ Total Fixed Assets, Net 43,259 ------------ Other Assets: Patents, net 606,714 Deposits 4,600 ------------ Total Other Assets 611,314 ------------ Total Assets $ 1,061,981 ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Bank overdraft advances $ 25,721 Accounts payable, trade 195,538 Accrued expenses 360,805 Notes payable 344,746 Liabilities of discontinued operations 946,794 Due to related parties 93,308 Due to officer 11,368 ------------ Total Current Liabilities 1,978,280 Long-term Liabilities: Convertible debentures 4,446,996 ------------ Total Liabilities 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, 81,223,246 shares issued and outstanding 81,223 Additional paid-in capital 26,482,580 Accumulated deficit (31,833,598) Account receivable, stockholder (93,500) ------------ Total Stockholders' Deficit (5,363,295) ------------ Total Liabilities and Stockholders' Deficit $ 1,061,981 ============ The accompanying notes are an integral part of these financial statements. F-3 UNIVERSAL COMMUNICATION SYSTEMS, INC. & SUBSIDIARIES Consolidated Statements of Operations
For the Year Ended September 30, 2003 2002 ----------- ----------- Operating Expenses: Sales and marketing $ 151,804 $ -- Research and developmen 62,333 -- General and administrative 1,785,431 807,033 Impairment losses -- 128,706 ----------- ----------- Total Operating Expenses 1,999,568 935,739 Other Expense: Interest expense 285,572 334,953 ----------- ----------- Net Loss $ 2,285,140 $ 1,270,692 =========== =========== Basic and Diluted Net Loss per Common Share $ 0.09 $ 5.54 =========== =========== Basic and Diluted Weighted Average Shares Outstanding 26,758,511 229,239 =========== ===========
The accompanying notes are an integral part of these financial statements. F-4 UNIVERSAL COMMUNICATIONS SYSTEMS, INC. & SUBSIDIARIES Statements of Stockholders' Deficit For the Years Ended September 30, 2003 and 2002
Accumulated Common Stock Additional Other --------------------------- Paid-in Accumulated Comprehensive Total Shares Amount Capital Deficit Income Deficit ------------ ------------ ------------ ------------ ------------ ------------ Balance, September 30, 2001 137,993 $ 137 $ 19,713,954 $(28,158,732) $ (119,034) $ (8,563,675) Eliminate foreign currency adjustment -- -- -- (119,034) 119,034 -- Capital Stock Subscriptions - --------------------------- Common stock issued in private Placement between $3.00 and $5.00 per share 45,254 45 173,455 -- -- 173,500 Conversion of debentures for common stock between $0.50 and $4.00 per share 4,898,636 4,899 2,611,537 -- -- 2,616,436 Common stock issued for services at $0.20 and $15.00 per share 584,011 584 572,903 -- -- 573,487 One for one thousand reverse Split, Fractional shares Adjustment 2,096 3 (3) -- -- -- Common stock issued in escrow to secure debt 300,000 300 (300) -- -- -- Net loss for the fiscal year Ended, September 30, 2002 -- -- -- (1,270,692) -- (1,270,692) ------------ ------------ ------------ ------------ ------------ ------------ Balance, September 30, 2002 5,967,990 5,968 23,071,546 (29,548,458) -- (6,470,944) Common stock issued in private placements between $0. 026 and $1.00 per share 22,742,301 22,742 1,192,087 -- -- 1,214,829 Conversions of debentures for common stock between $0.0253 and $0.1275 per share 23,486,734 23,487 693,578 -- -- 717,065 Common stock issued for services between $0.04 and $ 0.12 per share 18,008,770 18,009 1,086,386 -- -- 1,104,395 Common stock issued for purchase of subsidiary at $.05 per share 5,000,000 5,000 245,000 -- -- 250,000 Common stock issued for non-cash Investments in patent rights at of $0.05 per share 4,000,000 4,000 196,000 -- -- 200,000 Common stock issued between $0.033 and $1.00 per share in escrow, not paid 2,017,451 2,017 (2,017) -- -- -- Account receivable, stockholder -- -- -- -- (93,500) (93,500) Net loss for the fiscal year ended, September 30, 2003 -- -- -- (2,285,140) -- (2,285,140) ------------ ------------ ------------ ------------ ------------ ------------ Balance, September 30, 2003 81,223,246 $ 81,223 $ 26,482,580 $(31,833,598) $ (93,500) $ (5,363,295) ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. F-5 UNIVERSAL COMMUNICATION SYSTEMS, INC. & SUBSIDIARIES Consolidated Statements of Cash Flows
For the Year Ended September 30, 2003 2002 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $(2,285,140) $(1,270,692) Adjustments to reconcile net loss from operations to net cash used by operating activities: Common stock issued for services 1,104,395 573,485 Impairment loss -- 128,706 Depreciation expense 5,690 22,036 Interest payable added to principal of debentures 239,513 246,341 Loss on write down of assets -- 190,066 Interest payable added to principal of note payable 30,509 -- Changes in operating assets and liabilities: (Increase) in inventory (4,900) 48,991 (Increase) in accounts receivable (105,859) -- (Increase) in prepaid and other (85,249) (4,600) Increase (Decrease) in accrued expenses and accounts payable 181,902 (343,459) ----------- ----------- Net Cash (Used) by Operating Activities (919,139) (409,126) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of patent rights (100,000) -- Purchase of property, plant and equipment (37,662) (1,917) Note receivable (116,782) -- (Increase) Decrease in advances to related parties (46,676) (35,456) ----------- ----------- Net Cash (Used) by Investing Activities (301,120) (37,373) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds of short term notes 60,000 -- Proceeds of line of credit 25,721 -- Proceeds from the issuance of senior secured convertible debentures, net -- 240,000 Proceeds from issuance of common stock 1,214,829 173,500 Increase (Decrease) in advances from related parties 63,517 29,791 ----------- ----------- Net Cash Provided by Financing Activities 1,364,067 443,291 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 143,808 (3,208) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 874 4,082 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 144,682 $ 874 =========== ===========
The accompanying notes are an integral part of these financial statements. F-6 UNIVERSAL COMMUNICATION SYSTEMS, INC. & SUBSIDIARIES Consolidated Statements of Cash Flows
For the Year Ended September 30, 2003 2002 ----------- ----------- CONTINUED: 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 $ 239,852 $ 246,341 Interest accrued on note payable added to the principal of the note $ 30,509 $ -- Debentures converted to capital stock $ 717,065 $ 2,616,436 Capital stock issued in acquisition of subsidiary $ 250,000 $ -- Capital stock issued in acquisition of patent rights $ 200,000 $ --
The accompanying notes are an integral part of these financial statements. F-7 Universal Communication Systems, Inc. and Subsidiaries Notes to the Consolidated Financial Statements September 30, 2003 NOTE 1 - BACKGROUND, ACQUISITIONS AND SUBSIDIARIES Background ---------- The Company and its subsidiaries are actively engaged in developing and marketing solar energy systems, as well as systems for the extraction of drinkable water from the air. Consolidated subsidiaries include wholly-owned subsidiaries AirWater Corp, AirWater Patents Corp, Millennium Electric T.O.U. Ltd, Solar Style Inc (USA), and Solar One Inc, and majority-owned subsidiaries Millennium USA and Solar Style Ltd. Digital Way, Peru ----------------- The Company owns 27% of Digital Way, S.A., a Peruvian telecommunications company. The Company treats Digital Way as an unconsolidated investment. Pursuant to APB 18, par 17, absent evidence to the contrary, and investor is presumed to have the ability to significantly influence an investee if it owns 20% or more of the investee's voting stock and the equity method of accounting is required. Because the majority ownership is concentrated among a small group of shareholders who operate Digital Way without regard to the views of Universal and the financial information necessary to apply the equity method of accounting is not being made available, Universal is unable to apply the equity method. Because significant doubt exists as to the recovery from this investment, the investment is fully impaired. Hard Disc Cafe, Inc. -------------------- During fiscal 2002, the Company advanced $147,794 and signed a non- binding letter of intent to acquire Hard Disc Cafe, Inc. (HDC), a Florida corporation, majority-owned by an officer of the Company. HDC intended to develop and license themed internet cafes. During 2002, HDC ceased all operations and returned $10,699 to the Company. As a result, the Company recognized a loss of $110,698 in fiscal 2002, and $26,397 in fiscal 2003. Card Universal Corporation, Inc. -------------------------------- During fiscal 2003, the Company entered into a non-binding letter of intent to acquire Card Universal Corporation, Inc.(CUC), a privately held development stage Florida corporation of which an officer of the Company was CEO and a major shareholder. CUC intended to provide and market prepaid "Stored Money Cards". CUC has ceased its development activities, is currently inactive, and the acquisition has been abandoned. CinemaElectric --------------- During fiscal 2003, the Company agreed to acquire CinemaElectric, a Los Angeles based multimedia messaging service company. On August 12, 2003, the Company released CinemaElectric from the agreement in exchange for 10% of CinemaElectric's stock, which was not received as of September 30, 2003. F-8 Universal Communication Systems, Inc. and Subsidiaries Notes to the Consolidated Financial Statements September 30, 2003 NOTE 1 - BACKGROUND, ACQUISITIONS AND SUBSIDIARIES (continued) AirWater Systems ---------------- On March 21, 2003, the Company licensed worldwide rights to patents held by J.J. Reidy & Co, relating to a water production/generation system, for a period of not less than 10 years. In connection with the licensing, the Company created two wholly-owned subsidiaries: AirWater Corp, to produce and market the systems, and AirWater Patents Corp, to hold the Company's licensed patent rights. The Company paid $100,000 cash and 4 million shares of Company stock valued at $200,000. Additionally, the license agreement requires royalty payments of 5-7% of gross water system sales, with minimum royalty payments of $10,000 monthly beginning November 2003. The $300,000 acquisition cost is included in Patents. As discussed in Note 12, no amortization or impairment has been recognized. Millennium Solar Systems ------------------------ On September 29, 2003, the Company completed an agreement to purchase 100% of the stock of Millennium Electric T.O.U. Ltd (Millennium), an Israeli company specializing in the development and installation of solar power systems worldwide. Terms included an initial transfer of 5 million shares of Company 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 Company performance standards. The Company's purchase cost plus net liabilities assumed, resulted in $300,064 of intangibles in the form of patent costs, which is included in Patents. As discussed in Note 12, no amortization or impairment has been recognized. Two new wholly-owned US subsidiaries, Solar One Inc and Solar Style Inc (USA), were created by the Company to market the solar systems. As of September 30, 2003, they were inactive, with no assets or liabilities. Millennium has two subsidiaries: 65%-owned Millennium USA, and 50%- owned Solar Style Ltd. Both are inactive, with no assets or liabilities. Millennium's assets and liabilities are included in the Company's consolidated balance sheet at September 30, 2003. However, Millennium's results are not included in the Company's consolidated statements of operations, stockholders' deficit, or cash flows. F-9 Universal Communication Systems, Inc. and Subsidiaries Notes to the Consolidated Financial Statements September 30, 2003 NOTE 1 - BACKGROUND, ACQUISITIONS AND SUBSIDIARIES (continued) Millennium Solar Systems (continued) ------------------------------------ The following pro forma data is presented on a combined basis, as if Millennium had been acquired as of October 1, 2001: For the years ended September 30: 2003 2002 ----------- ----------- Revenues $ 162,066 $ 136,814 Expenses 2,477,052 1,364,838 ----------- ----------- Net (Loss) ($2,314,986) ($1,228,024) =========== =========== Basic & Diluted Loss per Share ($ 0.09) ($ 0.26) =========== =========== NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. Principles of Consolidation --------------------------- The consolidated financial statements include the accounts of all majority-owned subsidiaries. Investments in which the Company has the ability to exercise significant influence, but not control, are accounted for by the equity method. All other investments are carried at the lower of cost or fair value. Intercompany transactions are eliminated. Basic and Diluted Net Loss Per Share ------------------------------------ The calculation of basic and diluted net loss per share is in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Net loss per common share, basic and diluted, has been computed using weighted average common shares outstanding. The effect of outstanding stock options and warrants totaling 28,071 in fiscal 2002 and 27,521 in 2003 has been excluded from the dilutive computation, as their inclusion would be anti-dilutive. F-10 Universal Communication Systems, Inc. and Subsidiaries Notes to the Consolidated Financial Statements September 30, 2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Fiscal Year Ended September 30, 2003 2002 ----------- ----------- Net loss $(2,285,140) $(1,270,692) =========== =========== Weighted average number of common shares 26,758,511 229,239 =========== =========== Basic and diluted loss per share $ (0.09) $ (5.54) =========== =========== Cash Equivalents ---------------- The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Balances in bank accounts may, from time to time, exceed federal insured limits. Inventory --------- Inventory is stated at the lower of cost (determined using the "first- in, first-out" method) or market. Inventory write-offs are provided to cover risks arising from slow-moving items or obsolescence. Property, Plant and Equipment ----------------------------- Furniture, fixtures and equipment are depreciated over their estimated useful lives of 3 to 15 years, using the straight-line method of depreciation. Long-Lived Assets ----------------- The Company reviews its long-lived assets on a quarterly basis to determine any impairment in accordance with Statement of Financial Accounting Standards (SFAS) No. 144. This statement provides a single accounting model for long-lived assets to be disposed of and significantly changes the criteria that would have to be met to classify an asset as held-for-sale. Classification as held-for-sale is an important distinction since such assets are not depreciated and are stated at the lower of fair value and carrying amount. This statement also requires expected future operating losses from discontinued operations to be displayed in the period(s) in which the losses are incurred, rather than as of the measurement date as previously required. F-11 Universal Communication Systems, Inc. and Subsidiaries Notes to the Consolidated Financial Statements September 30, 2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Estimates --------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments ----------------------------------- For cash, cash equivalents, other assets, accounts payable, and accrued expenses, the carrying amounts represent their fair market value. The carrying amount of the debentures payable approximates fair value because of similar current rates at which the Company could borrow funds with consistent remaining maturities. Investments ----------- The Company has adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Under this standard, management determines the appropriate classifications of debt securities at the time of acquisition, and reevaluates such designation as of each balance sheet date. Revenue Recognition ------------------- Revenues from the sales of products are recognized in accordance with Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements", when persuasive evidence of an arrangement exists and delivery of the product has occurred, provided that the collection of the resulting receivable is probable, the price is fixed or determinable, and no significant obligation exists. The Company does not grant any right of return. Because the Company's acquisition of Millennium occurred only one day before its fiscal year-end, no Millennium revenue has been recognized in the Company's consolidated statement of operation for the year ended 9/30/03. Segment Information ------------------- The Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131) in 1999. This statement establishes standards for the reporting of information about operating segments in annual and interim financial statements and requires restatement of prior year information. The Company has no reportable operating segments for the years ended September 30, 2003 and 2002. Comprehensive Income and Foreign Currency Translation ----------------------------------------------------- The Company has adopted FASB Statement No. 130, Reporting Comprehensive Income. The financial statements of the Company's foreign subsidiaries are measured using the U.S. dollar as the functional currency. Where there are foreign currency transactions, assets and liabilities are translated at exchange rates as of the balance sheet date and revenues and expenses were translated at average rates of exchange in effect during the year. Any cumulative translation adjustments are recorded as a separate component of stockholders' equity. Recent Accounting Pronouncements -------------------------------- In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 establishes guidelines related to the retirement of tangible F-12 Universal Communication Systems, Inc. and Subsidiaries Notes to the Consolidated Financial Statements September 30, 2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Recent Accounting Pronouncements (continued) -------------------------------------------- long-lived assets of the Company and the associated retirement costs. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived assets. This statement is effective for financial statements issued for the fiscal years beginning after June 15, 2002 and with earlier application encouraged. The Company adopted SFAS No. 143 and the adoption did not have a material impact on the financial statements of the Company at September 30, 2003. In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." This standard establishes a single accounting model for long-lived assets to be disposed of by sale, including discontinued operations. SFAS No. 144 requires that these long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or discontinued operations. This statement is effective beginning for fiscal years after December 15, 2001, with earlier application encouraged. The Company adopted SFAS No. 144 and the adoption did not have a material impact on the financial statements of the Company at September 30, 2003. In April 2002, the Financial Accounting Standards Board issued SFAS No. 145, "Rescission of FASB Statements No. 44, 4 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS No. 145"), which updates, clarifies and simplifies existing accounting pronouncements. FASB No. 4, which required all gains and losses from the extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related tax effect was rescinded. As a result, FASB No. 64, which amended FASB No. 4, was rescinded as it was no longer necessary. SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers", established the accounting requirements for the effects of transition to the provisions of the Motor Carrier Act of 1980. Since the transition has been completed, SFAS No. 44 is no longer necessary and has been rescinded. SFAS No. 145 amended SFAS No. 13 to eliminate an inconsistency between the required accounting for sale- leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale- leaseback transactions. The Company adopted SFAS No. 145, which has not had a material effect on the Company's financial statements. F-13 Universal Communication Systems, Inc. and Subsidiaries Notes to the Consolidated Financial Statements September 30, 2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Recent Accounting Pronouncements (continued) -------------------------------------------- In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs associated with exit and disposal activities, including restructuring activities. SFAS No. 146 also addresses recognition of certain costs related to terminating a contract that is not a capital lease, costs to consolidate facilities or relocate employees, and termination benefits provided to employees that are involuntarily terminated under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS No. 146 was issued in June 2002, effective December 31, 2002 with early adoption encouraged. There has been no impact on the Company's financial position or results of operations from adopting SFAS No. 146. In April 2003, the Financial Accounting Standards Board issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" (hereinafter "SFAS No. 149"). SFAS No. 149 amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on the financial position or results of operations of the Company. In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" (hereinafter "SFAS No. 150"). SFAS No. 150 establishes standards for classifying and measuring certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously, many of those instruments were classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company has determined that there was no impact on the Company's financial statements from the adoption of this statement. In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. (FIN)46 "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" (hereinafter "FIN 46"). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial F-14 Universal Communication Systems, Inc. and Subsidiaries Notes to the Consolidated Financial Statements September 30, 2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Recent Accounting Pronouncements (continued) -------------------------------------------- interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. The provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company does not have any entities that require disclosure or new consolidation as a result of adopting the provisions of FIN 46. In November 2002, the Financial Accounting Standards Board issued FIN 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others." FIN 45 requires a company, at the time it issues a guarantee, to recognize an initial liability for the fair value of obligations assumed under the guarantee and elaborates on existing disclosure requirements related to guarantees and warranties. The initial recognition requirements of FIN 45 are effective for guarantees issued or modified after December 31, 2002 and do not have an impact on the financial statements of the Company. The Company does not anticipate issuing any guarantees which would be required to be recognized as a liability under the provisions of FIN 45 and thus does not expect the adoption of this interpretation to have an impact on its results of operations or financial position. NOTE 3 - 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's current liabilities exceed current assets by over $1.5 million, has experienced losses since inception, and had an accumulated deficit of $31,833,598 at September 30, 2003. 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 has modified its business plan and is currently focusing its operations on the design, manufacture and sale of water production and generation systems along with solar power systems. The Company needs to secure additional capital through sales of common stock. There is no assurance that management will be successful in its efforts to raise additional capital. NOTE 4 - COMMITMENTS AND CONTINGENCIES Litigation ---------- In November 1998, the Company and its predecessor affiliates filed an action against the lessor of its leases for the Concord and San Marcos, F-15 Universal Communication Systems, Inc. and Subsidiaries Notes to the Consolidated Financial Statements September 30, 2003 NOTE 4 - COMMITMENTS AND CONTINGENCIES (continued) Litigation (continued) ---------------------- California multipoint distribution service channels. Thereafter, the lessor cross-complained against the Company and its predecessors, alleging breach of contract. On December 9, 1999, a settlement agreement was signed. Under terms of the settlement agreement, the Company had an option to purchase the Concord and San Marcos leases for a price of $250,000 each, less lease payments already made. The Company elected to exercise the option to purchase the Concord lease, and the appropriate transfer procedure has been initiated with the U.S. Federal Communications Commission (FCC) which is still pending. The Company believes that under current FCC regulations it is not required to pay the $250,000 purchase price until such time as the FCC has approved the transfer of the license, and has made no payment. Management has abandoned the pursuit of these leases and licenses. During 1999, the Company borrowed $740,000 from Credit Bancorp. Also in 1999, the Company filed suit against Credit Bancorp in US District Court in San Francisco, regarding improprieties. The case was settled in 1999, with the $740,000 loan converting to a $740,000 convertible debenture. In 2000, Credit Bancorp's receiver agreed to convert the debenture into 462 shares of the Company's stock. A new receiver has been appointed to administer the affairs of Credit Bancorp. The Company has 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. As of September 30, 2003, no shares had been issued. Management believes that the receiver's claim lacks an authoritative basis, and that the resolution of these matters will not have a material effect on the Company's financial statements. On April 19, 2001, the Company was served with a complaint alleging unjust enrichment and a violation of California Business and Professions Code by Broad Horizons, Inc., a Florida corporation. The complaint stems from allegations that the Company improperly received monetary benefits from the Company's intended acquisition of Comunicacoes 100Fio, Ltda, a Brazilian corporation, and the Company's subsequent relations with Luis Cuza, a former vice-president and director of Broad Horizons, Inc., and a former member of the Company's board of directors. The Company denies the allegations and believes that the resolution of this matter will not have a material effect on the Company's financial statements. In fiscal 2003, Electric & Gas Technology Inc (ELGT) filed suit against the Company in Federal District Court in Texas, alleging patent infringement and other claims regarding the Company's AirWater products. This suit was dismissed without prejudice, for venue/jurisdictional reasons. It is not yet clear whether ELGT will re-file in another jurisdiction. The Company has counter-sued ELGT in Federal District Court in Florida for defamation and patent infringement, which case is still pending. Management believes that the resolution of these matters will not have a material effect on the Company's financial statements. F-16 Universal Communication Systems, Inc. and Subsidiaries Notes to the Consolidated Financial Statements September 30, 2003 NOTE 4 - COMMITMENTS AND CONTINGENCIES (continued) Operating Leases ---------------- During 2003, the Company converted the lease of its Miami executive and administrative offices to a month-to-month basis. The Company's Millennium subsidiary in Israel rents facilities under non-cancelable operating leases for periods ending in 2005, and also leases a car under a 36-month lease commencing October 2003. Future minimum lease payments required under these leases are as follows at September 30, 2003: Fiscal year Ending September 30, -------------------- 2004 $ 73,692 2005 68,677 2006 13,512 -------- $155,881 ======== Management Agreement -------------------- The Company entered into a three year consulting agreement with Overseas Communications Limited ("Overseas") on November 2, 2001, for Mr. Michael Zwebner to act as Chairman and CEO of the Company. The Agreement calls for a monthly payment of $20,000, payable in cash or the Company's common stock. For the fiscal years ended September 30, 2003 and 2002, the Company paid $80,000 and $20,000 in cash, respectively, and issued 3,160,742 and 365,966 shares of common stock, respectively, under this agreement. Mr. Zwebner is a shareholder of Overseas. Settlement Agreement -------------------- As described more fully in Note 9, below, the Company has entered into a settlement agreement with the Andrew Corporation, formerly a major supplier to the Company. The related note payable for $300,000 was timely paid in April 2004. F-17 Universal Communication Systems, Inc. and Subsidiaries Notes to the Consolidated Financial Statements September 30, 2003 NOTE 4 - COMMITMENTS AND CONTINGENCIES (continued) Consultant Agreements --------------------- In September 2003, the Company entered into two consulting agreements with two Millennium executives. The remaining contingent obligations on these agreements at September 30, 2003 totals $114,000. AirWater Minimum Royalty Payments --------------------------------- As discussed more fully in Note 1, the Company's license agreement, through its AirWater subsidiary, requires monthly royalty payments of $10,000 per month through October 2013. NOTE 5 - STOCKHOLDERS' EQUITY On May 21, 2002, stockholders approved a measure to increase the number of authorized common shares from 300 million to 800 million, and to authorize 10 million preferred shares. The Company's Board of Directors approved a one-for-one-thousand reverse stock split, effective August 23, 2002. Fractional shares were rounded up to the next share. All share and per share information reflects this reverse stock split. During the fiscal year ended September 30, 2003, the Company sold 22,742,301 shares of its common stock for net cash proceeds of $1,214,829. The Company issued 23,486,734 shares of common stock in conversion of outstanding debentures for an aggregate value of $717,065. The Company also issued 18,008,770 shares of its common stock for services at an aggregate value of $1,104,395. Stock issued for services was at the reported market price for the shares at the time of issuance. During the fiscal year ended September 30, 2002, the Company sold 45,254 shares of its common stock for net cash proceeds of $173,500. The Company issued 4,898,636 shares of common stock in conversion of outstanding debentures for an aggregate value of $2,616,436. The Company also issued 584,011 shares of its common stock for services at an aggregate value of $573,485. Stock issued for services was at the reported market price for the shares at the time of issuance. F-18 Universal Communication Systems, Inc. and Subsidiaries Notes to the Consolidated Financial Statements September 30, 2003 NOTE 6 - INCOME TAXES A reconciliation between the actual income tax benefit and the federal statutory rate follows: Fiscal years ended September 30, 2002 2003 ----------------- ---------------- Amoun % Amount % --------- --- --------- --- Computed income tax benefit at statutory rate $ 447,000 34 % $ 656,000 34 % Tax benefit reserved for doubtful valuation (447,000) (34)% (656,000) (34)% --------- --------- Income tax benefit None None ---- ---- At September 30, 2003 the Company had a net operating loss carry forward for federal tax purposes of approximately $29,300,000 which, if unused to offset future taxable income, will expire between the years 2011 to 2023. A valuation allowance has been recognized to offset the related deferred tax assets due to the uncertainty of realizing any benefit therefrom. Under section 382 of the Internal Revenue Code, the utilization of net operating loss carryforwards is limited after an ownership change, as defined, to an annual amount equal to the market value of the loss corporation's outstanding stock immediately before the date of the ownership change multiplied by the highest Federal long-term tax exempt rate in effect for any month in the 3 calendar month period ending in the calendar month in which the ownership change occurred. Due to the ownership changes as a result of the May 1998 reorganization and subsequent stock issuances, any future realization of the Company's net operating losses will be severely limited. Significant components of the Company's deferred tax assets are as follows: 2002 2003 ------------ ------------ Net operating loss carryforwards $ 28,000,000 $ 29,300,000 Valuation allowance (28,000,000) (29,300,000) ------------ ------------ Net deferred tax assets None None ============ ============ F-19 Universal Communication Systems, Inc. and Subsidiaries Notes to the Consolidated Financial Statements September 30, 2003 NOTE 7 - STOCK OPTION PLANS Nonstatutory Stock Options -------------------------- The Company has issued stock options under nonstatutory stock option agreements. The options are granted at the fair market value of the shares at the date the option is granted. The options are granted for a period of 5 years, and are fully exercisable during the term of the option period or within thirty (30) days of the participant's resignation or termination. Combined transactions in non-employee options for the fiscal years ended September 30, 2003 and 2002 are as follows:
2003 2002 -------------------- -------------------- Average Average Number of Exercise Number of Exercise Shares Price Shares Price Options outstanding October 1 251,300 $0.624 251,300 $0.624 Granted -- -- -- -- Cancelled/Expired 250 95.00 -- -- Exercised -- -- -- -- ------- ------ ------- ------ Options outstanding, September 30 251,050 $0.095 251,300 $0.624 ======= ====== ======= ======
Incentive Stock Plan -------------------- The Company adopted an incentive stock plan on August 5, 1998, which was approved by the shareholders on March 1, 2001. The options are granted at the fair market value of the shares at the date that the option is granted. The options are granted for a period of 10 years, and are exercisable after one year from the date of grant, at a vested rate of 20% per year during the term of the option period or within thirty (30) days of the participant's resignation or termination. The number of shares of stock covered by each outstanding option, and the exercise price per share thereof set forth in each such option, shall be proportionately adjusted for any stock split, and or stock dividend. All such options were being treated as non-statutory stock options until the incentive stock plan was approved by the shareholders. F-20 Universal Communication Systems, Inc. and Subsidiaries Notes to the Consolidated Financial Statements September 30, 2003 NOTE 7 - STOCK OPTION PLANS (continued) Combined transactions in employee options for the fiscal years ended September 30, 2003 and 2002 are as follows:
2003 2002 -------------------- -------------------- Average Average Number of Exercise Number of Exercise Shares Price Shares Price Options outstanding October 1 6,300 $602.00 6,300 $ 602.00 Granted 0 0 0 0 Cancelled/Expired (200) 602.00 0 0 Exercised 0 0 0 0 ----- ------- ----- ------- Options outstanding, September 30 6,100 $602.00 6,300 $318.00 ===== ======= ===== =======
The Company applies APB Opinion 25 in accounting for its stock compensation plans discussed above. Accordingly, no compensation costs have been recognized for these plans in 2003 or 2002. Had compensation costs been determined on the basis of fair value pursuant to FASB Statement No. 123, no compensation costs would have been recognized inasmuch as no options were granted under these plans. NOTE 8 - SECURITIES PURCHASE AGREEMENTS AND DEBENTURES On April 14, 2000, the Company entered into a Securities Purchase Agreement with six investors, for the purchase of investment units, consisting of common stock, common stock purchase warrants, 4% subordinated debentures maturing April 14, 2005, and preferred stock. On August 10, 2000 and again on October 18, 2000, the Company agreed with the investors to modify certain terms of the earlier funding agreement including elimination of the warrants and the preferred stock. The investors acquired $6,720,000 of 4% subordinated debentures. Interest is compounded semi-annually on the aggregate principal amount and is payable upon conversion, redemption or maturity of the debentures. Accumulated accrued interest is payable by increasing the aggregate principal amount of the debentures semi- annually and convertible into common stock of the Company. The debentures are not callable and can be converted into common stock at the option of the Holder at any time. The debentures are convertible generally at 85% of the average per share market value for the 5 consecutive trading days immediately prior to the conversion date. On March 29, 2001, the Company entered into a Senior Secured Convertible Debentures and Warrants Purchase Agreement with several investors. On June 7, 2001 the Company and several investors agreed to amend the March 29, 2001 Senior Secured Convertible Debentures and Warrants Purchase Agreement. The investors agreed to purchase $200,000 principal amount of 8% senior convertible debentures, maturing in February and March 2005. The Company also agreed to issue letter warrants to purchase up to $125,000 divided by 85% of the average of the three lowest bid prices during the 22 trading days prior to June 7, 2001. Interest is computed at 8% per annum on the principal amount, compounded quarterly and is payable upon conversion, redemption or maturity of the debentures. The debentures are convertible generally at 70% of the average of the 3 lowest bid prices during the 22 trading days immediately prior to the conversion date. In July 2003, an individual purchased a 4% Convertible Debenture with a principal amount of $100,000, maturing in 2005, from an existing bondholder. The debenture, as amended, allows its conversion at any time into 2,300,000 freely transferable shares of the Company's stock. F-21 Universal Communication Systems, Inc. and Subsidiaries Notes to the Consolidated Financial Statements September 30, 2003 NOTE 8 - SECURITIES PURCHASE AGREEMENTS AND DEBENTURES (continued) Commencing on February 5, 2002 through September 30, 2002, debenture holders exercised their option to convert $2,492,885 of 4% debentures and $123,551 of 8% debentures into 4,898,636 shares of common stock. During the fiscal year ended September 30, 2003, debenture holders exercised their option to convert $717,065 of 4% debentures into 23,486,734 shares of common stock. The balance of long-term debentures are shown in the following table. All of the debentures are due in the year 2005. Balance Outstanding September 30, 2003 ------------------- 4% Debenture $3,380,547 8% Debentures 1,066,449 ---------- Total long term $4,446,996 ========== NOTE 9 - NOTE PAYABLE The Notes Payable of $344,746 is composed of $284,746, related to the Andrew Corporation settlement agreement (discussed below), and a $60,000 note, bearing an interest rate of 12%, which matured on January 6, 2003. The Company is in negotiations with the holder to convert the note into stock of the Company, which has not yet occurred. On January 14, 2001, the Company entered into a Settlement Agreement with its systems integrator, Andrew Corporation, to repay costs incurred in purchasing their services and equipment in an approximate amount of $1,400,000. Under the Agreement, Andrew received an initial payment of $100,000 and was scheduled to receive an additional $100,000 each month until the loan was repaid. No payments were made. In addition, the Company issued a warrant to purchase no less than 200 and no more than 500 shares of the Company's common stock. The warrants are exercisable until January 24, 2005 at an exercise price of $230 per share. The warrants were issued in lieu of interest, and the Company is required to register the shares underlying the warrants. Further, on July 23, 2001, the Company entered into an agreement with Andrew to resolve all remaining indebtedness. This agreement required the return of all equipment previously shipped to Argentina, most of which has been held in the duty free zone in La Plata, Argentina, as well as some inventory held in the U.S. The equipment in Argentina has not yet been returned to Andrew. The Company has not been able to locate the equipment in Argentina. On September 3, 2002, the Company reached a settlement agreement with Andrew Corporation for all amounts due. The Company issued a note in the amount of $300,000 due in April 2004. The note bears no interest and is secured by 300,000 shares of the Company's common stock. The amount due was paid in April 2004. F-22 Universal Communication Systems, Inc. and Subsidiaries Notes to the Consolidated Financial Statements September 30, 2003 NOTE 9 - NOTE PAYABLE (continued) Because there was no stated interest, $45,763 was calculated as imputed interest, resulting in a stated value of the note payable of $254,237 recorded as part of Notes Payable. Interest expense of $30,509 was computed for the year ended September 30, 2003 and added to the stated value of the note, increasing the stated value of the note payable to $284,746 as of September 30, 2003. NOTE 10 - RELATED PARTY TRANSACTIONS Company CEO Michael Zwebner is the majority shareholder of Hard Disc Cafe, Inc (HDC), with which the Company entered into a letter of intent to acquire HDC, as discussed in Note 3 above. Mr. Zwebner is also the majority shareholder of Card Universal Corporation, Inc., with which the Company entered into a letter of intent to acquire Card Universal, as discussed in Note 1 above. Mr. Zwebner advanced certain funds to the Company, of which $11,368 was outstanding and payable to him at September 30, 2003. Furthermore, Mr. Zwebner assumed a liability owing to the Company from a third party, resulting in an account receivable, stockholder of $93,500. As discussed in Note 4, the Company entered into a three year consulting agreement with Overseas Communications Limited ("Overseas") on November 2, 2001, for Mr. Michael Zwebner to act as Chairman and CEO of the Company. The Agreement calls for a monthly payment of $20,000, payable in cash or the Company's common stock. For the fiscal years ended September 30, 2003 and 2002, the Company paid $80,000 and $20,000 in cash, respectively, and issued 3,160,742 and 365,966 shares of common stock, respectively, under this agreement. Mr. Zwebner is a shareholder of Overseas. During fiscal 2003, the Company paid $6,963 to its stock registrar, The Nevada Agency and Trust Company (NATCO). Alexander Walker Jr, the Company's Corporate Secretary and a Director, is the Chairman and a shareholder of NATCO. Mr. Walker also received 500,000 shares of the Company's stock as compensation for legal services. Mr. Curt Orgil, the Company's Treasurer and a Director, received 200,000 shares of the Company's stock as compensation for financial services. NOTE 11 - RESEARCH AND DEVELOPMENT COSTS The Company does not capitalize costs for improvement or refinement of existing products. Product development expenses charged against earnings were $62,333 in the fiscal year ended September 30 2003. F-23 Universal Communication Systems, Inc. and Subsidiaries Notes to the Consolidated Financial Statements September 30, 2003 NOTE 12 - PATENTS Intangibles consist of $300,064 of goodwill allocated to patents, related to the Millennium acquisition (see Note 1), and $306,650 of patent and related license costs, $300,000 of which relates to the acquisition of the AirWater patent licenses from J.J. Reidy (also see Note 3), and $6,650 of which relates to the Company's distributed wireless call processing (DWCP) system. The Company has chosen to amortize the cost of the patents and patent licenses using the units- of-production method. No amortization is recognized during fiscal 2003 on the Millennium patents, because they were acquired at the end of the year. No amortization is recognized during fiscal 2003 on the AirWater and DWCP patents, because no units were sold. No reasonable estimate of future amortization costs can be made at this time. With the Company's adoption of SFAS No. 142, intangible assets will be tested for impairment annually, and will be tested for impairment between annual tests if an event occurs that would indicate that the carrying amount may be impaired. The amount of the impairment loss is calculated by the excess of the asset's carrying value over its fair value. Management has analyzed the patents and licenses, and has determined that there is no impairment at this time. NOTE 13 - NOTES RECEIVABLE The Company's investment in notes receivable consists solely of demand notes maturing in less than one year, in the amount of $116,782. Investments with maturities of less than one year are classified as short-term investments. These investments are carried at cost (which approximates fair value), with an interest rate of 10% per annum. NOTE 14 - LIABILITIES FROM DISCONTINUED OPERATIONS This amount of $946,794 represents expenses incurred before 9/30/01, in the normal course of business, at the time when the Company was engaged in developing and providing of wireless broadband internet services. While the Company is currently in the process of renegotiating or settling these liabilities, it is not possible to determine at this time if, and to what degree, it will be successful in doing so. Therefore, it is not practicable or cost effective to develop any estimates of fair value (SFAS No. 107). NOTE 15 - SUBSEQUENT EVENTS On December 15, 2003, the Company tentatively agreed to acquire GiraSOLAR BV, a Dutch holding company with 2 subsidiaries, Stroomwerk Energy and Solar Service Buro, both involved in the photo-voltaic solar industry. The Company is in the process of conducting its due diligence in connection with this proposed acquisition. F-24 EX-10.14 2 dorit_ex1014.txt CONSULTING AGREEMENT EXHIBIT 10.14 CONSULTING AGREEMENT THIS CONSULTING AGREEMENT (the "Agreement") dated as of September 29, 2003 (the "Execution Date"), is entered into by and between TOU Millennium Electric Limited, an Israeli limited company (the "Company"), and Dorit Elazari (the "Consultant"). WHEREAS, the parties desire to set forth in this Agreement the terms and conditions under which Consultant will provide consulting services for the Company regarding general consulting work in Israel and worldwide relating to solar power and related business. (the "Project"). NOW THEREFORE, in consideration of the mutual covenants contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree that the foregoing preliminary statement is true and further agree as follows: AGREEMENT 1. Consultant's Duties. The Company hereby retains Consultant to perform, and Consultant shall perform all advisory and consultative services that the Company's Board of Directors shall from time to time reasonably request relating to the Project. The Consultant agrees that he will provide such services for the Company on an exclusive basis and shall not perform the same or similar services for any other person or entity during the Term of this Agreement (as defined below). 2. Remuneration and Expenses. (a) As compensation for the Consultant's services, the Company shall pay the Consultant a total aggregate amount of US $118,000 in 5 monthly installments of $22,000 each (the "Monthly Fee") and one final installment of US $8,000 (the "Final Fee") (collectively the "Consulting Fee"). The first Monthly Fee payment shall be made on the Execution Date, and thereafter on the first business day of each consecutive month for five months after the execution hereof. The Final Fee shall be paid on the final day of the Term, as defined below. (b) The Company shall pay for or reimburse Consultant for all reasonable, necessary and ordinary expenses incurred in the performance of the Consultant's services. Such reimbursement is subject to the prior written approval by the Company. 3. Control by Company. Consultant agrees that the Company shall have the unlimited right to supervise and control Consultant and direct Consultant during the provision of the consulting services. 4. Term of Agreement. Unless terminated earlier under the provisions of this Agreement, the term of this Agreement shall be for a period of 6 months (the "Term") commencing on the Execution Date. 1 5. Termination. The Company may terminate the Consultant for willful violation of the terms and conditions of this Agreement. 6. Confidential Information. Consultant acknowledges that as a result of his engagement with the Company, Consultant will acquire knowledge of and may make use of certain information which is of a special and unique nature which includes, but is not limited to, such matters as the Company's trade secrets, systems, procedures, manuals, confidential reports, and lists of customers or clients, which are deemed for all purposes confidential and proprietary, as well as the nature and type of services the Company renders, the equipment and methods used by the Company or the customers or clients of the Company, and the fees that customers or clients pay to the Company (collectively, the "Confidential Information"). Consultant acknowledges that the Confidential Information is a valuable, special and unique asset of the Company which is essential to the continuation of the Business. As used herein, the "Business" of the Company includes the research, development, sale and marketing of products and services relating to solar power and related technologies or any other business engaged in by the Company during the term of Consultant's engagement with the Company. A presumption shall exist that all information relating to the Business is Confidential Information and such presumption may be rebutted only by a demonstration that such information is common knowledge in the industry or business community in which the Company is engaged. The parties acknowledge that the normal business affairs of the Company will be seriously disrupted if the Company were required during the course of business to identify any specific information or document as Confidential Information, and accordingly, the Company is under no duty to Consultant during the course of business to identify any information or document as Confidential Information. 7. Confidentiality. Consultant agrees to keep in strict secrecy and confidence any and all Confidential Information of which Consultant knows of or to which Consultant has access that has not been publicly disclosed and is not a matter of common knowledge with respect to the Business. Consultant will not, without the Company's prior written consent, disclose any such Confidential Information to any third person or entity. 8. Restrictive Covenants. The following covenants against solicitation and competition shall be effective for a period of 12 months following the last day of the later of: (i) the expiration of the Term of this Agreement; or (ii) any period for which Consultant is receiving compensation from the Company (the "Restriction Period"). The Restriction Period shall be extended by the length of any period during which Consultant is in breach of the terms of this Section 8. In consideration of this Agreement, and in light of the understandings of the parties set forth herein, Consultant agrees that during the Restriction Period, Consultant will not do any of the following (the "Restrictive Covenants"): (a) during the term of Consultant's engagement with the Company, engage, directly or indirectly, in any business which is the same or similar to the Business or is competitive with the Business of the Company (a "Competitive Business") within Israel (the "Restrictive Territory"), or in any market in which the Company is then currently or has during the term of this Agreement been engaged in the Business; 2 (b) without the prior written consent of the Company, directly or indirectly own an interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in or be connected with, as a partner, member, stockholder, consultant or otherwise, any person that engages in any Competitive Business within the Restrictive Territory; provided, however, that, for the purposes of this Agreement, ownership of securities having no more than five percent of the outstanding voting power of any person engaged in a Competitive Business or Businesses which are listed on any national securities exchange or traded actively in the national over-the-counter market shall not be deemed to be in violation of this Agreement so long as the person owning such securities has no other connection or relationship with such competitor; (c) solicit or attempt to solicit any present, past or pending customer of the Company; or (d) hire or attempt to hire or entice any employee, broker, vendor or other agent or business affiliate of the Company. 9. Reasonableness of Restrictions. (a) Each party to this Agreement has independently consulted with his counsel and after such consultation agrees that the covenants set forth in this Agreement are reasonable and proper. Accordingly, Consultant agrees that the Restrictive Covenants above are no greater than are reasonably necessary to protect the Company in its legitimate interests. In light of these understandings, Consultant and the Company agree that the covenants set forth hereinabove are reasonable and will not unduly restrict Consultant in securing other employment in the event of such termination. (b) The Company and Consultant further agree that if any Restrictive Covenants are held in a final judgment or determination of any court of law or administrative agency of competent jurisdiction to be over-broad or otherwise unenforceable in any respect, such provision shall be deemed to be amended and shall be binding upon Consultant to the maximum extent deemed reasonable and enforceable by such court or administrative agency. Without limitation of the foregoing, the parties agree that in the event that any of the Restrictive Covenants are deemed to be unreasonable, the remaining Restrictive Covenants shall be enforced. 10. Specific Performance. The parties agree that damages at law will be an insufficient remedy to the Company in the event Consultant violates the Restrictive Covenants, therefore it is agreed that the Company, in addition to the other remedies available, shall be entitled, as a matter of right, to injunctive relief in any court of competent jurisdiction, plus reasonable attorneys' fees for securing such relief. 3 11. Independent Contractor Status. The relationship between Company and Consultant shall be solely as independent contractor and neither party shall be deemed a joint venturer, partner agent, representative or employee of the other. Consultant is solely responsible for securing, at his sole cost, Workers' Compensation insurance, disability benefits insurance and any other insurance as may be required by law. The Company will not provide, nor will it be responsible for, benefits for Consultant. Any such benefits, if provided by Consultant himself, including, but not limited to, health insurance, office space, paid vacations, paid holidays, sick leave or disability insurance coverage of whatever nature, shall be secured and paid for by Consultant. 12. Tax Duties & Responsibilities. Consultant is responsible for the payment of all required taxes and any other fees, charges, licenses or other payments required by law. 13. Binding Effect; Assignment. The terms and provisions of this Agreement shall be binding upon the parties and their heirs, legal representatives, successors, and assigns. Consultant shall not assign its rights hereunder without the prior written consent of Company, which such consent, due to the specialized nature of the work being performed, may be withheld in Company's sole discretion. 14. Entire Agreement. This Agreement, together with that certain Stock Purchase Agreement between Universal Communication Systems, Inc., Ami R. Elazari and Catlan Development Limited executed on August 22, 2003, contains the entire understanding of the parties and merges and supersedes any prior or contemporaneous agreements between the parties relating to this Agreement's subject matter. This Agreement may not be modified or terminated orally, and no modification, termination or attempted waiver of any of the provisions shall be binding unless in writing and signed by the party against whom it is sought to be enforced. 15. Notices. Whenever any notice, demand or request is required or permitted under this Agreement, that notice, demand or request shall be either hand-delivered in person or sent by registered or certified mail, postage prepaid, delivered via overnight courier, to the addresses below or to any other address that either party may specify by notice to the other party. Neither party shall be obligated to send more than one notice to the other party and no notice of a change of address shall be effective until received by the other party. A notice shall be deemed received upon hand delivery, or one business day after dispatch by overnight courier. To Consultant: ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- To Company: TOU Millennium Electric, Inc. Hasadna 7 P.O. Box 3014 Rannana Industrial Zone Israel 43650 Facsimile: 972-9-7407511 Attention: Ami Elazari 4 With copy to: Universal Communication Systems, Inc. 407 Lincoln Road, Suite 6K Miami Beach, FL 33139 Facsimile: (305) 672-1965 Attention: Michael J. Zwebner 16. Headings. The headings of the paragraphs of this Agreement have been inserted for convenience of reference only and shall in no way restrict or otherwise affect the construction of the terms or provisions of this Agreement. References in this Agreement to Sections are to the sections of this Agreement. 17. Severability. The invalidity or unenforceability of any one or more of the words, phrases, sentences, clauses or sections contained in this Agreement shall not affect the validity or enforceability of the remaining provisions of this Agreement or any part of any provision, all of which are inserted conditionally on their being valid in law, and in the event that any one or more of the words, phrases, sentences, clauses or sections contained in this Agreement shall be declared invalid or unenforceable, this Agreement shall be construed as if such invalid or unenforceable word or words, phrase or phrases, sentence or sentences, clause or clauses, or section or sections had not been inserted or shall be enforced as nearly as possible according to their original terms and intent to eliminate any invalidity or unenforceability. 18. Governing Law. This Agreement is made and executed and shall be governed by the laws of Israel, without regard to its conflicts of laws principles. 19. Arbitration. Any controversy or claim arising out of or related to this Agreement shall be settled by arbitration in accordance with the rules and under the the commercial arbitration rules then pertaining of the London Center for International Arbitration ("LCIA"); and any arbitration shall be conducted in Tel Aviv, Israel. The arbitrator(s) shall make written findings of fact and conclusions of law. The prevailing party (as determined by the arbitrator(s)) shall be entitled to all legal fees and associated costs 20. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. 21. Additional Acts. Employee and the Company each agrees to execute, acknowledge and deliver all further instruments, agreements or documents and do all further acts that are necessary or expedient to carry out this Agreement's intended purposes. 22. Construction. This Agreement shall be construed without regard to any presumption or other rule requiring construction against the party causing this Agreement to be drafted, including any presumption of superior knowledge or 5 responsibility based upon a party's business or profession or any professional training, experience, education or degrees of any member, agent, officer or employee of any party. If any words in this Agreement have been stricken out or otherwise eliminated (whether or not any other words or phrases have been added) and the stricken words initialed by the party against whom the words are construed, this Agreement shall be construed as if the words so stricken out or otherwise eliminated were never included in this Agreement and no implication or inference shall be drawn from the fact that those words were stricken out or otherwise eliminated. [SIGNATURES BEGIN ON FOLLOWING PAGE] IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. COMPANY: By: /s/ Michael J. Zwebner ----------------------- Name: Michael J. Zwebner Title: Chairman CONSULTANT: /s/ Dorit Elazari ----------------- Dorit Elazari 6 EX-10.15 3 moore_ex1015.txt CONSULTING AGREEMENT EXHIBIT 10.15 CONSULTING AGREEMENT THIS CONSULTING AGREEMENT (the "Agreement") dated as of September 29, 2003 (the "Execution Date"), is entered into by and between TOU Millennium Electric Limited, an Israeli limited company (the "Company"), and Joseph Moore (the "Consultant"). WHEREAS, the parties desire to set forth in this Agreement the terms and conditions under which Consultant will provide consulting services for the Company regarding general consulting work in Israel and worldwide relating to solar power and related business. (the "Project"). NOW THEREFORE, in consideration of the mutual covenants contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree that the foregoing preliminary statement is true and further agree as follows: AGREEMENT 1. Consultant's Duties. The Company hereby retains Consultant to perform, and Consultant shall perform all advisory and consultative services that the Company's Board of Directors shall from time to time reasonably request relating to the Project. The Consultant agrees that he will provide such services for the Company on an exclusive basis and shall not perform the same or similar services for any other person or entity during the Term of this Agreement (as defined below). 2. Remuneration and Expenses. (a) As compensation for the Consultant's services, the Company shall pay the Consultant a total aggregate amount of US $37,000 payable in two installments of $18,500 each (the "Consulting Fee"). The first installment payment shall be made on December , 2003, and the final installment payment shall be paid on the final day of the Term, as defined below. (b) The Company shall pay for or reimburse Consultant for all reasonable, necessary and ordinary expenses incurred in the performance of the Consultant's services. Such reimbursement is subject to the prior written approval by the Company. 3. Control by Company. Consultant agrees that the Company shall have the unlimited right to supervise and control Consultant and direct Consultant during the provision of the consulting services. 4. Term of Agreement. Unless terminated earlier under the provisions of this Agreement, the term of this Agreement shall be for a period of 6 months (the "Term") commencing on the Execution Date. 5. Termination. The Company may terminate the Consultant for willful violation of the terms and conditions of this Agreement. 1 6. Confidential Information. Consultant acknowledges that as a result of his engagement with the Company, Consultant will acquire knowledge of and may make use of certain information which is of a special and unique nature which includes, but is not limited to, such matters as the Company's trade secrets, systems, procedures, manuals, confidential reports, and lists of customers or clients, which are deemed for all purposes confidential and proprietary, as well as the nature and type of services the Company renders, the equipment and methods used by the Company or the customers or clients of the Company, and the fees that customers or clients pay to the Company (collectively, the "Confidential Information"). Consultant acknowledges that the Confidential Information is a valuable, special and unique asset of the Company which is essential to the continuation of the Business. As used herein, the "Business" of the Company includes the research, development, sale and marketing of products and services relating to solar power and related technologies or any other business engaged in by the Company during the term of Consultant's engagement with the Company. A presumption shall exist that all information relating to the Business is Confidential Information and such presumption may be rebutted only by a demonstration that such information is common knowledge in the industry or business community in which the Company is engaged. The parties acknowledge that the normal business affairs of the Company will be seriously disrupted if the Company were required during the course of business to identify any specific information or document as Confidential Information, and accordingly, the Company is under no duty to Consultant during the course of business to identify any information or document as Confidential Information. 7. Confidentiality. Consultant agrees to keep in strict secrecy and confidence any and all Confidential Information of which Consultant knows of or to which Consultant has access that has not been publicly disclosed and is not a matter of common knowledge with respect to the Business. Consultant will not, without the Company's prior written consent, disclose any such Confidential Information to any third person or entity. 8. Restrictive Covenants. The following covenants against solicitation and competition shall be effective for a period of 12 months following the last day of the later of: (i) the expiration of the Term of this Agreement; or (ii) any period for which Consultant is receiving compensation from the Company (the "Restriction Period"). The Restriction Period shall be extended by the length of any period during which Consultant is in breach of the terms of this Section 8. In consideration of this Agreement, and in light of the understandings of the parties set forth herein, Consultant agrees that during the Restriction Period, Consultant will not do any of the following (the "Restrictive Covenants"): (a) during the term of Consultant's engagement with the Company, engage, directly or indirectly, in any business which is the same or similar to the Business or is competitive with the Business of the Company (a "Competitive Business") within Israel (the "Restrictive Territory"), or in any market in which the Company is then currently or has during the term of this Agreement been engaged in the Business; (b) without the prior written consent of the Company, directly or indirectly own an interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in or be connected with, 2 as a partner, member, stockholder, consultant or otherwise, any person that engages in any Competitive Business within the Restrictive Territory; provided, however, that, for the purposes of this Agreement, ownership of securities having no more than five percent of the outstanding voting power of any person engaged in a Competitive Business or Businesses which are listed on any national securities exchange or traded actively in the national over-the-counter market shall not be deemed to be in violation of this Agreement so long as the person owning such securities has no other connection or relationship with such competitor; (c) solicit or attempt to solicit any present, past or pending customer of the Company; or (d) hire or attempt to hire or entice any employee, broker, vendor or other agent or business affiliate of the Company. 9. Reasonableness of Restrictions. (a) Each party to this Agreement has independently consulted with his counsel and after such consultation agrees that the covenants set forth in this Agreement are reasonable and proper. Accordingly, Consultant agrees that the Restrictive Covenants above are no greater than are reasonably necessary to protect the Company in its legitimate interests. In light of these understandings, Consultant and the Company agree that the covenants set forth hereinabove are reasonable and will not unduly restrict Consultant in securing other employment in the event of such termination. (b) The Company and Consultant further agree that if any Restrictive Covenants are held in a final judgment or determination of any court of law or administrative agency of competent jurisdiction to be over-broad or otherwise unenforceable in any respect, such provision shall be deemed to be amended and shall be binding upon Consultant to the maximum extent deemed reasonable and enforceable by such court or administrative agency. Without limitation of the foregoing, the parties agree that in the event that any of the Restrictive Covenants are deemed to be unreasonable, the remaining Restrictive Covenants shall be enforced. 10. Specific Performance. The parties agree that damages at law will be an insufficient remedy to the Company in the event Consultant violates the Restrictive Covenants, therefore it is agreed that the Company, in addition to the other remedies available, shall be entitled, as a matter of right, to injunctive relief in any court of competent jurisdiction, plus reasonable attorneys' fees for securing such relief. 11. Independent Contractor Status. The relationship between Company and Consultant shall be solely as independent contractor and neither party shall be deemed a joint venturer, partner agent, representative or employee of the other. Consultant is solely responsible for securing, at his sole cost, Workers' Compensation insurance, disability benefits insurance and any other insurance as may be required by law. The Company will not provide, nor will it be responsible for, benefits for Consultant. Any such benefits, if provided by Consultant himself, including, but not limited to, health insurance, office space, paid vacations, paid holidays, sick leave or disability insurance coverage of whatever nature, shall be secured and paid for by Consultant. 3 12. Tax Duties & Responsibilities. Consultant is responsible for the payment of all required taxes and any other fees, charges, licenses or other payments required by law. 13. Binding Effect; Assignment. The terms and provisions of this Agreement shall be binding upon the parties and their heirs, legal representatives, successors, and assigns. Consultant shall not assign its rights hereunder without the prior written consent of Company, which such consent, due to the specialized nature of the work being performed, may be withheld in Company's sole discretion. 14. Entire Agreement. This Agreement, together with that certain Stock Purchase Agreement between Universal Communication Systems, Inc., Ami R. Elazari and Catlan Development Limited executed on August 22, 2003, contains the entire understanding of the parties and merges and supersedes any prior or contemporaneous agreements between the parties relating to this Agreement's subject matter. This Agreement may not be modified or terminated orally, and no modification, termination or attempted waiver of any of the provisions shall be binding unless in writing and signed by the party against whom it is sought to be enforced. 15. Notices. Whenever any notice, demand or request is required or permitted under this Agreement, that notice, demand or request shall be either hand-delivered in person or sent by registered or certified mail, postage prepaid, delivered via overnight courier, to the addresses below or to any other address that either party may specify by notice to the other party. Neither party shall be obligated to send more than one notice to the other party and no notice of a change of address shall be effective until received by the other party. A notice shall be deemed received upon hand delivery, or one business day after dispatch by overnight courier. To Consultant: ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- To Company: TOU Millennium Electric, Inc. Hasadna 7 P.O. Box 3014 Rannana Industrial Zone Israel 43650 Facsimile: 972-9-7407511 Attention: Ami Elazari --------- With copy to: Universal Communication Systems, Inc. 407 Lincoln Road, Suite 6K Miami Beach, FL 33139 Facsimile: (305) 672-1965 Attention: Michael J. Zwebner 4 16. Headings. The headings of the paragraphs of this Agreement have been inserted for convenience of reference only and shall in no way restrict or otherwise affect the construction of the terms or provisions of this Agreement. References in this Agreement to Sections are to the sections of this Agreement. 17. Severability. The invalidity or unenforceability of any one or more of the words, phrases, sentences, clauses or sections contained in this Agreement shall not affect the validity or enforceability of the remaining provisions of this Agreement or any part of any provision, all of which are inserted conditionally on their being valid in law, and in the event that any one or more of the words, phrases, sentences, clauses or sections contained in this Agreement shall be declared invalid or unenforceable, this Agreement shall be construed as if such invalid or unenforceable word or words, phrase or phrases, sentence or sentences, clause or clauses, or section or sections had not been inserted or shall be enforced as nearly as possible according to their original terms and intent to eliminate any invalidity or unenforceability. 18. Governing Law. This Agreement is made and executed and shall be governed by the laws of Israel, without regard to its conflicts of laws principles. 19. Arbitration. Any controversy or claim arising out of or related to this Agreement shall be settled by arbitration in accordance with the rules and under the the commercial arbitration rules then pertaining of the London Center for International Arbitration ("LCIA"); and any arbitration shall be conducted in Tel Aviv, Israel. The arbitrator(s) shall make written findings of fact and conclusions of law. The prevailing party (as determined by the arbitrator(s)) shall be entitled to all legal fees and associated costs 20. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. 21. Additional Acts. Employee and the Company each agrees to execute, acknowledge and deliver all further instruments, agreements or documents and do all further acts that are necessary or expedient to carry out this Agreement's intended purposes. 22. Construction. This Agreement shall be construed without regard to any presumption or other rule requiring construction against the party causing this Agreement to be drafted, including any presumption of superior knowledge or responsibility based upon a party's business or profession or any professional training, experience, education or degrees of any member, agent, officer or employee of any party. If any words in this Agreement have been stricken out or otherwise eliminated (whether or not any other words or phrases have been added) and the stricken words initialed by the party against whom the words are construed, this Agreement shall be construed as if the words so stricken out or otherwise eliminated were never included in this Agreement and no implication or inference shall be drawn from the fact that those words were stricken out or otherwise eliminated. [SIGNATURES BEGIN ON FOLLOWING PAGE] 5 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. COMPANY: By: /s/ Michael J. Zwebner ----------------------- Name: Michael J. Zwebner Title: Chairman CONSULTANT: /s/ Joseph Moore ---------------- Joseph Moore 6 EX-10.16 4 otzarot_ex1016.txt BUSINESS ADVISORY AGREEMENT EXHIBIT 10.16 BUSINESS ADVISORY AND CONSULTING SERVICES AGREEMENT This Agreement made as of the 18 day of August, 2003, by and between Otzarot Otzarot Nechasim Vehashkaot LTD an Israeli Corporation (hereinafter referred to as "Otzarot") whose principal office is located at 35 Jabotinsky st, Ramat Gan Israel 52511, and Universal Communication Systems, Inc. a publicly traded Company (symbol: UCSY) (hereinafter referred to as "UCSY "), whose principal offices are located at 407 Lincoln Road, Suite 6K. Miami Beach, FL 33139 and whose Chief Executive Officer is michael Zwebner. WITNESSETH: WHEREAS, Otzarot is a private venture capital Consulting firm that has expertise in Completing mergers and acquisitions and rendering strategic business advice including leveraged based buyouts. WHEREAS, UCSY wishes to retain Otzarot on the terms and Conditions hereinafter set forth; NOW, THEREFORE, in Consideration of the aforesaid, it is hereby agreed by and between the parties as follows: ARTICLE I - SCOPE OF SERVICES USCY has indicated and instructs Otzarot to originate, develop, structure, negotiate and advise upon appropriate joint venture or partnership deals or merger and acquisition deals or other forms of business combinations involving UCSY's business activities, and the expansion thereof, into other countries and new and other activities. ARTICLE II - PERIOD OF PERFORMANCE The term of this Agreement shall initially be for twelve months Commencing on the date of this agreement. At the Conclusion of the twelve month, this Agreement may be extended by the parties in writing. ARTICLE III - INITIAL FEE BASED COMPENSATION There will be no initial Compensation for the performance of the services described above. ARTICLE IV - CONTINGENCY BASED COMPENSATION For successfully closing of appropriate joint venture or partnership deal or merger and acquisition deal or other forms of business combinations, through Otzarot's efforts, with its direct or indirect sources, Otzarot shall receive a success fee equal to 10% of UCSY's free trading stocks of all stocks issued as part of the subject deal and 10% of all other forms of payment as part of the subject deal. Otzarot will also be entitled to the success fee described above if, within three years of the date of this letter (or the date of any extension hereof), (i) a Proposed Transaction is Completed, or (ii) UCSY enters into a definitive agreement which subsequently results in a Proposed Transaction, and in either case such Transaction is (a) with a party or parties introduced by Otzarot to the Company or (b) a transaction in respect to which Otzarot has 1 provided assistance in structuring, Coordinating and/or negotiating the specific transaction. ARTICLE V - EXPENSES EXPENSE REIMBURSEMENT: Otzarot shall be reimbursed for expenses as provided herein. UCSY shall prepay extraordinary Travel Expenses it approves. In the event any item on the Expense Reimbursement bill causes UCSY a problem, then the parties shall promptly negotiate a resolution of the matter in good faith. Any expenditure over one thousand dollars must be approved in writing in advance by an officer of UCSY . Expenses eligible for reimbursement hereunder include, but are not limited to, production, road show Costs, Copying and travel and entertainment expenses. Outside legal, accounting and other professional service expenses that Otzarot incurs must be approved in advance in writing and are subject to reimbursement as set forth in this Agreement. Outside Consultants, legal or accounting services retained by UCSY shall be paid by UCSY . ARTICLE VI - COMPANY INFORMATION a. Since Otzarot must at all times rely upon the accuracy and the Completeness of information supplied to it by officers, directors, agents and employees of UCSY , in any proceeding or suit which may arise out of the relationship to Otzarot, UCSY agrees to indemnify and hold Otzarot harmless for any false or misleading information which was provided to Otzarot by UCSY . b. No party to this agreement shall be liable for any damages for failure to perform its obligations hereunder due to any cause beyond their Control. ARTICLE VIL - CONFIDENTIALITY Each party agrees that during the course of this Agreement, information that is confidential or of a proprietary nature may be disclosed to the other party, including, but not limited to, product and business plans, software, technical processes and formulas, source codes, product designs, sales, costs and other unpublished financial information, advertising revenues, usage rates, advertising relationships, projections, and marketing data ("Confidential Information"). Each party shall use confidential Information only for the purposes contemplated by this Agreement, and shall not disclose it to any third party except with the prior written consent of the disclosing party. Confidential Information shall not include information that the receiving party can demonstrate (a) is, as of the time of its disclosure, in the public domain, or thereafter becomes part of the public domain through a source other than the receiving party, (b) was known to the receiving party as of the time of its disclosure, (c) is independently developed by the receiving party. ARTICLE VII - INDEMNIFICATION (A) UCSY agrees that it will indemnify and hold harmless Otzarot, its directors, employees, agents and Controlling persons (each being an "Indemnified Party') from and against any and all losses, claims, damages, liabilities and expenses, joint or several (including all reasonable fees of counsel and other expenses incurred by any Indemnified Party in connection with the preparation for, or defense of, any claim, action or proceeding, whether or not resulting in any liability), to which such Indemnified Party may become subject under any applicable federal or state law, or otherwise, caused by or arising out of Otzarot's acting for UCSY pursuant to this agreement, except that UCSY will not be liable hereunder to the extent that any loss, claim, damage, liability or 2 expense is found to have resulted primarily from Otzarot's. negligence or bad faith. (B) OTZAROT. Otzarot agrees to indemnify, defend, and shall hold harmless UCSY , its directors, employees and agents, and defend any action brought against same with respect to any claim, demand, cause of action, debt or liability, including reasonable attorneys' fees, to the extent that such an action arises out of the conduct of Otzarot or any unauthorized oral or written representation made by Otzarot or its agents, employees or affiliates in connection with the offer or sale of securities of UCSY or any actions by Otzarot or any such person in violation of a Act or any Blue Sky law. (C) NOTICE. In claiming an indemnification hereunder, the indemnified party shall promptly provide the indemnifying party with written notice of any claim, which the indemnified party believes falls within the scope of the foregoing paragraphs. The indemnified party may, at its expense, assist in the defense if it so chooses, provided that the indemnifying party shall control such defense, and all negotiations relative to the settlement of any such claim. Any settlement intended to bind the indemnified party shall not be final without the indemnified party's written consent, which shall not be unreasonably withheld. ARTICLE IX - ASSIGNMENT Otzarot shall not delegate or subcontract its obligations hereunder without the prior written consent of UCSY . ARTICLE XI - ARBITRATION/JURISDICTION OF ARBITRATION PANEL Any controversy or claim, including matters seeking an injunction, arising out of or relating to this Agreement or the breach thereof which is not settled between the signatories themselves, shall be settled by an independent arbitrator, mutually acceptable to both parties or if agreement cannot be reached through an arbitrator selected by the American Arbitration Association ("AAA"). Notwithstanding any rules of the AAA the matter may be heard upon application of a party telephonically upon two days notice for an injunction and ten days notice otherwise with both parties required to waive their personal appearances and appear ear via telephone. It is the intention of this provision not to cause a party and its it witnesses to be disadvantaged by having to travel great distances to have its cause heard. This Agreement shall in all respects be interpreted and construed under the laws of the District of Columbia. Jurisdiction for any arbitration shall lie in the District of Columbia. ARTICLE X - NOTICES. Any notice which is required or desired under this Agreement shall be given in writing and may be sent by personal delivery, fax or by mail (either United States mail, postage prepaid, or Federal Express or similar generally recognized overnight carrier),' addressed as follows (subject to the right to designate a different address by notice similarly given): 3 To Universal Communication Systems, Inc: To: Otzarot Tarshish Nechasim Vehashkaot LTD 35 Jabotinsky St. Ramat Gan, Israel 52511, Tel 972-3-501574. Fax 972 3 6195240 Email qsecure@netvision.net.il ARTICLE XIII - MISCELLANEOUS This Agreement establishes an "independent contractor" relationship between Otzarot and UCSY . Otzarot understands that UCSY is a publicly traded company and that it may occur that Otzarot will come into confidential information. Otzarot shall ensure that its employees, agents or delegates will maintain the confidentiality of UCSY and not violate any insider trading rules or any other rules of the SEC, NASD, or individual states in their conduct under this agreement. Otzarot shall not release any press releases alluding to UCSY without the express written permission of UCSY . Only an instrument in writing executed by all the parties hereto may amend this Agreement. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof. There are no promises, agreements, conditions, undertakings, understandings, warranties, covenants or representations, oral or written, express or implied, between them with respect to this Agreement or the matters described in this Agreement, except as set forth in this Agreement. Any such negotiations, promises, or understandings shall not be used to interpret or constitute this Agreement. This Agreement may be executed in counterparts and a facsimile copy bearing the signature of a party shall be the same for all purposes as an original. It supersedes all prior or contemporaneous communications, representations and agreements, whether oral or written, with respect to the subject matter hereof. No oral agreements hereinafter made between the parties shall be binding on either party unless reduced to writing and signed by an authorized officer of the party so bound. 4 IN WITNESS THEREOF, the parties have executed this Agreement on the dates set forth above their respective signatures. Date: Date: --------------------------------- ------------------------------- I accept the terms of this Agreement. I accept the terms of this Agreement. - -------------------------------------- ------------------------------------ By: /s/ Michael J. Zwebner By: /s/ Lavi Krasney Universal Communication Systems, Inc. Otzarot Tarshish Nechasim President & CEO Vehashkaot LTD, President & CEO 5 EX-21.1 5 sub-exh211.txt SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF REGISTRANT Name State Ownership --------------------- -------- --------- Airwater Corporation Florida 100% Airwater Patents Corp Florida 100% Digital Way S. A. Peru 27% Millennium Electric TOU, Ltd. Israel 100% Solar Style, Inc. (USA) Florida 100% Millennium Electric (USA) Florida 50% Solar One, Inc. Florida 100% Solar Style Ltd. Israel 50% EX-31.1 6 certzwebner-311.txt CERTZWEBNER Exhibit 31.1 ------------ CERTIFICATION I, Michael J. Zwebner, certify that: 1. I have reviewed this amendment to the annual report on Form 10-KSB of Universal Communication Systems, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: June 29, 2004 /s/ Michael J. Zwebner ------------------------------------ Michael J. Zwebner Chairman and Chief Executive Officer EX-31.2 7 certorgil-312.txt CERTORGIL Exhibit 31.2 ------------ CERTIFICATION I, Curtis Orgil, certify that: 1. I have reviewed this amendment to the annual report on Form 10-KSB of Universal Communication Systems, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: June 29, 2004 /s/ Curtis Orgil ----------------------------------- Curtis Orgil Chief Financial Officer (Principal Financial and Accounting Officer) EX-32.1 8 certzwebner-321.txt CERTZWEBNER Exhibit 32.1 ------------ Certification pursuant to 18 U.S.C. Section 1350, As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Amended Annual Report on Form 10-KSB/A for the year ended September 30, 2003 of Universal Communication Systems, Inc. (the "Company") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in such report. Date: June 29, 2004 /s/ Michael J. Zwebner -------------------------------- Michael J. Zwebner Chairman and Chief Executive Officer EX-32.2 9 certorgil-322.txt CERTORGIL Exhibit 32.2 ------------ Certification pursuant to 18 U.S.C. Section 1350, As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Amended Annual Report on Form 10-KSB/A for the year ended September 30, 2003 of Universal Communication Systems, Inc. (the "Company") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in such report. Date: June 29, 2004 /s/ Curtis Orgil -------------------------------- Curtis Orgil Chief Financial Officer, (Principal Financial and Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----