-----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, ScWjcwO1uBNzLf0jcTuYfIEximJ+tWhP4Ujomr0IsU7vE9lNWnwl03K2Q3din3+6 O+p3xXEx/Gvb0qCWD9gWow== 0001116502-05-000306.txt : 20050222 0001116502-05-000306.hdr.sgml : 20050222 20050222153419 ACCESSION NUMBER: 0001116502-05-000306 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050222 DATE AS OF CHANGE: 20050222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIVERSAL COMMUNICATION SYSTEMS INC CENTRAL INDEX KEY: 0001098207 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 860887822 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-30405 FILM NUMBER: 05631090 BUSINESS ADDRESS: STREET 1: 407 LINCOLN ROAD STREET 2: SUITE 6K CITY: MIAMI STATE: FL ZIP: 33139 BUSINESS PHONE: 5108396100 MAIL ADDRESS: STREET 1: 407 LINCOLN ROAD STREET 2: SUITE 6K CITY: MIAMI STATE: FL ZIP: 33139 FORMER COMPANY: FORMER CONFORMED NAME: WORLD WIDE WIRELESS COMMUNICATIONS INC DATE OF NAME CHANGE: 20000124 10QSB 1 universal10qsb.txt QUARTERLY REPORT U.S. SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: December 31, 2004 ------------------ [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO _________ Commission file number: 000-30405 Universal Communication Systems, Inc. ---------------------------------------- (Exact name of small business issuer as specified in its charter) Nevada 4812 860887822 (State or jurisdiction (Primary Standard Industrial (IRS Employer of incorporation Identification No.) Classification or organization) Code No.) MICHAEL J. ZWEBNER 407 Lincoln Rd, Suite 12F Miami Beach, FL 33139 ----------------------- (Address of principal executive offices) (305) 672-6344 (Issuer's telephone number) (Issuer's former telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date. Class Outstanding as of February 14, 2005 ----- ----------------------------------- Common Stock, $.001 par value 250,149,590 Transitional Small Business Disclosure Format: Yes No X ------- -------- TABLE OF CONTENTS PART I FINANCIAL INFORMATION Page ---- Item 1. Consolidated Financial Statements: Balance Sheet - September 30, 2004 and December 31, 2004 3 Statement of Operations for the three months Ended December 31, 2004 and 2003 4 Statement of Cash Flows for the three months Ended December 31, 2004 and 2003 5 Notes to the Financial Statements December 31, 2004 6 Item 2. Management's Discussion and Analysis or Plan of Operations 7 Item 3. Evaluation Of Disclosure Controls And Procedures 11 PART II OTHER INFORMATION Item 1. Legal Proceedings 12 Item 2. Changes in Securities 13 Item 3. Defaults Upon Senior Securities 14 Item 4. Submission of Matters to Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 Item 7. Signatures 16 2 Part I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Universal Communication Systems, Inc. & Subsidiaries Condensed Consolidated Balance Sheets
December 31 September 30, 2004 2004 ------------ ------------ (unaudited) ASSETS Current Assets: Cash & cash equivalents $ 107,073 $ 453,134 Accounts receivable, net 261,329 102,009 Note and other receivable 131,275 128,357 Inventory 128,648 41,994 Prepaid expenses 39,693 65,362 ------------ ------------ Total Current Assets 668,018 790,856 ------------ ------------ Fixed Assets: Furniture and equipment 377,541 446,475 Less: Accumulated depreciation 39,339 34,658 ------------ ------------ Total Fixed Assets, Net 388,202 411,817 ------------ ------------ Other Assets: Patents 525,914 540,914 Goodwill 30,000 30,000 Deposits 55,420 24,133 ------------ ------------ Total Other Assets 611,334 595,047 ------------ ------------ Total Assets $ 1,617,554 $ 1,797,720 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Notes payable $ 60,000 $ 60,000 Accounts payable 240,345 254,012 Accrued expenses 932,702 1,201,987 Due to related parties - 31,744 Liabilities of discontinued operations 946,794 946,794 ------------ ------------ Total Current Liabilities 2,179,841 2,494,537 Long-term Liabilities: Convertible debentures 1,849,337 2,060,374 ------------ ------------ Total Liabilities 4,029,178 4,554,911 ------------ ------------ Commitments and Contingencies -- -- ------------ ------------ Stockholders' Deficit: Preferred stock, par value $.001 per share , 10,000,000 shares authorized, 55,000 and 30,000 shares issued and outstanding 55 30 Common stock, par value $.001 per share, 800,000,000 shares authorized, 236,426,863 and 202,900,000 shares issued and outstanding 236,427 202,900 Additional paid-in capital 33,685,120 32,509,910 Accumulated deficit (36,239,726) (35,376,531) Accounts receivable, shareholder (93,500) (93,500) ------------ ------------ Total Stockholders' Deficit (2,411,624) (2,757,191) ------------ ------------ Total Liabilities and Stockholders' Deficit $ 1,617,554 $ 1,797,720 ============ ============
See notes to condensed financial statements. 3 Universal Communication Systems, Inc. & Subsidiaries Condensed Consolidated Statements of Operations UNAUDITED
Three Months Three Months Ended December 31, Ended December 31, 2004 2003 ------------- ------------- Revenue and other income $ 501,517 $ 177,276 Cost of goods sold (332,912) (14,572) ------------- ------------- Gross margin 168,605 162,704 ------------- ------------- Operating expenses Sales and Marketing 276,258 229,649 Product Development -- 95,904 General and Administrative 721,642 496,536 ------------- ------------- Total Operating Expenses 997,900 822,089 ------------- ------------- Operating income (loss) (829,295) (659,385) Interest income (expense) (79,809) (61,193) ------------- ------------- Net loss $ (909,104) $ (720,578) ============= ============= Basic And Diluted Loss Per Share $ (0.004) $ (0.008) ============= ============= Basic and Diluted Weighted Average Shares Outstanding 205,077,089 91,475,396 ============= =============
See notes to condensed financial statements. 4 Universal Communication Systems, Inc. and Subsidiaries Condensed Statement of Cash Flows UNAUDITED
For the For the Three Months Three Months Ended Ended December 31, December 31, 2004 2003 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $(909,104) $(720,578) Adjustments to reconcile net loss from operations to net cash used by operating activities: Depreciation and amortization expense 19,681 1,796 Interest payable added to principal of debentures 31,966 55,395 Interest added to principal of note payable -- 7,627 Stock issued for services 170,000 241,764 Stock issued for contract settlement 197,478 Accrued interest on note receivable (2,918) -- Changes in operating assets and liabilities: (Increase) in prepaid and other 5,619 (3,879) Decrease in accounts receivable (159,320) 68,873 (Increase) in note receivable -- (222,429) (Increase) in inventory (12,115) (16,425) Increase in note payable -- 7,627 Increase in line of credit -- 15,941 Increase (Decrease) in accrued expenses (148,567) 131,998 Increase (Decrease) in accounts payable (13,666) 29,744 Other 4,472 (14,606) --------- --------- Net Cash (Used) by Operating Activities (827,712) (417,152) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in advances from related parties -- (33,394) Purchase of fixed assets (5,605) (84,065) Other -- (33,504) --------- --------- Net Cash (Used) by Investing Activities (5,605) (150,963) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of common stock 269,000 584,037 Proceeds from the issuance of preferred stock 250,000 -- Decrease in due from related parties (31,744) (43,043) --------- --------- Net Cash Provided by Financing Activities 487,256 540,994) --------- --------- NET (DECREASE) IN CASH AND CASH EQUIVALENTS (346,061) (27,121) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 453,134 144,682 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 107,073 $ 117,561 ========= ========= 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 $ 31,966 $ 55,395 Interest accrued on the note payable, added to the principal of the note $ -- $ 7,627 Dividends accrued on preferred stock $ 7,667 -- Debentures converted to capital stock $ 519,738 $ 560,000
See notes to condensed financial statements. 5 Universal Communication Systems, Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS NOTE 1 - General and Summary of Business and Significant Accounting Policies. Basis of Presentation The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete consolidated financial statements included in this Form 10-QSB. The results of operations for any interim period are not necessarily indicative of results for the full year. These statements should be read in conjunction with the audited financial statements and accompanying notes for the year ended September 30, 2004. The balance sheet at September 30, 2004 has been derived from audited financial statements, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. Background The Company is currently focusing its operations on the design, manufacture and sale of water production and generation systems along with solar power systems. Reverse Stock Split The Company completed a one-for-one-thousand reverse stock split on August 23, 2002. All share and per share information reflects this reverse stock split. NOTE 2 - GOING CONCERN AND SIGNIFICANT RISKS AND UNCERTAINTIES The Company's financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has experienced losses since inception, and as such, there is substantial doubt as to the Company's ability to continue as a going concern. The Company is continuing to secure additional capital through sales of common stock through the current operating cycle. There is no assurance that management will be successful in its efforts. NOTE 3 - BASIC AND DILUTED NET LOSS PER SHARE CALCULATION Loss per common share is calculated in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Basic loss per share is computed by dividing the loss available to common shareholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. For the three months ended December 31, 2004 and 2003, common stock equivalents have been excluded from the aforementioned computations as their effect would be anti-dilutive. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Except for historical information contained herein, the statements in this report (including without limitation, statements indicating that the Company "expects," "estimates," anticipates," or "believes" and all other statements concerning future financial results, product offerings, proposed acquisitions or combinations or other events that have not yet occurred) are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Forward-looking statements involve known and unknown factors, risks and uncertainties which may cause our actual results in future periods to differ materially from forecasted results. Forward looking statements are all based on current expectations, and we assume no obligation to update this information. RISK FACTORS For the past two fiscal years we have had minimal revenues. We have a history of losses, and an accumulated shareholder deficit of $35,330,622. Because of our recurring losses, our independent auditors have expressed doubt as to our ability to continue as a going concern. We will require additional capital in the short term to remain a going concern. We will require substantial short term outside investment on a continuing basis to finance our current operations and any limited capital expenditures identified to protect existing investments. Our revenues for the foreseeable future may not be sufficient to attain profitability. Since inception, we have generated little revenue and have incurred substantial expenditures. We expect to continue to experience losses from operations while we develop the Air - Water and photovoltaic businesses. In view of this fact, our auditors have stated in their report for the period ended September 30, 2004 that our ability to meet our future financing requirements, and the success of our future operations, cannot be determined at this time. In order to finance our working capital requirements we are negotiating equity investments, but there can be no assurance that we will obtain the required capital or that it will be obtained on terms favorable to us. If we do not obtain short term financing we may not be able to continue as a viable concern. Although one of our subsidiaries has a bank account overdraft facility, we do not have a bank line of credit and there can be no assurance that any required or desired financing will be available through bank borrowings, debt, or equity offerings, or otherwise, on acceptable terms, if at all. If future financing requirements are satisfied through the issuance of equity securities, investors may experience significant dilution in the net book value per share of common stock. We are currently focusing our operations on the sale of water production and generation systems along with solar power systems. There are no assurances that this business activity will be successful, that we will be able to identify and sell to the market and that the market will respond to our product line. PLAN OF OPERATION FOR THE NEXT 12 MONTHS - ---------------------------------------- Our cash position at December 31, 2004 is $107,073. This is only sufficient to provide coverage for two months of operating cash needs, based on the current reporting period's negative cash flow from operations. However, our Chairman, in connection with Port Universal Ltd., a company in which he owns a one third interest, has agreed to provide funding as needed until our sales activities are sufficient to cover our cash flow needs. This agreement by our Chairman and Port Universal is not a binding obligation; we have no assurances that this funding will continue beyond the short term. We have been able to obtain private placement funding to finance our activities over the past few years. 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. 7 We do not have any major expenditures planned, nor do we anticipate the purchase or sale of plant and / or significant equipment. Our operation employs 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. To fund existing contracts and several potential sizeable contracts in the sales process, 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, separate from the research and development costs, we have incurred only minor production costs as we have only produced prototypes. BUSINESS AND ORGANIZATION Universal Communication Systems, Inc. (collectively the "Company", "us" or "we"), prior to 2003, was engaged in activities related to advanced wireless communications, including the acquisition of radio-frequency spectrum internationally. Currently, our activities related to the advanced wireless communications are conducted only by our investment in Digital Way, S.A., a Peruvian communication company and former wholly owned subsidiary. We currently hold a twenty seven percent interest in Digital Way, S.A., however, due to a lack of cooperation from their management, our financial results do not include our interest in their activities. We currently have four 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 Style, Inc. USA and Solar One, Inc., (collectively, "Solar") both Florida corporations with offices in Baltimore, Maryland, manufacture (subcontracted to third parties) and market portable photovoltaic cells in leather cases for consumer electronic products. Solar was formed to source the manufacturing and to market the product line of photovoltaic consumer energy panel products designed by Solar Style, Ltd., a wholly owned Israeli subsidiary. Solar is offering PV Solar Chargers for a wide range of products, including Solar Chargers for Laptop computers, "Palm" devices, portable CD players, as well as a wide range of cellular phones. Additionally, 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. Lastly, we have recently become involved in the marketing of a pilotless reconnaissance aircraft product, manufactured by BlueBird Aeronautical Company. This is explained further in "NEW BUSINESS SEGMENT" below. AirWater's initial action was to obtain licensing rights to the technology. To that end, we formed AirWater Patents, Inc. who currently holds the acquired four patents we received under an agreement dated March 24, 2003, relating to this technology, from J. J. Reidy & Company, Inc. of Holden, Massachusetts. Under the terms of the global marketing and licensing agreement, we paid $100,000 in cash and 4 million shares of restricted common stock, along with an advance of $10,000 per month for a twelve month period against royalties. The royalty advance payments concluded October 31, 2004. We are still obligated to pay a royalty payment of between 5 to 7.5% on all sales of equipment which uses the patented technology. The total payment under the agreement was valued at $420,000. 8 Beginning in March 2003 we pursued various consulting, marketing and sales agreements. The activities covered by these agreements include, product design, electrical and mechanical engineering, systems integration, research and development, conceptual designs, global contacts, mergers and acquisitions, product and company publicity, marketing, sales and general business consulting. Our plan for development of the AirWater and photovoltaic product lines call for utilizing outside consultants and agents to assist and/or perform the manufacturing, marketing, sales and integration of our products to the end users. In certain global areas where electricity and or gas power sources are either not available or in short supply, there is a need for a power alternative to conventional sources. As previously mentioned, on September 29, 2003 we completed the acquisition of Millennium to fulfill this technological need of providing photovoltaic ("PV") Electric Energy to provide the necessary power for the air-water system. 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 PV and solar energy systems and products. INTERNATIONAL SALES AND MARKETING We are focusing our sales efforts in the European, African, Middle Eastern and Asian government and industrial markets for the AirWater and Millenium product and service offerings. Solar One is targeting the North American and European consumer markets. Our sales strategy is to engage independent sales consultants, who are commission based, and thus create a more extensive marketing and networking program than that which could be achieved using an employee based salesforce alone. Since the company started marketing AirWater machines and systems, we have made inroads into many international markets. Sample machines have been shipped to Mexico, Los Angeles, Huntsville USA, Brazil, Morocco, France, Cameroon, Australia, China, Holland, Jordan, Turkey, Iraq, Saudi Arabia, Emirates, Sri Lanka, India, Thailand, South Africa, Kenya, etc. We have received positive feedback from almost all of these demo placements, with order placements expected shortly. We are concentrating our sales and marketing efforts on making large "country sized" sales to governments, federal and local authorities, as well as to international aid agencies. We recognize that because of the complexity of the product, the sales cycle of the AirWater products and systems are somewhat longer than was previously projected. However, management remains confident that sizeable international orders for the machines will occur in 2005. LISTING ON FOREIGN EQUITIES EXCHANGE On December 1, 2003, the company obtained a listing on the Berlin Exchange in Germany. The company was allocated a trading symbol UCV. We have engaged the services of the Geneva Group, an entity with expertise in marketing and corporate promotions, to bring to the German investor an awareness of our business, as well as an awareness of our stock listing in the German exchange. We have been advised that we do not have any regulatory filings in connection with this listing beyond what is required for our United States securities filings. OVERSEAS OFFICES. In line with marketing and sales needs of AirWater and PV Solar Products, we have opened operational and sales offices in Geneva Switzerland and Paris France through strategic partnerships with existing businesses in those locale. In addition, we have set up representation in Australia, Mexico, Brazil, Sri Lanka, Morocco, China, and in several countries in Africa. As previously described, Solar has set up offices in Baltimore, Maryland for the sales and marketing of Solar Products and Systems. 9 NEW BUSINESS SEGMENT - -------------------- In late December, we established a "Security Products Division" upon completing the negotiation for international marketing rights for a range of unmanned aerial vehicles ("UAV") or Pilotless Planes and related technologies. With the growing global need for high-tech security-related products, we see an opportunity to get involved in that industry. Through our marketing partners E.T.I , Electro Tech International Ltd (www.e-t-i.co.il), we were introduced to BlueBird Aero Systems Limited (www.bluebird-uav.com), designers and manufacturers of a unique range of UAV Pilotless Planes. Their products are perfectly suited for use with the US Military, Law Enforcement Agencies, INS, DEA and other US and worldwide government agencies whom we are currently approaching for our AirWater products. A marketing and product brochure is now available on our web site. SUBSEQUENT EVENTS - ----------------- During January 2005, AirWater received an order for 140 Air Water Machines for Australia, an order for 270 Air Water machines for Sri Lanka and an order for 120 machines for a US customer in Texas. These AirWater SOHO styled machines are currently being made in our contracted production facilities in China and will be shipped to the destinations in sealed containers. We anticipate these orders will be manufactured and delivered to the customers during the next quarter. This activity is evidence that our sales programs enacted during the previous 6 months are showing and will show positive results. On December 26th 2004, a Tsunami Disaster occurred in South East Asia, which affected many countries. Among the affected countries were India, Sri Lanka and Thailand. We announced that we would donate 20 AirWater machines of various sizes to the affected countries / areas. Working with other International Aid Agencies and other third parties, we shipped out a number of machines to these territories. During the course of January and early February, we have continued to send out additional machines. As of February 13, 2005, we have sent a total of 4 machines to Thailand, 13 machines to Sri Lanka, and 1 machine to India. In addition, recognizing the need for bottles or containers for the victims to collect the water in, we purchased 12,500 plastic "jerry cans" and we have shipped them to Sri Lanka, for free distribution. We have born the cost of shipping the donated machines and the costs of the containers as part of our contribution to the relief efforts. We are continuing our efforts to deploy our product to save lives. We have also set up an online Charity Fund for donations from the public for the benefit of the victims of the Tsunami Disaster in South East Asia. Please visit www.ucsy.com for further information. The company, our chairman Michael J. Zwebner and Mr. Mohamed Hadid of Los Angeles, CA, have announced that each are donating $25,000 to this fund. In addition, Millennium Electric, a subsidiary of UCSY, has donated 1,000 portable Solar Chargers to International Aid Workers, spread out all over the disaster areas. These Solar Chargers are ideal for re-charging mobile / cellphones and other digital electronic machines in areas where there is little if any electric power. RESULTS OF OPERATIONS Three Months Ended December 31, 2004 Compared to the Three Months Ended December 31, 2003. Revenues and cost of sales for the three months ended December 31, 2004 were earned primarily by our subsidiaries, Millenium and AirWater. Operating expenses for the three months ended December 31, 2004 amounted to $997,900 compared to $822,089 for the three months ended December 31, 2003. These expenses were primarily consultants, professional fees and rents. As the AirWater product is no longer in its initial development stage, we did not incur the product development costs in this period as compared to the prior period. 10 Net losses for the three months ended December 31, 2004 were ($909,104), as compared with ($720,578) for the three months ended December 31, 2003. We completed the agreement to purchase 100% of the stock of Millennium on September 29, 2003. Terms included an initial transfer of 5 million shares of our common stock, valued at $250,000, with options for the sellers to purchase an additional 22 million shares at various exercise prices, ranging from $0.05 to $0.39 per share, to be granted under various conditions related to certain future events and future performance standards for Millennium. Our purchase cost plus net liabilities assumed, resulted in $300,064 of intangibles in the form of patent costs, for which no impairment has been recognized. LIQUIDITY AND CAPITAL RESOURCES On December 31, 2004 the Company had cash and cash equivalents of $107,073 compared with $453,134 as of September 30, 2004. This represents a cash decrease of $346,061 from the cash position at September 30, 2004. This decrease resulted primarily from cash used in operations in the amount of $827,712. We received proceeds from the sale of preferred shares of stock and funds received in private placements of our common stock in the amount of $519,000. We are almost entirely dependent on equity investments at this time and recognize that without these investments we would not be able to continue as a going concern. As noted above, cash used in operations for the three months ended December 31, 2004 was $827,712. We have had negative cash flows from operations in the past and do not anticipate that revenues will contribute substantially to our cash flows in the short term. We do not have sufficient resources to meet current obligations without continuing equity investments. Prior financing arrangements, as disclosed in our SB-2 filed March 15, 2001, are no longer in effect. We must obtain approval from our current debenture holders to place additional debt against our assets. There are no assurances that we would be able to secure that approval, if we did have the opportunity to secure additional debt. We are attempting to negotiate with trade creditors to convert existing obligations, including any accrued interest, to common stock in satisfaction of those obligations. We have received agreement from our current debenture holders to convert their existing debt to equity, but there are no requirements for the debt holders to adhere to that consent. During the three months ended December 31, 2004, we received equity investments of $519,000. These investments were in the form of issuance of our common stock in various private placements totaling $269,000 and the sale of preferred 8% cumulative shares of stock for a total of $250,000. These proceeds were used to fund our operating deficit and equipment purchases. While management builds the AirWater and photovoltaic businesses, current operating cash is being provided by the sale of common stock under private placements. There was a working capital deficit at December 31, 2004 in the amount of $1,511,823. Management is attempting to reduce this deficit through arrangements with creditors and infusion of equity investments. We have reached favorable agreements with a number of the creditors, but have not had the resources to satisfy the obligation under the revised debt. If we do not make satisfactory arrangements with all of the creditors or obtain short term financing, we may not be able to continue as a viable concern. We do not have any off-balance sheet arrangements. ITEM 3. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Under the supervision and with the participation of our Chief Executive Officer, Mr. Michael J. Zwebner and Chief Financial Officer, Mr. Curtis Orgill, we carried out an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of December 31, 2004 (the "Evaluation Date"). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed in our reports filed or furnished under the Exchange Act are recorded, processed, summarized and reported, within the periods specified in the SEC's rules and forms. We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. There have not been any changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 11 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On August 26, 1999, we filed suit against Credit Bancorp, in U.S. District Court in San Francisco, regarding improprieties on the part of Credit Bancorp relating to a loan. The case was settled on October 11, 1999. As part of the settlement agreement, Credit Bancorp agreed to convert the original loans granted to us to a convertible debenture in the amount of $740,000. On October 11, 1999, we issued a convertible unsecured debenture for $740,000 to Credit Bancorp in settlement of this obligation. The terms of this convertible unsecured debenture are 7% interest per annum payable, semiannually on the last day of February and September, with the principal due September 30, 2002. All amounts of unpaid principal and accrued interest of this debenture are convertible at any time at the conversion price of $1,600 per share of unregistered, restricted shares of our common stock. Credit Bancorp has agreed to convert principal and accrued interest owing on the debenture into 463 shares of our common stock. In November 1999, the SEC filed suit against Credit Bancorp alleging violations of various securities laws in connection with its actions in relation to us and others, and seeking various forms of relief including disgorgement of its illegal gains. A receiver has been appointed to administer the affairs of Credit Bancorp. We have been informed that the appointed receiver denies that such a conversion request was made and 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. No provision for the debenture and accrued interest have been made in our financial statements, as we believe the receiver's claim is unfounded and the company will prevail. The matter remains unresolved at December 31, 2004. On August 7, 2003, Electric Gas & Technology of Dallas, Texas ("ELGT"), published a press announcement claiming that a complaint and $60 million lawsuit had been filed in Federal court in Texas (identified in the court records as Federal District Court, Northern District of Texas -- Dallas Division Cause No. 3-03CV-1798-G). Their press release stated that we had infringed on their patents. We filed a counter claim in the United States District Court, Southern District of Florida, case number 03-22196-Civ-Seitz, disputing ELGT's claims of patent infringement and as a result of statements published in their press releases, we included in our complaint $118 million in damages against both ELGT and its president, Mr. Dan Zimmerman, for their false, defamatory and libelous statements. On November 24, 2004, a settlement agreement was reached calling for: 1) a stipulation for the entry of a "Consent Judgment" in favor of our subsidiary, Airwater Corporation and UCSY, jointly, and against Atmospheric Water Technology, Inc. ("AWT") in the amount of $5 million, 2) the payment by ELGT of the amount of $25,000 in cash to us, and 3) the issuance of 150,000 shares of ELGT's restricted common stock ("Shares"). These shares are restricted from transfer or sale for a one year period. ELGT has a right to purchase those shares from us for a one year period from the agreement date at a price of $0.50 per share. In the event ELGT does not exercise its right of purchase, upon the expiration of the one year period the shares will become free trading and unrestricted. The 150,000 shares of ELGT's common stock represents 2.1 percent of ELGT's total outstanding common stock. At December 31, 2004, the stock had not been received and accordingly, no value has been recorded for the stock in the current period financial statements. Further agreed, was that after the stipulation for the entry of the "Consent Judgment" has been executed by the parties, ELGT is to assign to us all of ELGT's equity ownership interest (i.e. shares of stock or otherwise) in AWT. This includes all ELGT and AWT's right, title and interest in U.S. Patent No. 4,255,937 and all enhancements thereto, and all ELGT and AWT's right, title and interest to the copyright and trademarks describing the technology in the U.S. Patent, and the Trademark known as "Watermaker", and all ELGT and AWT's right, title and interest in U.S. Patent No. 5,553,459. This transfer to UCSY and AirWater is equal to 92% of the outstanding stock (controlling interest) of AWT and includes all of the US and Global business, as well as all the appertaining Patents, Trademarks and Licenses. 12 Finally, all parties agreed that each side shall bear its own costs and attorney's fees. In June 2004, the company filed a lawsuit in Miami District Court against Lycos, Inc, and its parent Terra Networks, Inc, and a business segment, Raging Bull, for $300 million. The law suit relates to charges for commercial fraud, Cyberstalking and illegal use of the company's commercial name and logo. As of December 31, 2004, the litigation continues in Miami Federal Court. In a related but separate action, We filed a civil "RICO" (Racketeering Influenced Criminal Organization) lawsuit in the circuit court for the 11th Judicial Circuit, Miami-Dade County, Florida against a number of related defendants including RipOffReport.com, BadBusinessBureau.com et al., seeking money damages for our losses as a victim of the defendants' "RICO" conduct and for other improper activities. The lawsuit names a number of defendants who have and are continuing to allegedly operate a Criminal Racketeering Enterprise against our organization and our directors and staff, as well as unnamed John Does 1-25. Our lawsuit alleges that the defendants associated in a Racketeering Enterprise and conducted or participated, directly or indirectly, in such enterprise through a pattern of racketeering activity consisting of a scheme to defraud, lure, obtain, extort monies by means of fraud, misrepresentation, pretenses, and material omissions through false and misleading practices, and to defame and violate our legal rights through a pattern of criminal activity or a pattern of racketeering activity including the use of telecommunications, mail, wire communications as prescribed by 18 U.S.C. Sec. 1341 and Sec. 1343, 18 U.S.C. Sec. 1962, and F.S. Sec. mail fraud, wire fraud. This case is still pending in the court. On January 14, 2005 we filed a law suit against Turner Broadcasting System, Inc., Cable News Network, Inc. "CNN" and Wolf Blitzer for $100 million. The law suit has been filed in United States District Court for the Southern District Of Florida. The law suit has been brought for defamation under Florida law. This case is still pending in the court. During January, AirWater Patents, Inc., received a Notice Letter from attorneys acting for J.J. Reidy & Co., Inc., allegedly terminating the Global License Agreement that was entered into in March 2003, alleging Breach of Contract. The company has filed an action in Miami Federal Court, seeking Declamatory relief from the court, determining its rights, status and legal relations as well as Money Judgment against J&J Reidy Inc. No provision has been made in our financial statements, as we believe the claim is unfounded and the company will prevail. The matter remains unresolved at December 31, 2004. On January 21, 2005, we filed a lawsuit against James Coughlin, internet alias "IrishJim44," for claims totaling $18 million. The lawsuit has been filed in Federal Court in the Southern District of Florida. The claims are for defamation against the company and the chairman Michael Zwebner, as posted on the internet. ITEM 2. CHANGES IN SECURITIES. Sales of Unregistered Securities - -------------------------------- We have issued and sold unregistered securities that have not previously been reported as set forth below. An underwriter was not utilized in any of these transactions. The recipients of securities in each transaction represented their intention to acquire the securities without a view to distribution. All the issued securities were restricted securities under Rule 144, Reg. D or Reg. S regulations, and appropriate restrictive legends were affixed to the securities in each transaction. All sales of securities were to accredited investors in private placements, and accordingly all of the sales complied with Section 4(2) as well as 4(6) of the Securities Act of 1933. 13 On October 11, 2004, we issued 1,300,000 shares of common stock under private placement subscriptions at $0.03 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 October 18, 2004, we issued 8,160,000 shares of common stock under private placement subscriptions at $0.012 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 October 19, 2004, we issued 100,000 shares of common stock under private placement subscriptions at $0.03 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 October 25, 2004, we issued 15,399,997 shares of common stock under private placement subscriptions at various prices ranging from $0.026 per share to $0.03 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 December 13, 2004, we issued 800,000 shares of common stock under private placement subscriptions at $0.025 per share. These securities were issued in a transaction exempt from registration under the Securities Act of 1933 in reliance on Sections 4(2) and 4(6) of the Securities Act of 1933. On December 21, 2004, we issued 2,958,332 shares of common stock under private placement subscriptions at $0.024 per share. These securities were issued in a transaction exempt from registration under the Securities Act of 1933 in reliance on Sections 4(2) and 4(6) of the Securities Act of 1933. On December 6, 2004, we sold 25,000 shares of Series B 8% Convertible Preferred Stock and Warrants to purchase 16,666,667 shares of common stock for which we received net proceeds of $250,000. The Series B Convertible Preferred Stock, with a face value of $250,000, is convertible into common stock at $0.015 per share. The Warrants are exercisable at $0.03 per share until December 6, 2009. On January 5, 2005, we sold 30,000 shares of Series C 8% Convertible Preferred Stock and A, B and C Warrants to purchase 20,000,000 shares of common stock for which we received net proceeds of $300,000. The Series C Convertible Preferred Stock, with a face value of $300,000, is convertible into common stock at $0.03 per share. The A Warrants are exercisable for 10,000,000 shares of common stock at $0.04 per share until January 5, 2010. The B Warrants are exercisable for 5,000,000 shares of common stock at $0.06 per share until January 5, 2010. and the C Warrants are exercisable for 5,000,000 shares of common stock at $0.08 per share until January 5, 2010. Other Securities Transactions - ----------------------------- Pursuant to the April 14, 2000 Securities Purchase Agreement (the 4% convertible debentures) and the March 29, 2001 Securities Purchase Agreement (the 8% Senior Secured Convertible Debentures), the investors converted $519,738 of debentures into 21,867,611 of the Company's common stock on various dates between November 23 and December 30, 2004, at various prices ranging from $0.0192 per common share to $0.027 per common share. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None 14 ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS. The Company's annual meeting of stockholders was held on November 30, 2004. The directors elected at the meeting were: For Withheld ------------ ------------ Curtis A. Orgill 139,760,447 297,034 Ramsey Sweis 139,760,447 297,034 Alexander H. Walker, Jr. 139,760,447 297,034 Michael J. Zwebner 139,760,447 297,034 Ami Elazari 139,760,447 297,034 Ratification of the selection of Reuben E. Price, P.A., as the Company's independent auditors for the fiscal year ending September 30, 2003: For Against Withheld ------------ -------------- ------------ 131,398,491 2,087,427 1,133,291 The foregoing matters are described in detail in the Company's proxy statement dated October 29, 2004 for the 2004 Annual Meeting of Stockholders. ITEM 5. OTHER INFORMATION. None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following exhibits are included herewith: Exhibit 31.1 - Certification of Chief Executive Officer of Universal Communication Systems, Inc. required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 31.2 - Certification of Chief Financial Officer of Universal Communication Systems, Inc. required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32.1 - Certification of Chief Executive Officer of Universal Communication Systems, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63. Exhibit 32.2 - Certification of Chief Financial Officer of Universal Communication Systems, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63. (b) The Company filed the following reports on Form 8-K during the quarter for which this form is filed: None 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: February 17, 2005 UNIVERSAL COMMUNICATION SYSTEMS, INC. /s/ MICHAEL J. ZWEBNER ---------------------------- Michael J. Zwebner Chief Executive Officer, Chairman of the Board 16 EX-31.1 2 ex311.txt CERTIFICATION EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 ----------------------------------------------------------------------- I, Michael J. Zwebner, certify that: 1. I have reviewed this quarterly report on Form 10-QSB 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 registrant'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 Universal Communication Systems, Inc. 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 registrant'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 registrant's internal control over financial reporting that occurred during the registrant's most recent quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant'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 registrant'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 registrant's internal control over financial reporting. Date: February 17, 2005 By: /s/ Michael Zwebner ----------------- Michael Zwebner Chief Executive Officer EX-31.2 3 ex312.txt CERTIFICATION EXHIBIT 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 ----------------------------------------------------------------------- I, Curtis Orgill, certify that: 1. I have reviewed this quarterly report on Form 10-QSB 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 registrant'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 Universal Communication Systems, Inc. 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 registrant'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 registrant's internal control over financial reporting that occurred during the registrant's most recent quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant'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 registrant'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 registrant's internal control over financial reporting. Date: February 17, 2005 By: /s/ Curtis Orgill ----------------- Curtis Orgil Chief Financial Officer EX-32.1 4 ex321.txt CERTIFICATION EXHIBIT 32.1 CERTIFICATION PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b) and 18 U.S.C. Sec.1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Universal Communication Systems, Inc. (the "Company") on Form 10-QSB for the period ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael J. Zwebner, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 17, 2005 By: /s/ Michael J. Zwebner ----------------- Michael J. Zwebner Chief Executive Officer EX-32.2 5 ex322.txt CERTIFICATION EXHIBIT 32.2 CERTIFICATION PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b) and 18 U.S.C. Sec.1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Universal Communication Systems, Inc. (the "Company") on Form 10-QSB for the period ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Curtis Orgill, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 17, 2005 By: /s/ Curtis Orgill ----------------- Curtis Orgil Chief Financial Officer 14 -----END PRIVACY-ENHANCED MESSAGE-----