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wünsche trotzdem auch viel Spaß allen Investierten
Form 10QSB/A for UNIVERSAL COMMUNICATION SYSTEMS INC
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30-Jun-2004
Quarterly Report
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 inthis report (including without limitation, statements indicating that theCompany "expects," "estimates," anticipates," or "believes" and all otherstatements concerning future financial results, product offerings, proposedacquisitions or combinations or other events that have not yet occurred) areforward-looking statements that are made pursuant to the safe harbor provisionsof the Private Securities Litigation Reform Act of 1995, Section 21E of theSecurities Exchange Act of 1934, as amended, and Section 27A of the SecuritiesAct of 1933, as amended. Forward-looking statements involve known and unknownfactors, risks and uncertainties which may cause our actual results in futureperiods to differ materially from forecasted results. Forward looking statementsare all based on current expectations, and we assume no obligation to updatethis information.
RISK FACTORS
For the past two fiscal years we have had minimal revenues. We have ahistory of losses, and an accumulated shareholder deficit of $32,502,131.Because of our recurring losses, our independent auditors have expressed doubtas to our ability to continue as a going concern.
We will require additional capital in the short term to remain a goingconcern.
We will require substantial short term outside investment on acontinuing basis to finance our current operations and any limited capitalexpenditures identified to protect existing investments. Our revenues for theforeseeable future may not be sufficient to attain profitability. Sinceinception, we have generated little revenue and have incurred substantialexpenditures. We expect to continue to experience losses from operations whilewe develop the Air - Water and photo voltaic businesses. In view of this fact,our auditors have stated in their report for the period ended September 30, 2003that our ability to meet our future financing requirements, and the success ofour future operations, cannot be determined at this time. In order to financeour working capital requirements we are negotiating equity investments, butthere can be no assurance that we will obtain the required capital or that itwill be obtained on terms favorable to us. If we do not obtain short termfinancing we may not be able to continue as a viable concern. Although one ofour subsidiaries has a bank account overdraft facility, we do not have a bankline of credit and there can be no assurance that any required or desiredfinancing will be available through bank borrowings, debt, or equity offerings,or otherwise, on acceptable terms, if at all. If future financing requirementsare satisfied through the issuance of equity securities, investors mayexperience significant dilution in the net book value per share of common stock.
We are currently focusing our operations on the design, manufacture andsale of water production and generation systems along with solar power systems.There are no assurances that this business activity will be successful, that wewill be able to identify and sell to the market and that the market will respondto our product line.
PLAN OF OPERATION FOR THE NEXT 12 MONTHS
Our cash position at December 31, 2003 is $117,561. This is onlysufficient to provide coverage for two months of operating cash needs, based onthe current reporting period`s negative cash flow from operations. However, ourChairman, in connection with Port Universal Ltd., a company in which he owns aone third interest, has agreed to provide funding as needed until our salesactivities are sufficient to cover our cash flow needs. This agreement by ourChairman and Port Universal is not a binding obligation; we have no assurancesthat this funding will continue beyond the short term. Further, we anticipatethat by December 31, 2004, our subsidiaries will have sufficient revenues thatwe will not require funding from equity sales.
With the acquisition of Millennium (described later) and the company`snew business focus, we have been able to obtain private placement funding tofinance our activities in these fields. We anticipate continuing to receiveoperating funds from these private placements until such time as sales aresufficient to support the organization, however no assurances can be made thatwe will be able to find willing investors. We are also relying upon the sameprivate placement funding to provide the cash required to consumate the proposedGiroSolar acquisition described earlier.
Except for the GiroSolar acquisition, described later, we do not haveany major expenditures planned, nor do we anticipate the purchase or sale ofplant and / or significant equipment. Our plan calls for the use of third partycontract manufacturers, thus avoiding the allocation of our resources intomanufacturing operations. We anticipate funding any sizeable orders for eitherAirWater equipment or Photovoltaic installations, through deposits and advancesfrom customers.
We do not anticipate any significant changes in the number of employeesin the near term for our existing operations.
On January 14, 2001, we entered into a settlement agreement with oursystems integrator, Andrew Corporation. At that time, we owed Andrew Corporation$1,400,000 for their services and equipment. Under the agreement, we paid aninitial $100,000 and we were obligated to pay $100,000 per month until thebalance 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 notein the amount of $300,000 which is due April 30, 2004. We secured this note with300,000 shares of our common stock. If we are not able to pay the $300,000 onApril 30, 2004, the obligation will revert to the balance due of $1,300,000. Wedo not have sufficient cash to meet this obligation at December 31, 2003. Wewill rely upon additional sales of our common stock under private placementtransactions to satisfy this obligation. Subsequent to March 31, 2004, we paidAndrew Corporation $270,000 in cash and released the 300,000 shares of commonstock held in escrow to them in satisfaction of this obligation.
We have several potential sizeable contracts in the sales process.Should these contracts be awarded, we will need to raise additional equity orarrange for financing vehicles to fund those contracts. Any equity raised couldresult in dilution of existing shareholders. Additionally, we are uncertain asto the availability of sufficient financing on acceptable terms.
To date, we have not incurred any production costs with respect to theAirWater product line 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 wirelesscommunications, including the acquisition of radio-frequency spectruminternationally. Currently, our activities related to the advanced wirelesscommunications are conducted only by our investment in Digital Way, S.A., aPeruvian communication company and former wholly owned subsidiary. We currentlyhold a twenty seven percent interest in Digital Way, S.A., however, due to alack of cooperation from their management, our financial results do not includeour interest in their activities.
We currently have three channels of activity, each conducted by awholly owned subsidiary. Air Water Corporation, ("AirWater") a Floridacorporation formed in March, 2003, has been established to design, manufacture(utilizing contract manufacturing organizations) and market systems that performwater extraction from air. Millennium Electric T.O.U. Ltd., ("Millennium") anIsraeli company, acquired September, 2003, specializes in the development andinstallation of solar power systems worldwide, primarily to government andindustrial users. Solar One, Inc., ("Solar One") a Florida corporation, formedin July, 2003, manufactures (subcontracted to third parties) and marketsportable photovoltaic cells in leather cases for consumer electronic products.Solar One was formed to source the manufacturing and to market the product lineof photovoltaic consumer energy panel products designed by Solar Style, Ltd., anIsraeli company 50% owned by us. We have recently combined the technology of thephotovoltaic system of Millenium and the water extraction systems of Air Waterand developed a self powered air water machine.
Airwater`s initial action was to obtain licensing rights to thetechnology. To that end, we acquired four patents by agreement dated March 24,2003, relating to this technology from J. J. Reidy Company of Holden,Massachusettes. Under the terms of the agreement, we paid $300,000, and we areobligated to pay a royalty payment of between 5 to 7.5% on all sales ofequipment which uses the patented technology. Of the $300,000, $100,000 was paidin cash, and the balance of $200,000 was settled by the issuance of restrictedcommon shares.
Beginning in March 2003 we pursued various consulting, marketing andsales agreements. The activities covered by these agreements include, productdesign, electrical and mechanical engineering, systems integration, research anddevelopment, conceptual designs, global contacts, mergers and acquisitions,product and company publicity, marketing, sales and general business consulting.Our plan for development of the Air Water and Photovoltaic product lines callfor utilizing outside consultants and agents to assist and/or perform themanufacturing, marketing, sales and integration of our products to the endusers.
In certain global areas where electricity and or gas power sources areeither not available or in short supply, there is a need for a power alternativeto conventional sources. As previously mentioned, on September 29, 2003 wecompleted the acquisition of Millennium to fulfill this technological need ofproviding Photo Voltaic (PV) Electric Energy to provide the necessary power forthe air-water system.
Millennium and its president, Mr. Ami Elazari, operate in the forefrontof the high technology field of solar energy, solar panels, and solar poweredconsumer products. The Company and Mr. Elazari are the holders of more than 21international patents relating to both Photo Voltaic ("PV") and solar energysystems and products.
NEW PRODUCTS
In line with our new business plans, AirWater engaged engineers andproduct development experts to both enhance existing technologies, and todevelop new systems and applications. In this regard, the company announced onOctober 23, 2003 that it had developed a new special Multi Head Dispenser Air toWater system for the marine and Boating industry.
INTERNATIONAL SALES AND MARKETING
We are focusing our sales efforts in the European, African, MiddleEastern and Asian government and industrial markets for the Air Water andMillenium product and service offerings. Solar One is targeting the NorthAmerican and European consumer markets. Our sales strategy is to engageindependent sales consultants, who are commission based, and thus create a moreextensive marketing and networking program than that which could be achievedusing an employee based salesforce alone.
Since the company started marketing AirWater Machines and Systems, wehave made inroads into many international markets. Sample machines have beenshipped to Mexico, Los Angeles, Huntsville, Brazil, France, Cameroon, Australia,China, Switzerland, Jordan, Iraq, etc. We have received positive feedback fromthese demo placements, with an indication of order placements to be forthcoming.Although we have received a few orders, we have not recognized any sales norshipped any units other than demos, as the current costing structure could notjustify small shipments.
We are concentrating our sales and marketing efforts on making large"country sized" sales to governments, federal and local authorities, as well asto international aid agencies. We recognize that because of the complexity ofthe product, the sales cycle of the Air Water products and systems are somewhatlonger than was previously projected. However, management remains confident thatsizeable international orders for the machines will occur in 2004.
As part of our efforts to identify third party manufacturers for theAir Water machines, who are strategically located, we reached a preliminaryagreement with a manufacturer of dehumidifiers and air conditioners in SaoPaulo, Brazil. Although prototypes have been produced, relations with thissource have not been conducive to a mutually beneficial arrangement andmanagement will continue to evaluate this resource.
OVERSEAS LICENSES
On November 20, 2003, Millennium entered into a memorandum ofunderstanding and Licensing Agreement with a Brazilian company, Heliotek, tolicense the manufacture of Multi Solar System Photo Voltaic Solar Panels in thatcountry. The License calls for a one time license payment of $200,000 withroyalty residuals between 5 and 10 percent on all manufactured and soldproducts. Negotiations continue in this regard.
On December 15, 2003, we signed a memorandum of understanding to effecta licensing transaction with an Australian Group for the manufacture and orassembly of AirWater machines and PV Solar Panels in Australia. Thistransaction, as with the Brazilian agreement, secured a one time technology fee,due to us, of $200,000 with Royalty residuals of 5 percent on all manufacturedand sold products. In early January, 2004, we received the first installmentpayment of $10,000 pursuant to this agreement. The balance is due over thefollowing eighteen months at intervals not greater than 90 days.
LISTING ON FOREIGN EQUITIES EXCHANGE
On December 1, 2003, the company obtained a listing on the BerlinExchange in Germany. The company was allocated a trading symbol UCV. By the endof December, no trading had yet been generated in this new market. Subsequent tothis, we have engaged the services of the Geneva Group, an entity with expertisein marketing and corporate promotions, to bring to the German investor anawareness of our business, as well as an awareness of our stock listing in theGerman exchange. It is expected that trading on the Berlin Exchange will improveas a result of the services of the Geneva Group. We have been advised that we donot have any regulatory filings in connection with this listing beyond what isrequired for our United States securities filings.
OVERSEAS OFFICES
In line with marketing and sales needs of AirWater and PV SolarProducts, we have opened operational offices in Geneva Switzerland and ParisFrance through strategic partnerships with existing businesses in those locals.In addition, we have set up representation in Mexico, Brazil, Morocco, China,and in several countries in Africa. Our subsidiary, Solar One, has set upoffices in Baltimore, Maryland for the sales and marketing of Solar Products andSystems.
ACQUISITIONS
On September 17, 2003, we announced that we have entered into a letterof intent to acquire a 51% interest in GiraSOLAR, BV, a Dutch company thatoperates and specializes in the photo voltaic solar energy industry. This Dutchgroup is composed of two separate operating subsidiaries, Stroomwerk Energy(SWE) and Solar Service Buro (SSB).The company is currently doing its duediligence and legal preparatory work, in anticipation of closing the acquisitionby the end of March 2004.
NEW PRODUCT - LIFESAVER
We announced the company`s new product, the LIFESAVER, a PV Solar Energy poweredAirWater Machine. Recognizing the lack of adequate electric or other power incertain areas of the world that have shown serious interest in the AirWatermachines, the company has developed a system wherein the AirWater Machine willoperate solely from Electric Energy generated by PV Solar Panels. Followingcompletion of technical and safety testing of the product and system, sales ofthis product are planned to commence in the latter part of 2004.
RESULTS OF OPERATIONS
Three Months Ended December 31, 2003 Compared to the Three Months EndedDecember 31, 2002.
Revenues and cost of sales for the three months ended December 31, 2003were earned entirely by our subsidiary, Millenium.
Operating expenses for the three months ended December 31, 2003amounted to $837,089 compared to $179,899 for the three months ended December31, 2002. These expenses were primarily consultants, professional fees andrents. The increase of $657,190 was due to marketing expenses, legal fees, R&Dcosts and travel expense which was not incurred in the prior period as a resultof the Air Water and Millenium activities new to the company.
Net losses for the three months ended December 31, 2003 were $720,578,as compared with $229,787 for the three months ended December 31, 2002.
As previously noted, we completed the agreement to purchase 100% of thestock of Millennium Electric T.O.U. Ltd (Millennium), an Israeli company onSeptember 29, 2003. Millenium specializes in the development and installation ofsolar power systems to international markets. Terms included an initial transferof 5 million shares of our common stock, valued at $250,000, with options forthe sellers to purchase an additional 22 million shares at various exerciseprices, ranging from $0.05 to $0.39 per share, to be granted under variousconditions related to certain future events and future performance standards forMillennium.
Our purchase cost plus net liabilities assumed, resulted in $300,064 ofintangibles in the form of patent costs, for which no impairment has beenrecognized. No amortization is recorded in the year ended September 30, 2003, orthe three months ended December 31, 2003.
We created a new wholly-owned US subsidiary, Solar One, Inc, to marketthe solar systems.
Millennium`s assets and liabilities are included in our consolidatedbalance sheets at September 30, 2003 and December 31, 2003. Millennium`s resultsof operations are included in our consolidated statements of operations for thethree months ended December 31, 2003. However, Millennium`s results are notincluded in our consolidated statements of operations for the three months endedDecember 31, 2002.
The following pro forma data is presented on a combined basis, as ifMillennium had been acquired as of October 1, 2002:
For the three months ended December 31: 2003 2002 ----------- ----------- Revenues $ 177,276 $ 17,114 Expenses 897,854 249,139 ----------- ----------- Net (Loss) $ (720,578) $ (232,025) =========== =========== Basic & Diluted Loss per Share $ (0.008) $ (0.034) =========== ===========
LIQUIDITY AND CAPITAL RESOURCES
On December 31, 2003 the Company had cash and cash equivalents of$117,561 compared with $144,682 as of September 30, 2003. This represents a cashdecrease of $27,121 from the cash position at September 30, 2003. This decreaseresulted primarily from cash used in operations in the amount of $417,152, cashused to purchase fixed assets and fund related party debt increase amounted to$150,963, and offset by funds received in private placements of our common stockin the amount of $584,037. Related party debt increase of $33,394 was due toadvance payments in error on service contracts and travel expenses. We areentirely dependent on equity investments at this time and recognize that withoutthese investments we would not be able to continue as a going concern. As notedabove, cash used in operations for the three months ended December 31, 2003 was$417,152. We have had negative cash flows from operations in the past and do notanticipate that revenues will contribute substantially to our cash flows in theshort term. We do not have sufficient resources to meet current obligationswithout continuing equity investments. Prior financing arrangements, asdisclosed on our SB-2 filed March 15, 2001, are no longer in effect. We mustobtain approval from our current debenture holders to place additional debtagainst our assets. There are no assurances that we would be able to secure thatapproval, if we did have the opportunity to secure additional debt. We areattempting to negotiate with trade creditors to convert existing obligations,including any accrued interest, to common stock in satisfaction of thoseobligations. We have received agreement from our current debenture holders toconvert their existing debt to equity, but there are no requirements for thedebt holders to adhere to that consent.
During the three months ended December 31, 2003, we received equityinvestments of $584,037. These investments were in the form of issuance of ourcommon stock in various private placements. These proceeds were used to fund ouroperating deficit and equipment purchases.
While management builds the AirWater and photovoltaic businesses,current operating cash is being provided by the sale of common stock underprivate placements. There was a working capital deficit at December 31, 2003 inthe amount of $1,439,506. Management is attempting to reduce this deficitthrough arrangements with creditors and infusion of equity investments. We havereached favorable agreements with a number of the creditors, but have not hadthe resources to satisfy the obligation under the revised debt. If we do notmake satisfactory arrangements with all of the creditors or obtain short termfinancing, we may not be able to continue as a viable concern.
We do not have any off-balance sheet arrangements.