UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-KSB

                   Annual Report Under Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

                  For the fiscal year ended September 30, 2003

                         Commission file number: 2-42114
                                                 -------
                           Local Telecom Systems, Inc.
                           ---------------------------
                 (Name of Small Business Issuer in Its Charter)

       State of Nevada                                  75-1310613
       ---------------                                  ----------
(State or Other Jurisdiction of             (I.R.S. Employer Identification No)
Incorporation or Organization)

             3535 West 7th Street, Suite 1, Fort Worth, Texas 76107
             ------------------------------------------------------
                    (Address of Principal Executive Offices)

          Issuer's Telephone Number including Area Code: (817) 731-1171
                                                         --------------
           Securities registered pursuant to Section 12(g) of the Act:

                         Common stock, par value $0.0167

The issuer (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months, and (2)
has been subject to such filing requirements for the past 90 days.

                Yes   X                 No
                    ----                  -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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. [ ]

State issuer's revenues for its most recent fiscal year $ 237,788

The aggregate market value of common equity held by non-affiliates of the
Registrant was $1,053,165 as of January 13, 2004, based on the price of the
common stock, $.0167 par value, of the Registrant, ($.095 per share) at the
close of the market on that day.

The number of shares outstanding of the Registrant's common stock on September
30, 2003, was 13,371,242 shares and on December 31, 2003 had 16,284,423 shares
outstanding. The Company also has 600,000 shares of preferred stock outstanding
as of September 30, 2003.


<PAGE>






                                TABLE OF CONTENTS

PART I ......................................................................3
        Item 1.   Description of Business....................................3
                  (a) Business Development...................................3
                  (b) Business of Issuer.....................................4
        Item 2.   Description of Property....................................8
        Item 3.   Legal Proceedings..........................................8
        Item 4.   Submission of Matters to a Vote of Security Holders........8

PART II .....................................................................8
        Item 5.  Market for Common Equity and Related Stockholder Matters....8
                 (a) Market Information......................................8
                 (b) Holders.................................................9
                 (c) Dividends...............................................9
                 (d) Securities Authorized for Issuance Under Equity
                     Compensation Plan ......................................9
        Item 6.  Plan of Operations..........................................10
        Item 7.  Financial Statements .......................................11
        Item 8.  Changes in and Disagreements with Accountants on Accounting
                 and Financial Disclosure....................................12

PART III.....................................................................12
        Item 9.  Directors, Executive Officers, Promoters and Control
                 Persons ....................................................12
        Item 10. Executive Compensation .....................................14
        Item 11. Security Ownership of Certain Beneficial Owners and
                 Management .................................................14
        Item 12. Certain Relationships and Related Transactions..............15
        Item 13. Exhibits and Reports on Form 8-K ...........................15
        Item 14. Controls and Procedures ....................................15

INDEX TO EXHIBITS ...........................................................16









                                       2
<PAGE>



                                     PART I

Item 1.   Description of Business

(a) Business Development

Local Telecom Systems, Inc. (the "Company") was organized on February 19, 1969,
as a corporation under the laws of the State of Nevada, under the name of
International Royalty & Finance Co. for the general purpose of engaging in
exploration for oil and gas, and on December 23, 1971, the name of the Company
was changed to International Royalty & Oil Co. (IROC). Again on July 10, 1996,
the Company changed its name to Signature Motorcars, Inc., in anticipation of
entry into the car rental business; however, the anticipated merger was never
consummated. In 1997, the Company began acquiring working interests, royalties,
and overriding royalties in oil and gas properties within the United States and
in foreign countries. However, with the decline of oil and gas prices in 1998,
the Company began evaluating opportunities in other industries. On February 22,
2002 the Company entered into a merger agreement with Local Telecom Systems,
Inc. and agreed to change its name to Local Telecom Systems, Inc.

During its fiscal year ended September 30, 2003 the Company was not involved in
any bankruptcy, receivership, or similar proceeding and underwent no material
reclassification, merger, or consolidation. The Company did during the fiscal
year ended September 30, 2002, enter into a merger agreement with Local Telecom
Systems, Inc. as well as effect a partial distribution of the Company's assets.

August 30, 2002 was the effective date of this acquisition. On this date the
Company released the 27,335,854 restricted shares to the principles of this
acquisition and in return they conveyed the property, rights, privileges,
agreements, tariffs and various license agreements to LTSI. The Company issued
an additional 2,719,818 restricted common shares for consulting services for the
acquisition and funding arrangements for the merger with Local Telecom Systems,
Inc. These shares were adjusted after the 4 for 5 reverse stock split to
2,175,854 restricted common shares representing a 5.6% fee for the services
rendered in connection with this acquisition. The sole consideration for these
consulting services was restricted shares of the Company's common stock.

At a shareholders' meeting held on February 22, 2002, the holders of a majority
of outstanding common stock approved stock dividends to the shareholders of 100%
of the outstanding common stock of the Company's four wholly owned subsidiaries.
The effective date of these stock dividends was April 15, 2002, prior to the
effectiveness of the merger with LTSI. Each stock dividend was approved on the
basis of one (1) share of each subsidiary for every three (3) shares of the
Company's common stock owned. Pursuant to these stock dividends, the ownership
of the following subsidiaries was transferred from the Company directly to the
shareholders on a pro rata manner: International Royalty & Oil Co., Signature
Financial Services, Inc., Cumberland Continental Corp., and Signature
Healthcare, Inc. Each former subsidiary company now has 100,000,000 shares
authorized for issuance, 5,217,179 shares of restricted common stock issued and
outstanding, par value of $0.001 per share. The record date for the distribution
of the 5,217,179 common shares in each of the four companies was April 15, 2002
at no additional cost to the existing shareholders.

On July 3, 2003 a resolution was approved by the Board of Directors and accepted
by four major shareholders to convert 30,000,000 common shares to preferred
shares (Series A) , which reduced the number of common shares from 39,330,585
shares to 9,330,585 shares issued and outstanding on July 3, 2003. The Series A
preferred stock is convertible at the rate of 50 shares of common shares for
each shares of preferred stock. Each shares of Series A preferred stock is
entitled to 50 votes in shareholder votes. The Series A preferred stock is
entitled to a dividend of $.50 per share per year payable quarterly out of funds
approved by the Board of Directors that are not below the level deemed
necessary for the operation of the Company. The liquidating preference is $5.00
per share. The preferred shareholder has the option to convert each share of
preferred stock into 50 shares of common stock at their option until September
1, 2006 when the shares will automatically converted into common stock by the
Company.

                                       3
<PAGE>




On September 22, 2003 the Company issued 2,436,000 shares of restricted common
stock to a group of accredited investors in Europe. Also during September a
total of 1,559,657 shares were issued for consulting services and also 45,000
shares were issued to directors for their director's fees. On September 30, 2003
the Company had 13,371,242 common shares issued and outstanding and 600,000
preferred shares issued and outstanding.

(b) Business of Issuer

The Company, Local Telecom Systems, Inc. (LTSI), offers local and long distance
service on a prepaid basis. Specifically, local services include a "bare bones"
product providing unlimited local dial tone and 911 emergency access with the
option of several custom calling features, for additional fees, including Call
Waiting, Caller ID, Call Forwarding and Speed Dialing. These features may be
purchased individually or in a package at reduced rates.

LTSI purchases phone services from the incumbent local exchange carrier (ILEC)
at deep discounts (currently up to 26%) and resells the service on a prepaid
basis at a premium, allowing attractive profit margins. The markets are
households without phone service due to lack of credit history or a poor credit
history, and/or the inability to pay a deposit.

LTSI is a flat rate service provider with its customer base in Texas, New Mexico
and Arizona as of September 30, 2003. LTSI is not a measured service provider,
which is when service is provided on a "per call" or "minute basis".

LTSI is a local telephone service reseller with an acquired three-year-old
customer base in Texas, New Mexico and Arizona. LTSI has the necessary licenses
and interconnect agreements to offer, on a national basis, prepaid local
telephone service and various ancillary products such as 911, caller ID and
prepaid long distance. The following are brief highlights of LTSI business:

      Experience - LTSI management has been in the prepaid industry since 1997
      shortly after the passage of the Telecommunications Act of 1996 and has
      years of experience in the prepaid local telephone reseller niche,
      primarily the Hispanic market. LTSI also has consulting contracts with
      individuals that have extensive communications experience.

      Hispanic Market - The Hispanic market has a higher growth rate than other
      demographic sectors, unusual brand loyalty, and twice the national average
      propensity for prepaid telephone service.

      Economics - The prepaid telephone service reseller business has attractive
      margins, minimal capital expense and minimal bad debt. LTSI acquires
      heavily discounted telephone service from the incumbent local exchange
      carriers, such as Southwestern Bell, Bell South, Sprint, Verizon and Qwest
      and charges premium rates yielding above average profit margins.
      Additionally, customers must pay prior to receiving service, thereby
      mitigating bad debts.


Risk Factors

Termination of License/Certificate - Failure to pay Utility Tax, Line Charge or
license fees in the states in which we operate would result in a termination of

                                       4
<PAGE>



LTSI's license and/or certificate within the state. Unauthorized change in
service provider, known as "Slamming", would also terminate a license or
certificate to do business as a reseller of local phone service. Although the
Company does not intend on allowing any of these events to occur, if any do
occur, the Company would be prohibited from engaging in the local telephone
service market, which would have a material adverse effect on the Company.

Dependence on Third Parties - The Company depends on many consultants, vendors
and suppliers to conduct business. For example, with expected growth, the
Company may require the use of a billing service to mail the monthly invoices to
our customers and the Company may also use a telemarketing company for
subscribing new customers during an advertising campaign. LTSI is not equipped
with the necessary personnel or equipment to handle either of these services and
is therefore dependent to outsource these types of services. A loss of any one
of these third parties would significantly disrupt our operations.

Dependence Upon Management - The operations and financial success of the Company
are significantly dependent on the managerial personnel of the Company, Katey
Daniel, Arthur Berger and William Miertschin. In the event that the management
of the Company becomes unable or unwilling to continue to direct its operations,
the Company could be adversely affected.

Incumbent Local Exchange Carrier (ILEC) - The Company purchases phone lines from
the ILECs at a discount and resells the lines on a prepaid basis; however, the
ILEC companies could offer those same lines to the Company's customers. For the
most part the ILECs are not interested in this market and have set their pricing
and restrictions to exclude most of our target market. However, ILEC's may
compete directly with the Company, which would drastically increase competition
and likely impair our business.

Incumbent Based Operation- The Company is a resale based operation and not a
facility based operation and therefore any Acts of God, Terrorist Acts or Union
Strikes that cause phone service to be interrupted will result in the Company's
total dependence on the ILEC provider to restore operations in a timely fashion.
Poor service provided by our ILEC could result in the loss of customers to our
Company.

The Financial Difficulties of Other Competitive Communications Providers Could
Adversely Affect our Financial Results - Many competitive local exchange
carriers and other emerging communications providers have experienced
substantial financial difficulties over the past year, in some cases leading to
bankruptcies and liquidations. The financial difficulties of these companies
could reflect poorly on the Company's financial stability, may diminish its
ability to obtain further working capital and may adversely affect the
willingness of potential customers to move their communications services to a
competitive local carrier like Local Telecom Systems, Inc.

Competition and Markets

The telecommunications industry is highly competitive. The Company believes that
the principal competitive factors affecting its business are pricing levels and
clear pricing policies, customer service, accurate billing and, to a lessor
extent, variety of services. The Company's ability to compete effectively
depends upon its continued ability to maintain high quality, market-driven
services at prices generally equal to or below those charged by our competitors.
To maintain its competitive posture, the Company believes it must be in a
position to reduce its prices in order to meet reductions in rates, if any, by

                                       5
<PAGE>



others. Any such reductions could materially adversely affect the Company. Many
of the Company's current and potential competitors have financial, personnel and
other resources, including brand name recognition, substantially greater than we
do or expect to have in the near term.

Telephone service providers like LTSI are subject to competition from other
providers including those incumbent local exchange carriers from which LTSI
purchases phone lines. As a result of the Telecommunications Act of 1996,
telephone companies are no longer afforded exclusive franchise service areas.
Under that Act, competitors can offer telephone services to LTSI subscribers.
The Act contemplates that various regulations will be promulgated by the Federal
Communications Commission (FCC) and state regulatory agencies to implement
various parts of the Act, such as regulations setting out the procedures and
methodologies for implementing and promoting competition in the telephone
industry. The regulations could have a material adverse effect, and the Act does
open the opportunity for others to be competitive for the same markets.

LTSI is initially targeting Hispanic households in the United States that
currently do not have telephone service. This sector presents opportunity, as
Hispanics: are growing at a rate faster than the national average; tend to be
brand loyal; have a higher than average number of residents in the home creating
a need for service; have favorable feature and long distance use; and are easier
to target market than other segments, as they tend to watch specific television
programming formats and networks during less expensive time periods, allowing
for reduced advertising costs. Other local exchange carriers that target this
same sector include, but are not limited to, Smoke Signal, 4Aphone and ComSouth.

The Act of 1996 has significantly increased the level of competition in our
local exchange markets. One of the purposes of the 1996 Act was to ensure, and
accelerate, the emergence of competition in local exchange markets. Toward this
end, the 1996 Act requires most existing local exchange carriers (incumbent
local exchange carriers, or ILECS's), to permit competitive local exchange
carriers, or CLEC's, including our Company, to purchase service from the ILEC
for resale to CLEC customers and interconnect the CLEC's network with the ILEC's
network. As a result, competition in the local exchange markets is expected to
continue to increase.

Governmental and Other Regulations

LTSI is subject to regulation by the Public Utility Commission, FCC and each of
the Utilities Boards in each state in which LTSI holds a license/certificate.
LTSI operates our telephone businesses pursuant to license/certificates and
various rules and regulations promulgated by these agencies. Although not
anticipated to occur, these agencies have the authority to terminate LTSI's
right to provide services if they fail to comply with those rules and
regulations.

Agencies, like the FCC, require us to file periodic reports, pay various fees
and assessments, and comply with rules governing quality of service, consumer
protection, and similar issues. Although the specific requirements vary from
state to state, they tend to be more detailed than the FCC's regulation because
of the strong public interest in the quality of basic local exchange service. We
intend to comply with all applicable state regulations, and as a general matter
do not expect that these requirements of industry-wide applicability will have a
material effect on our business. However, no assurance can be given that the
imposition of new regulatory burdens in a particular state will not affect the
profitability of our services in that state.

                                       6
<PAGE>




Under the Telecommunications Act, any entity, including cable television
companies, electric and gas utilities, may enter any telecommunications market,
subject to reasonable state regulation of safety, quality and consumer
protection. Because of the implementation of the Telecommunications Act, LTSI is
subject to numerous federal and state policy rulemaking proceedings and judicial
review. There is still uncertainty as to what impact such legislation will have
on us.

The Telecommunications Act is intended to increase competition. This Act was
designed to open the local services market by requiring incumbent local carriers
to permit interconnection to their networks and establishing incumbent local
carriers' obligations with respect to:

      Reciprocal Compensation. Requires all local exchange carriers to complete
      calls originated by competitive local exchange carriers under reciprocal
      arrangements at prices based on tariffs or negotiated prices.

      Resale. Requires all incumbent local carriers and competitive local
      carriers to permit resale of their telecommunications services without
      unreasonable restrictions or conditions. In addition, incumbent local
      carriers are required to offer wholesale versions of all retail services
      to other telecommunications carriers for resale at discounted rates, based
      on the costs avoided by the incumbent local carrier in the wholesale
      offering.

      Interconnection. Requires all incumbent local carriers and competitive
      local carriers to permit their competitors to interconnect with their
      facilities. Requires all incumbent local carriers to permit
      interconnection at any technically feasible point within their networks,
      on nondiscriminatory terms, at prices based on cost, which may include a
      reasonable profit. At the option of the carrier seeking interconnection,
      co-location of the requesting carrier's equipment in the incumbent local
      carriers' premises must be offered, except where an incumbent local
      carrier can demonstrate space limitations or other technical impediments
      to co-location.

      Number Portability. Requires all incumbent local carriers and competitive
      local carriers to permit users of telecommunications services to retain
      existing telephone numbers without impairment of quality, reliability or
      convenience when switching from one telecommunications carrier to another.

      Dialing Party. Requires all incumbent local carriers and competitive local
      carriers to provide (1+) equal access to competing providers of telephone
      exchange service and toll service, and to provide nondiscriminatory access
      to telephone numbers, operator services, directory listing, with no
      unreasonable dialing delays.

      Access to Rights-of-Way. Requires all incumbent local carriers and
      competitive local carriers to permit competing carriers access to poles,
      ducts, conduits and rights-of-way at regulated prices.

Incumbent local carriers are required to negotiate in good faith with carriers
requesting any or all of the above arrangements. If the negotiating carriers
cannot reach agreement within a prescribed time, either carrier may request

                                       7
<PAGE>



binding arbitration of the disputed issues by the state regulatory commission.
Where an agreement has not been reached, incumbent local carriers remain subject
to interconnection obligations established by the FCC and state
telecommunications regulatory commissions.

Personnel

As of September 30, 2003, the Company had four (4) full time employees plus both
full and part time consultants in addition to the Company's officers and
directors.

Item 2. Description of Property

LTSI corporate offices are located at 3535 West 7th Street, Suite 1, Fort Worth,
Texas. These offices are leased by LTSI from Llewellyn Realty. The monthly
rental payable by LTSI is $3,100. LTSI also pays the utilities and insurance.
The office lease is a month-to-month lease.

LTSI believes that its leased real estate, buildings, and other improvements are
adequate to conduct their businesses as conducted or proposed to be conducted on
the date of this filing. LTSI also believes that its leased buildings and
improvements have been maintained in good repair and condition, ordinary wear
and tear with depreciation excepted. LTSI also believes the leased buildings and
improvements are adequately insured. LTSI is not a hardware (facility) based
telecommunications company. Equipment consists mainly of office furniture and
equipment such as computers, telephone systems and fixtures. Value of said
equipment is not material.

Item 3.  Legal Proceedings

As of September 30, 2003, there were no legal proceedings to which the Company
was a party, and no litigation is known to be pending against the Company.


Item 4.  Submission of Matters to a Vote of Security Holders

Holders of a majority (7,829,179 shares of 15,000,000 outstanding shares) of the
Company's outstanding shares of common stock met at a special meeting of
stockholders on February 22, 2002, and voted to approve the merger acquisition
of Local Telecom Systems, Inc. (LTSI) and restructure the Company for that
purpose with a four (4) shares for five (5) shares reverse stock split and the
issuance of new shares for the acquisition of LTSI and related assets. At the
same meeting it was also approved to distribute stock in each of the four wholly
owned subsidiaries to the existing stockholders on a one (1) share for three (3)
shares basis with no additional cost. All 7,829,179 shares voted for each matter
and no shares voted against any matter and no shares abstained from voting on
any matters.

The Company plans to hold its annual meeting for 2003/2004 during the first half
of 2004.

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

(a) Market Information


                                       8
<PAGE>



The Company's shares became listed on the Electronic Bulletin Board in March
2003 with trades as high as $0.55 and as low as $0.05. The shares are traded
under the symbol "LTSY" for the shares (11,085,952 shares) held by non-
affiliates of the Registrant on September 30, 2003. On January 13, 2004 the
stock price was $0.06 Bid and $0.095 Ask.

During the 2002/2003 fiscal year, 650,000 warrants were exercised at 20 cents
per share. On September 30, 2003 the Company had 9,000,000 warrants outstanding
to purchase 9,000,000 common shares at an exercise price of $0.10 per share
expiring on June 6, 2006. These warrants were issued as consideration for the
conversion of 30,000,000 common shares to 600,000 shares of preferred stock of
the Company.

On August 3, 2003 30,000,000 shares of common stock was converted into preferred
stock by four parties, William R. Miertschin for 4,000,000 shares, Richard M.
Hewitt for 1,000,000 shares, Sammy Dog Ltd. for 12,500,000 shares and Connect
Holding Corp. for 12,500,000 shares. See Part III, Item 11 for additional
information regarding the ownership of common and preferred stock held by these
four parties.

On September 30, 2003, end of the fiscal year, the Company had 13,371,242 shares
issued and outstanding of which the Company believes it has 2,234,208 shares
that can be sold pursuant to Rule 144 under the Securities Act of which
1,229,205 shares are held by officers and directors. The Company also believes
it has approximately 2,436,000 shares that are not eligible for Rule 144 of the
Securities Act on September 30, 2003.

(b) Holders

The approximate number of security holders of record of the Company's common
stock on January 12, 2004 was 1,522. Additional stockholders hold stock in
street name; the number of holders in street name is not available to the
Company.

(c) Dividends

The Company did not declare a cash dividend or pay dividends during the fiscal
year ended September 30, 2003.

(d) Securities Authorized for Issuance Under Equity Compensation Plans

The Company currently does not have any securities authorized for issuance under
any Equity Compensation Plans.

Issuance of Unregistered Shares

During the year ended September 30, 2003, the Company issued 1,559,657 shares of
unregistered common shares for consulting services, 45,000 unregistered common
shares for director fees and 2,436,000 unregistered shares for a Private
Placement in Europe.

The facts relied on to make the exemption from registration provided by Section
4(2)of the Securities Act of 1933 available for the sale of securities discussed
above were: (1) the limited number of purchasers; (2) the sophistication or
accreditation of the purchasers; (3) their relationship with the Company and/or
access to material information about the Company; (4) the information furnished
to them by the Company; (5) the absence of any general solicitation or

                                       9
<PAGE>

advertising; and (6) restrictions on transfer of the securities issued to them
as indicated by legend on the certificates representing such securities.

Item 6.  Plan of Operations

Disclosure Regarding Forward-Looking Statements

This Form 10-KSB includes "forward-looking" statements within the meaning of
Section 27A of the Securities Act, and the Company desires to take advantage of
the "safe harbor" provisions thereof. Therefore, the Company is including this
statement for the express purpose of availing itself of the protections of such
safe harbor provisions with respect to all of such forward-looking statements.
The forward-looking statements in this Form 10-KSB reflect the Company's current
views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ from those anticipated. In the Form 10-KSB,
the words "anticipates," "believes, "expects," "intends," "future" and similar
expressions identify forward-looking statements. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that may arise after the date hereof. All subsequent written
and oral forward- looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by this section.

General Discussion

The primary focus during the 2002/2003 fiscal year was to audit the
acquisition/merger, to seek listing on the Electronic Bulletin Board and fund
the Company's growth. These filings were made and a successful listing was made
in March 2003 under the symbol "LTSY". Prior to and following the Company's
listing several attempts were made to secure funding, unfortunately, it was not
until August 2003 that limited funding was achieved. The delay in funding caused
the Company to loose a significant portion of its customer base plus certain
licenses expired in various states. Revenues declined as a result of not having
the available working capital to promote the Company's services. A funding
campaign is planned during 2004 to initiate a program to reestablish the
Company's customer base.

Liquidity and Capital Resources

Prior to the acquisition of Local Telecom Systems, Inc. the Company had
sufficient cash and or revenues to carry on the Company's limited operations. On
September 30, 2003 the Company had current assets of $34,708 compared to $20,515
on September 30, 2002 and current liabilities of $213,911 and $309,744
respectively for ratios of current assets to current liabilities of .16 to 1 on
September 30, 2003 compared to .07 to 1 on September 30, 2002 an improvement due
to an increase in cash on hand and reduction in current liabilities. The Company
continues to seek additional working capital through an equity financing. These
funds will be used to promote the Company's prepaid telephone services in its
core states, Texas, New Mexico and Arizona followed by identifying the next top
states with the largest Hispanic population to further build the Company's
revenues.
                                       10
<PAGE>

Assets and Liabilities

During the fiscal year ended September 30, 2002 the Company distributed all the
assets to its four former subsidiaries. The Company elected to write down its
basis in the Intangible Assets and Licenses acquired as the customer base
decreased due to the lack of funding to continue the advertising and promotion
campaign planned for the fall of 2002 and spring of 2003. The Intangible Assets
were $721,116 and Licenses $525,000 on September 30, 2002 were reduced to
$241,116 and $265,000 respectively to more fairly represent the impairment of
the Company's business operations incurred during the fiscal year ending
September 30, 2003.

The Company's liabilities on September 30, 2002, were $309,744 for accounts
payable and accrued liabilities compared to $181,411 on September 30, 2003. The
reduction in accounts payables were primarily due to the lower amount of taxes
and debt for equity due on September 30, 2003.

Results of Operations

The Company formed the LTS Unit Investment Trust ("UIT") in March 2003 to
finance the growth and expansion of the Company. The trust contained a total of
705 units to raise a maximum of $3,525,000 from this funding program. Only a
small amount ($32,500) was received from this UIT, which was recorded as a note
payable. The Company discontinued the UIT offering on June 30, 2003. See Note 4
for additional information in the accompanying financial statements.

The revenues for the fiscal year ended September 30, 2003 were $237,788 compared
to $42,652 for the year ended September 30, 2002, which was for only the period
of time from the effective date (August 30, 2002) until September 30, 2002. The
revenues were lower due to loss of customers over the year as the Company was
not able to keep its advertising program in place. A major portion of the
proposed funding was for advertising and promotion, unfortunately the Company
was not successful in finding a significant funding source for until August
2003.

Net Income (Loss)

The Company incurred a Net Loss of $917,925 for the year ended September 30,
2003, and a Net Loss of $514,863 for fiscal year ended September 30, 2002. The
losses incurred in fiscal 2002 were attributable to a $477,843 distribution of
assets through a Subsidiary Stock Dividend. Approximately half of the losses
incurred in fiscal 2003 were the write down of assets (Impairment Loss) of
$484,526 due to the loss by attrition of the Company's existing customer base in
it's core business as advertising was substantially reduced. See Note 3 for
additional information in the accompanying financial statements.

The Company also incurred significant expenditures in Legal and Professional
Services ($90,948), Consulting ($154,000) and Salaries, Wages, Transfer Agent
Fees ($117,676). These categories total $362,624 of which $291,859 was paid by
equity through the issuance of the Company's restricted common stock. See
Consolidated Statement of Changes in Stockholders' Equity and Note 2 in the
Company's financial statements for September 30, 2003 for additional
information.

Income Taxes

The Company anticipates that it will not generate taxable income sufficient to
utilize its carried forward tax losses at this time, based on historical
performance. See Note 4 to Financial Statements for additional disclosure.

Per share data the Company lost $0.07 per common share for the year ended
September 30, 2003 compared to $0.04 for the previous year.

Item 7.  Financial Statements

The financial statement information for LTSI is set forth immediately following
the signature page of this Form 10KSB. See the Financial Statements attached
hereto beginning on page F-1.

                                       11
<PAGE>


CLYDE BAILEY P.C.
--------------------------------------------------------------------------------
                                                    Certified Public Accountants
                                                        10924 Vance Jackson #404
                                                        San Antonio, Texas 78230
                                                            (210) 699-1287(ofc.)
                                           (888) 699-1287   (210) 691-2911 (fax)

                                                                         Member:
                                                     American Institute of CPA's
                                                          Texas Society of CPA's

                REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT

To the Board of Directors and Shareholders
Local Telecom Systems Inc.

We have audited the accompanying balance sheet of Local Telecom Systems Inc.
("Company") as of September 30, 2003 and the related statement of operations,
changes in stockholders' equity, and statement of cash flows for the years ended
September 30, 2003 and 2002. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the 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 audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company and
subsidiaries as of September 30, 2003, and the consolidated 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 financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has limited operations
currently and suffered recurring losses from operations that raise substantial
doubt about its ability to continue as a going concern. This is further
explained in the notes to financial statements.

                            /s/ Clyde Bailey
                            -----------------------
                                  Clyde Bailey
                           Certified Public Accountant

January 6, 2004
San Antonio, Texas




                                      F-1
<PAGE>

                          Local Telecom Systems, Inc.
                           Consolidated Balance Sheets
                            As of September 30, 2003

                                   A S S E T S
                                  -------------


Current Assets
--------------

        Cash                                         $    28,751
        Accounts Receivable                                5,957
                                                       -----------
                Total Current Assets                                  34,708

Fixed Assets
-------------

        Equipment, net of accumulated depreciation        32,206
                                                      -----------
                Total Fixed Assets                                    32,206

Other Assets:
-------------

        Intangible Assets, net of amortization           241,116
        License                                          265,000
                                                       -----------
                Total Other Assets                                   506,116

                Total Assets                                     $   573,030
                                                                   ===========

                          L I A B I L I T I E S
                         -----------------------

Current Liabilities
--------------------

        Accounts Payable and accrued expenses            181,411
        Notes Payable                                     32,500
                                                        -----------
                Total Current Liabilities                213,911

                Total Liabilities                                    213,911

        Commitments and Contingencies                                      -


                  S T O C K H O L D E R S ' E Q U I T Y
                  -------------------------------------

Preferred Stock, par value $.10 per share                 60,000
  authorized shares 1,000,000 shares,
  600,000 shares outstanding

Common Stock                                             223,299
  100,000,000 authorized shares,
  par value $.0167, 13,371,242 shares issued
  and outstanding

Additional Paid-in-Capital                             9,434,083
Accumulated Deficit                                   (9,358,263)
                                                      -----------

        Total Stockholders' Equity (Deficit)                         359,119
                                                                   -----------
        Total Liabilities and Stockholders' Equity               $   573,030
                                                                   ===========





    The accompanying notes are an integral part of the financial statements.

                                      F-2
<PAGE>



                           Local Telecom Systems, Inc.
                            Statements of Operations



                                             For the Twelve Months Ended
                                             September 30   September 30
                                             ------------- ---------------
Revenues:                                         2003           2002
---------                                    ------------- ---------------
     Revenues                               $     237,788  $      42,652
                                             ------------- ---------------
        Total Revenues                            237,788         42,652

Cost of Revenues
-----------------
     Telephone Services                     $     179,923  $      22,717
                                              ------------- --------------
Gross Profit                                $      57,865  $      19,935
------------

Expenses:
----------

     Legal and Professional Services               90,948          5,272
     Advertising                                   14,250          9,000
     Impairment Loss                              484,526              -
     Depreciation                                   8,051          2,104
     Consulting                                   154,000              -
     Salaries, Wages, and Transfer Agent Fees     117,676         31,859
     Other Selling, general & administrative
         expenses                                 107,112         18,099
                                              ------------- --------------
     Total Expenses                               976,563         66,334
     Operating Income                            (918,698)       (23,682)

Other Income (Expenses)
-----------------------

     Interest Income                                    -              -
     Effect of Subsidiary's Stock Dividend              -       (477,843)
     Other Income (expenses)                          773        (13,338)
                                              ------------- --------------
        Loss from Continuing Operations      $   (917,925) $    (514,863)
        Net Loss                             $   (917,925) $    (514,863)
                                              ============= ===============
Basic and Diluted Earnings Per Common Share         (0.07)         (0.04)
                                              ------------- --------------
Weighted Average number of Common Shares        12,520,582     12,520,582
used in per share calculations                ============= ==============



    The accompanying notes are an integral part of the financial statements.

                                       F-3
<PAGE>



                           Local Telecom Systems Inc.
            Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
         <S>                           <C>                 <C>              <C>             <C>            <C>              <C>


                                                                                         Accumulated
                                                                             Additional     other                        Total
                                       Common Stock       Preferred Stock     Paid-In   Comprehensive Accumulated   Stockholders'
                                   Shares     Amount    Shares     Amount     Capital       Income      Deficit         Equity
                                 -------------------  --------------------  ------------ ------------ ------------  --------------
Balance September 30, 2001      11,919,182    $199,505            $     -    $8,149,883    (11,934)   $(7,925,475)   $  411,979

  Stock Issued for Cash             25,000         418                            4,583                                   5,000

  Effect of Reverse Stock Split (3,129,415)    (52,261)                          52,261                                      (0)

  Shares Issued for Warrants       650,000      10,855                          119,145                                 130,000

  Stock Issued for Services        336,000       5,611                           61,589                                  67,200

  Stock Issued for Acquisition  29,529,818     492,693                          393,202                                 885,895

  Comprehensive (Loss):                                                                     11,934                       11,934
  Net Loss                               -           -                                -                  (514,863)     (514,863)
                               ------------  ----------- -----------------  -------------- ----------- ------------  -------------
Balance September 30, 2002      39,330,585     656,820        -        -      8,780,662          -     (8,440,338)      997,144
                               ============  =========== ================== ============== =========== ============  =============

  Conversion of Common to
      Preferred Stock          (30,000,000)   (501,000) 600,000    60000        441,000                                       -

  Stock Issued for Consu1ting    1,540,000      25,718                          128,282                                 154,000

  Stock Issued for Legal Services   64,657       1,080                           63,577                                  64,657

  Stock Sold for Cash            2,436,000      40,681                           20,562                                  61,243

  Net Loss                               -           -        -        -              -         -        (917,925)     (917,925)
                               -----------  ----------- ------------------ --------------- ------------ -----------  ------------
Balance September 30, 2003      13,371,242     223,299  600,000   60,000      9,434,083         -      (9,358,263)      359,119
                               ===========  =========== ================== =============== ============ ===========  ============


</TABLE>


          See accompanying notes to Consolidated Financial Statements

                                      F-4
<PAGE>


                           Local Telecom Systems, Inc.
                      Consolidated Statements of Cash Flows
                                   (Unaudited)



                                                 Twelve Months Ended
                                                September
                                                   30      September
                                               ----------  ----------
                                                   2003        2002
                                               ----------  -----------
Cash Flows from Operating Activities:
-------------------------------------

    Net Income (Loss)                          $ (917,925)  $ (514,863)
    Adjustments to reconcile net income
    (loss) to net cash provided(used) to
    operating activities:
       Depreciation                                 8,051        2,104
       Stock Issued to Consultants                154,000       67,200
       Stock Issued for Legal Services             64,657            -
       Impairment Loss                            484,526            -
       Effect of Subsidiary's Stock Dividend                   477,843
       Accounts Receivable                         14,281            -
       Accounts Payable and accrued expenses       98,831       20,933
                                                ----------  -----------
       Total Adjustments                          824,346      568,080
                                                ----------  -----------
Net Cash provided (used) in Operating Activities $(93,579)    $ 53,217

Cash Flows from Investing Activities:
-------------------------------------
    Notes Receivable:
    Advances                                            -      (95,000)
    Collections                                         -         5120
    Acquisition                                         -     (100,000)
                                                 ---------  -----------
Net Cash provided (used) in Investing            $      -  $  (189,880)
Activities                                       ---------  -----------

Cash Flows from Financing Activities:
-------------------------------------
    Common Stock                                   89,553      135,000
    Note Payable                                   32,500            -
                                                 ---------- -----------
                                                 ---------- -----------
Net Cash provided (used) by
 Financing Activities                          $  122,053   $  135,000
                                                ----------  -----------
Net Increase (Decrease) in Cash                  $ 28,474   $   (1,663)

Cash Balance,  Beginning of Period                    277        1,940
                                                ----------  -----------
Cash Balance,  End  of Period                  $   28,751   $      277
                                                ==========  ===========
Supplemental cashflow information:
    Cash Paid for interest                      $       0   $        0
    Cash Paid for income taxes                  $       0   $        0



The accompanying notes are an integral part of the financial statements.

                                       F-5

<PAGE>
                           LOCALTELECOM SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                             Description of Business

Local Telecom Systems Inc. (formerly Signature Motorcars, Inc.) (the "Company")
was incorporated in Nevada on February 19, 1969, as International Royalty &
Finance Co. Prior to the Company's public offering in 1972, the Company changed
its name to International Royalty & Oil Co. In April 1996, the Company's
controlling interest was acquired by ExotiCar Rentals, Inc. and the name was
changed to Signature Motorcars, Inc. On March 27, 2002, the Articles of Merger
was signed with Local Telecom Systems Inc., a Nevada company, and the Company.
As part of the merger agreement, the Company agreed to the name change to Local
Telecom Systems, Inc.  The effective date of the agreement was August 30, 2002.

                              Basis of Presentation

The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.


                           Principles of Consolidation

At the shareholders' meeting held on February 22, 2002, the shareholders
approved stock dividends to the shareholders of 100% of the outstanding common
stock of four wholly owned subsidiaries. The effective date of these stock
dividends was to be prior to the effectiveness of the merger with LTSI. Each
stock dividend was approved on a one (1) share for three (3) shares basis. The
stock dividends apply to International Royalty & Oil, Inc., Signature Financial
Services, Inc., Cumberland Continental Corp., and Signature Healthcare, Inc. The
capitalization for each company is 100,000,000 shares authorized with 5,000,000
shares outstanding with a par value of $0.001 per share. The record date for the
distribution of the 5,217,179 common shares was each of the four companies is
April 15, 2002.

                        Use of Estimates and Assumptions

Preparation of the Company's financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.

                            Net Loss Per Common Share

In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS
128 provides a different method of calculating earnings per share than was
formerly used in APB Opinion 15. SFAS 128 provides for the calculation of basic
and diluted earnings per share. Basic earnings per share includes no dilution
and is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Dilutive
earnings per share reflects the potential dilution of securities that could
share in the earnings of the Company. Because the Company has no potential
dilutive securities, the accompanying presentation is only of basic loss per
share.

                             Statement of Cash Flows

For statement of cash flow purposes, the Company considers short-term
investments with original maturities of three months or less to be cash
equivalents.

                                      F-6
<PAGE>

                           LOCALTELECOM SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003

                                  Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 utilizes the asset and liability method of computing deferred income taxes.
The objective of the asset and liability method is to establish deferred tax
assets and liabilities for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

                             Property and Equipment

Property and equipment is stated at cost. Depreciation is expensed using
straight-line and accelerated methods over the estimated useful lives of the
assets. The estimated useful lives are: building-30 to 40 years; equipment and
tools-5 to 7 years; software-5 years; furniture and fixtures-5 to 7 years.
Depreciation expense in the amount of $8,051 and $2,103 has been recognized for
the years ended September 30, 2003 and 2002 respectively.

                         Impairment of Long-Lived Assets

The Company follows SFAS No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". The Statement requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events of changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.

                        Recent Accounting Pronouncements

Segments of an Enterprise and Related Information

Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information, supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The Company has evaluated this SFAS and does not believe it is
applicable at this time.

Goodwill and Other Intangible Assets

In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Standards ("SFAS") No. 141, "Business Combinations" and No. 142,
"Goodwill and Other Intangible Assets". SFAS No. 141 established accounting and
reporting standards for business combinations and eliminates the
pooling-of-interests method of accounting for those combinations initiated after
July 1, 2001. SFAS No, 141 also includes new criteria to recognize intangible
assets separately from goodwill. SFAS No. 142 establishes the accounting and
reporting standards from goodwill and intangible lives. Goodwill and intangibles
with indefinite lives will no longer be amortized, but, alternatively will be
reviewed periodically for indicators of impairment. Separate intangible assets
that are not deemed to have an indefinite life will continue to be amortized
over their useful lives. The Company does not anticipate that the adoption of
SFAS No. 141 and SFAS No. 142 will have a significant effect on its results of
operations or financial position.

Impairment or Disposal of Long-Lived  Assets

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. It supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of", and the accounting and reporting
provisions of Accounting Principles Board Statement ("APB") 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", for the disposal of a segment of a business. The Company is
required to adopt SFAS No. 144 on October 1, 2002. The Company does not expect
that the adoption of SFAS No. 144 will have a material effect on its financial
position, results of operations or cash flows.

                                      F-7
<PAGE>

                           LOCALTELECOM SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003

Accounting  for Costs Associated  with Exit or Disposal  Activities

 In July 2002, the FASB issued SFAS No. 146 , "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 replaces "Emerging Issues Task
Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)". SFAS No. 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to
be applied prospectively to exit or disposal activities initiated after December
31, 2002. The Company does not expect the adoption of SFAS No. 146 to have a
material effect on its financial position, results of operations or cash flows.

2. COMMON AND PREFERRED STOCK

The Company has 100,000,000 common shares authorized with a par value of $0.0167
of which 13,371,242 are issued and outstanding as of September 30, 2003. The
Company also has 1,000,000 preferred shares authorized with a par value of $0.10
of which 600,000 shares are issued and outstanding as of September 30, 2003.

On August 3, 2003 30,000,000 shares of common stock was converted into preferred
stock by four parties, William R. Miertschin for 4,000,000 shares, Richard M.
Hewitt for 1,000,000 shares, Sammy Dog Ltd. for 12,500,000 shares and Connect
Holding Corp. for 12,500,000 shares being the current officers and directors of
the Company. The Series A preferred stock is convertible at the rate of 50
shares of common shares for each shares of preferred stock. Each shares of
Series A preferred stock is entitled to 50 votes in shareholder votes. The
Series A preferred stock is entitled to a dividend of $.50 per share per year
payable quarterly out of funds approved by the Board of Directors that are not
below the level deemed necessary for the operation of the Company. The
liquidating preference is $5.00 per share. The preferred shareholder has the
option to convert each share of preferred stock into 50 shares of common stock
at their option until September 1, 2006 when the shares will automatically
converted into common stock by the Company.

On September 30, 2003 the Company had 9,000,000 warrants outstanding to purchase
9,000,000 common shares at an exercise price of $0.10 per share expiring on June
6, 2006. These warrants were issued as consideration for the conversion of
30,000,000 common shares to 600,000 shares of preferred stock of the Company.

During the year ended September 30, 2003, the Company issued 1,540,000 shares of
unregistered common shares for consulting services, 64,657 unregistered common
shares for director fees. These shares were issued at the rate of $.10 per
share. Also, there were a total of 2,436,000 unregistered shares for a Private
Placement in Europe for a total of $61,243.

During the year ended September 30, 2002, the Company issued securities in the
transactions below without registering the securities under the Securities Act
of 1933. No underwriter, sales or placement agent was involved in any of the
transactions.

On October 25, 2001 the Company issued the following restricted shares of common
stock to the following persons in exchange for their services: Karen Lee (10,000
shares), Robert Anderson (25,000 shares), Amber Smith (15,000 shares), J.V.
Rhyne (10,000 shares), Benjamin Botello (45,000 shares), Barbara Williams (1,000
shares), Susie Hare (1,000 shares) and Melissa Eason (1,000 shares). The Company
also sold to Dale Houlette, an existing shareholder, 25,000 restricted common
shares for $5,000.

On December 7, 2001 the Company issued 228,000 restricted common shares as
compensation to its officers and directors (William R. Miertschin, Victoria
Lucas and Howard Siegel).

                                      F-8
<PAGE>

                           LOCALTELECOM SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003

On March 19, 2002 the Company issued 350,000 restricted common shares when
Stephen Grosberg, an existing shareholder, exercised 350,000 warrants. These
warrants were issued in conjunction with the private placement of stock made on
December 20, 1999. The exercise price was $0.20 per share and resulted in cash
to the Company of $70,000.

On April 1, 2002 the Company issued 300,000 restricted common shares when
Herbert Wolas, an existing shareholder, exercised 300,000 warrants. These
warrants were issued in conjunction with the private placement of stock made on
December 20, 1999. The exercise price was $0.20 per share and resulted in cash
to the Company of $60,000.

On February 15, 2002 the Company issued 2,719,818 restricted common shares for
consulting services to Graford Communications Group and Copano Bay Associates,
Texas general partnerships partially owned by Richard M. Hewitt, a director, and
two accredited investors, for the acquisition and for providing funding
arrangements for the merger with Local Telecom Services, Inc. These consulting
services received only restricted shares for compensation.

On April 18, 2002 the Company made effective the 4-for-5 reverse stock split and
allocated 27,335,584 restricted common shares for the acquisition of all
property, rights, privileges, leases of LTSI which became effective on August
30, 2002 and allocated 11,374,416 restricted common shares for funding the
merged entity.

3. IMPAIRMENT LOSS

The asset groups not covered by SFAS 144 that are included in an asset group are
adjusted in accordance with other applicable accounting standards prior to
testing the asset group for recoverability. The Company has categorized all of
its long-lived assets as being held and used and not to be sold. During the year
ended September 30, 2003, the Company recognized an impairment loss of $484,526
relating to the goodwill and licenses acquired in the acquisition completed in
August 2002.

4. NOTE PAYABLE

The Company formed the LTS Unit Investment Trust ("UIT") in March 2003 to
finance the growth and expansion of the Company. The trust contained a total of
705 units with a total amount of $3,525,000 to be raised. As of September 30,
2003, a total of $32,500 has been recorded as a note payable. The structure of
the offering is for UIT to receive 60% of the net profit unit until repaid in
full. Also, each unit receives 7,500 shares of common stock for each unit
($5,000) funded. The Company discontinued the UIT offering program on June 30,
2003.

5. RELATED PARTY TRANSACTIONS

The Company has significant relations with the President and principal
shareholder, William R. Miertschin in the form of salary (paid in stock) and
expenses.

6. INCOME TAXES

At September 30, 2003, the Company had net operating loss carry forwards
totaling approximately $9,100,000 available to reduce future taxable income
through the year 2022. Due to changes in control of the Company, these carry
forwards are limited on an annual basis.

7. ACQUISITION

Local Telecom Systems, Inc. (LTSI) is a local telephone service reseller with a
three-year old customer base in Texas, New Mexico and Arizona. LTSI recently
acquired the necessary licenses and inter-connect agreements to offer, on a
national basis, prepaid local telephone service and various ancillary products
such as 911, caller ID and prepaid long distance in 45 states.

                                      F-9
<PAGE>


                           LOCALTELECOM SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003

The transaction is being accounted for as a "purchase" following the procedures
of SFAS 142, "Accounting for Business Combinations.

         The following table summarizes the estimated fair value of the assets
         of the assets acquired and liabilities assumed at the date of
         acquisition:

                       Current Assets                            $      20,582
                       Fixed Assets                                     35,000
                       Goodwill                                        721,116
                       Licenses                                        525,000
                       Debt Assumed                              (     415,803)
                                                                 --------------

                       Net Assets Acquired                        $    885,895
                                                                 ==============


8. COMMITMENTS AND CONTINGENCIES

                          Concentration of Credit Risk

The Company invests its cash and certificates of deposit primarily in deposits
with major banks. The Company has not incurred losses related to its cash.

                       Fair Value of Financial Instruments

The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, Disclosures about Fair
Value of Financial Instruments. The estimated fair value amounts have been
determined by the Company, using available market information and appropriate
valuation methodologies.

The fair value of financial instruments classified as current assets or
liabilities including cash and cash equivalents and accounts payable approximate
carrying value due to the short-term maturity of the instruments.


9. GOING CONERN


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. However, the Company does not have significant cash or other material
assets, The issues related to unpaid telephone excise tax and a potential debt
that was not assumed raises substantial doubt about its ability to continue as a
going concern. The stockholders/officers and or directors have committed to
advancing operating costs of the Company interest free to continue operations
for the next twelve months, but they are not legally obligated to do so.


10. SUBSQUENT EVENTS

There were no other subsequent events that have occurred after the balance sheet
date that warrants disclosure.


                                      F-10
<PAGE>

Item 8.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

There are no disagreements between the Company and its auditor, Clyde Bailey,
P.C., San Antonio, Texas, regarding accounting and/or financial disclosure.

                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons

The following are the officers and directors of the Company as of January 13,
2004:
                                  Date First
Name                        Age   Elected           Term        Position
--------------------------------------------------------------------------------
William R. Miertschin       56    1997             1 year      President, CEO &
                                                               Director

Katey J. Daniel             30    2003             1 year      Secretary &
                                                               Director

Arthur R. Berger            74    2003             1 year      CFO

Amber G. Smith              39    2002             1 year      Treasurer

Richard M. Hewitt           66    2002             1 year      Director

William R. Miertschin, President, Chief Executive Officer, and Chairman of the
Board of Directors, is an oil and gas consultant with offices in Dallas, Texas.
A 1972 graduate of the University of Texas at Austin, with a BA in Mathematics,
he completed additional courses in petroleum engineering at the University of
Texas of the Permian Basin in 1978. Beginning his oil and gas career in 1975,
Miertschin served as an Engineer with the Baroid Division of NL Industries in
Odessa, Texas. From 1977 to 1979, Mr. Miertschin was Drilling Supervisor for
Gulf Oil Exploration and Production, being the first trainee to complete Gulf
Oil's drilling and production engineering training program. Thereafter, he was
employed with Mesa Petroleum (1979-1985) as Corporate Supervisor of Regulatory
and Safety in Amarillo, Texas, and as Drilling Supervisor and Senior Drilling
Engineer in Midland and Amarillo, Texas, managing Mesa's corporate drilling and
completion operations for all of the Permian Basin Division, Texas Panhandle and
Kansas. In 1986 he graduated from the Leadership Amarillo Program of the
Amarillo Chamber of Commerce. A former member of the Society of Petroleum
Engineers, Mr. Miertschin has served as an expert witness before the Kansas
Corporation Commission (KCC) and the New Mexico Oil Conservation Commission
(NMOCC) on regulatory affairs, drilling and completion, and analysis of
potential production purchases. He also served on the Oil and Gas Advisory
Committee to KCC to revise statewide rules in Kansas. Mr. Miertschin has been
active in the oil and gas industry as an investor and operator, and has been in
private practice as a consultant in the Dallas-Fort Worth area for the last
fourteen (14) years. Since 1997, Mr. Miertschin has served as President, Chief
Executive Officer and Chairman of the Board of Directors of the Company and its
subsidiaries. During this period he maintained, funded and expanded the
operations of the Company. He has agreed to continue with Local Telecom Systems,
Inc. in those same capacities. Mr. Mierstchin is also currently serving as the
President of each of the former subsidiaries of the Company. See Item 13
"Certain Relationships and Related Transactions." Also, he is currently a
Vice-President of the Dallas Safari Club.

                                       12
<PAGE>

Arthur R. Berger, CPA, Chief Financial Officer. Mr. Arthur R. Berger is a CPA,
licensed in the State of Texas. Mr. Berger has an undergraduate degree from
Southern Methodist University and two master's degrees from the University of
Illinois. He has had senior executive responsibilities in several industries
including manufacturing and financial services. Mr. Berger is a former partner
in Arthur Andersen & Co.'s consulting group. Prior to joining the LTSI's
management team, Mr. Berger had a successful professional practice. In that
capacity, Mr. Berger worked with other key LTSI personnel and has been
associated with LTSI for over 2 years.

Katey J. Daniel, Secretary, Director of Operations, and a Director of the
Company since June 2003 is a 1996 graduate from Brandon University in Manitoba,
Canada with a BBA and a 2000 graduate from the University of Dallas in Irving,
Texas with a MBA with a major in Telecommunications and has been involved in
sales, marketing, training, and now business development management positions in
the telecommunications sector.

Amber G. Smith, Treasurer of the Company since February 2002, a native of
Friona, Texas, Ms. Smith is a 1986 graduate of West Texas State University,
Canyon, Texas. Ms. Smith worked as Telecommunications Manager of Span
Instruments, Inc., Plano, Texas from 1991 until 1996.  Since 1996 she has been
active in managing her personal investment portfolio and performing consulting
services for both public and private companies. In 1989 and 1990 she was

Communications Manager of H.D. Vest Financial Services, Inc., Irving, Texas, a
securities broker dealer. Ms. Smith also currently serves as Secretary of
Cumberland Continental Corp. and Signature Financial Services, Inc. both of
which are former subsidiaries of the Company.

Richard M. Hewitt, Director of the Company since February 2002, is a sole
practitioner attorney specializing in securities law. A 1958 graduate of
Grinnell College, Grinnell, Iowa, with an AB degree, Mr. Hewitt holds an LLB
degree from Southern Methodist University, College of Law in Dallas, Texas
(1963). He has been in private practice in the Dallas-Fort Worth area for the
last 20 years. Mr. Hewitt is currently Vice President and a Director of Gas
Transmission Organization, Inc., Dallas, Texas, a Secretary/Treasurer and
Director of Signature Healthcare, Inc. and a Director of Golden Chief Resources,
Inc., Dallas, Texas, a publicly owned independent oil and gas producer.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely on a review of reports filed with the Company, several persons
(William Miertschin, Amber Smith, Tracey Norris, Arthur Berger, Katey Daniel and
Richard M. Hewitt) have not file all reports regarding transactions in the
Company's securities required to be filed pursuant to Section 16(a) under the
Securities Exchange Act of 1934.

Item 10.  Executive Compensation

The Company's total remuneration for annual salary and bonuses does not exceed
$100,000 per officer. The Company currently does not have a compensation
committee, however, since the merger with Local Telecom Systems, Inc. an
independent compensation committee will be formed to evaluate the annual
remuneration for each of its officers.

      Name                    Position                      Annual Compensation
 -------------------------------------------------------------------------------
      William Miertschin      President & CEO               $30,000
      Katey Daniel            Secretary                     $12,000
      Arthur R. Berger        CFO                           $30,000
      Amber Smith             Treasurer                     $ 6,000


The Directors of the Company, William Miertschin and Richard M. Hewitt both
receive 39,000 shares of restricted common stock per year as compensation for
their services as directors plus reimbursement of any approved out of pocket
expenses incurred on behalf of the Company. Tracey Norris a former director and
officer received 24,000 shares until her resignation and then Katey Daniel
received 15,000 shares for the fourth quarter.

                                       13
<PAGE>


Item 11.  Security Ownership of Certain Beneficial Owners and Management

The following is certain information concerning the officer and directors and
persons or firms who are known by the Company to own beneficially more than 5%
of the Company's common stock (16,284,423 shares) and voting shares on January
14,2004:

                        Name and Address            Number of         Percent
Title of Class        of Beneficial Owner         Shares Owned       of Class
--------------------------------------------------------------------------
Common Stock          Connect Holding Corp.            330,000*       2.026
$0.0167 Par Value     1133 Empire Drive
                      Dallas, Texas 75247

Common Stock          Sammy Dog, Ltd.                  330,000**      2.026
$0.0167 Par Value     400 North Bailey Ave.
                      Fort Worth, Texas 76107

Common Stock          Ivan Webb                       1,481,085       9.095
$0.0167 Par Value     901 West 6th Street
                      Cisco, Texas 76437

Common Stock          John Davis                      1,828,181      11.226
$0.0167 Par Value     Hillandale, Seaway Lane
                      Torquay, Devon
                      United Kingdom TQ2 6PN

*Connect Holding Corp. has 250,000 shares of preferred stock, which has voting
rights equal to 12,500,000 shares of common stock.

**Sammy Dog, Ltd. has 250,000 shares of preferred stock, which has voting rights
equal to 12,500,000 shares of common stock.


---------------------------------------------------------------------------
Executive Officers and Directors
---------------------------------------------------------------------------
Common Stock          William R. Miertschin             314,163*     1.929
$0.0167 Par Value     7738 Forest Lane #102
                      Dallas, Texas 75230

Common Stock          Katey Daniel                       65,000       .399
$0.0167 Par Value     4202 Zion Hill Road
                      Weatherford, Texas 76088

Common Stock          Amber G. Smith                    152,800       .938
$0.0167 Par Value     6867 Anglebluff Circle
                      Dallas, Texas 75248

Common Stock          Richard M. Hewitt                 397,242**    2.439
$0.0167 Par Value     202 Fresh Meadow Drive
                      Trophy Club, Texas 76262

Common Stock          Arthur R. Berger                  300,000      1.843
$0.0167 Par Value     3813 Hilwood Way
                      Bedford, Texas 76021
All Directors and Officers as a group (4 persons)     1,229,205      7.548

* William R. Miertchin has 80,000 shares of preferred stock, which has voting
rights equal to 4,000,000 shares of common stock.

**Richard M. Hewitt has 20,000 shares of preferred stock, which has voting
rights equal to 1,000,000 shares of common stock.

Changes in Control of Issuer:


                                       14
<PAGE>



No changes occurred during the year ended September 30, 2003.

Item 12. Certain Relationships and Related Transactions

William R. Miertschin, President of the Company, is also President and Director
of the four former subsidiaries of the Company that were distributed to the
Companies shareholders in April 2002. These four former subsidiaries are
International Royalty & Oil Co., formed in July 1999, Signature Financial
Services, Inc., formed in July 2000, Cumberland Continental Corporation, formed
in June 2001 and Signature Financial Services, Inc. formed in September 2001.
However, the Company does not anticipate any conflicts of interest with him
holding these corporate positions.

No other related transactions occurred between the Company and its officers,
directors and affiliates.

Item 13.  Exhibits and Reports on Form 8-K

Certifications by Chief Executive Officer and Chief Financial Officer.

Item 14.  Controls and Procedures

(a)   The Company plans to expand the Board of Directors within the fiscal year
      ending September 30, 2004 to provide an independent board which will then
      create two committees independent of management 1) audit committee and 2)
      compensation committee.

(b)   No significant changes occurred in the internal controls of the Company
      during the fiscal year ended September 30, 2003.

(c)   Not Applicable


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, Local Telecom Systems, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                          LOCAL TELECOM SYSTEMS, INC.


Date: January 14, 2004                    /s/ William R. Miertschin
                                          ----------------------------
                                          By: William R. Miertschin, President &
                                              Chief Executive Officer

Date: January 14, 2004                    /s/ Arthur R. Berger
                                          ----------------------------
                                          By: Arthur R. Berger, CFO


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:

Signature                         Title                         Date

/s/ Katey Daniel                  Secretary & Director          January 14, 2004
--------------------------
Katey Daniel


/s/ William R. Miertschin         President, CEO & Director     January 14, 2004
--------------------------
William R. Miertschin


/s/ Richard M. Hewitt             Director                      January 14, 2004
-------------------------
Richard M. Hewitt

                                       15
<PAGE>


                               INDEX TO EXHIBITS

EXHIBT NO.     PAGE NO.         DESCRIPTION

3(i)              *             Articles of Incorporation
3(ii)             *             Bylaws
31(i)             17            302 Certification of Chief Executive Officer
31(ii)            18            302 Certification of Chief Financial Officer
32(i)             19            906 Certification of Chief Executive Officer
32(ii)            20            906 Certification of Chief Financial Officer


* Previously filed as indicated and incorporated herein by reference from the
referenced filings previously made by the Company.



                                       16
<PAGE>

                                                                   EXHIBIT 31(i)


                                  CERTIFICATION

I,  William R. Miertschin, CEO do hereby certify that:
1. I have reviewed this annual report on Form 10-KSB of Local Telecom Systems,
     Inc

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report.

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules L3a-14 and 15d-14) for the registrant and have:
        a) designed such disclosure controls and procedures 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 annual report
           is being prepared;
        b) evaluated the effectiveness of the registrant's disclosure controls
           and procedures as of a date within 90 days prior to the filing date
           of this annual report (the "Evaluation Date"); and
        c) presented in this annual report our conclusions about the
           effectiveness of the disclosure controls and procedures based on our
           evaluation as of the Evaluation Date:

5. The registrant's other certifying officers and I have disclosed, base on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
        a) all significant deficiencies in the design or operation of internal
           controls which could adversely affect the registrant's ability to
           record, process, summarize and report financial data and have
           identified for the registrant's auditors any material weaknesses in
           internal controls; and
        b) any fraud, whether or not material, that involves management or other
           employees who have a significant role in the registrant's internal
           controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

     Date January 14, 2004
     ----------------------
                                          /s/William R. Miertschin
                                          ------------------------
                                          William R. Miertschin, Chief Executive
                                          Officer


                                       17
<PAGE>
                                                                  EXHIBIT 31(ii)

                                  CERTIFICATION

I,  Arthur R. Berger, CFO do hereby certify that:
1.  I have reviewed this annual report on Form 10-KSB of Local Telecom Systems,
     Inc

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report.

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
        a) designed such disclosure controls and procedures 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 annual report
           is being prepared;
        b) evaluated the effectiveness of the registrant's disclosure controls
           and procedures as of a date within 90 days prior to the filing date
           of this annual report (the "Evaluation Date"); and
        c) presented in this annual report our conclusions about the
           effectiveness of the disclosure controls and procedures based on our
           evaluation as of the Evaluation Date:

5. The registrant's other certifying officers and I have disclosed, base on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
        a) all significant deficiencies in the design or operation of internal
           controls which could adversely affect the registrant's ability to
           record, process, summarize and report financial data and have
           identified for the registrant's auditors any material weaknesses in
           internal controls; and
        b) any fraud, whether or not material, that involves management or other
           employees who have a significant role in the registrant's internal
           controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

     Date January 14, 2004
     ----------------------
                                          /s/Arthur R. Berger
                                          ------------------------
                                          Arthur B. Berger, Chief Financial
                                          Officer

                                       18
<PAGE>
                                                                   EXHIBIT 32(i)


                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Local Telecom Systems, Inc. (the
"Company") on form 10-KSB for the period ended September 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
William R. Miertschin, President of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Okley 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 operation of the Company.


/s/ William R. Miertschin
--------------------------
William R. Miertschin
Chief Executive Officer

Date:       January 14, 2004
            ---------------


                                       19
<PAGE>
                                                                  EXHIBIT 32(ii)

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Local Telecom Systems, Inc. (the
"Company") on form 10-KSB for the period ended September 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Arthur R. Berger, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Okley
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 operation of the Company.


/s/ Arthur R. Berger
--------------------------
Arthur R. Berger
Chief Financial Officer

Date:       January 14, 2004
            ---------------


                                       20