SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,1996
SIMS COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 65-0287558
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3333 South Congress Avenue, Suite 401, Delray Beach, FL 33445
(address of principal executive offices) (Zip Code)
(561) 265-3601
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) or the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes_X___ No____
As of November 20, the Company had 5,229,907 shares of Common Stock
issued and outstanding.
Page 1 of 12 Pages
PART I. FINANCIAL INFORMATION
Part 1. Financial Information
Item 1. Index to Financial Statements
SIMS COMMUNICATIONS, INC.
CONSOLIDATED FINANCIAL STATEMENTS Page
Consolidated Balance Sheets at
Sept. 30 1996 and June 30, 1996...................3
Consolidated Statements of Income for the
Three Months Ended September 30, 1996 and 1995.4
Consolidated Statement of Cash Flows for the
Three Months Ended September 30, 1996.and 1995.5
Consolidated Statement of Stockholders' Equity
for the Three Months Ended September 31, 1996.....6
Notes to Consolidated Financial Statements........................
7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations... 11
Part 11. Other Information 12
SIMS COMMUNICATIONS INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 JUNE 30,
1996 1996
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $269,426 $322,542
Accounts Receivables 160,152 150,950
Franchise & Other R eceivables, net
of $10,000 allowance 232,119 208,582
Inventories 817,918 1,059,637
Prepaid expenses 50,704 58,904
Notes Receivable, current portion 182,637 182,637
Total Current Assets 1,712,956 1,983,252
PROPERTY AND EQUIPMENT,
Property & Equipment 1,393,096 1,393,096
Less Accumulated Depreciation 378,263 321,245
Net Property & Equipment 1,014,833 1,071,851
OTHER ASSETS
Note receivable 481,363 201,363
Investment in non consolidated subsidiaries (Note 5)200,000
- -
Deferred location costs 34,813 38,100
Deposits 14,016 13,761
Organization Costs -net 3,067 4,045
Total Other Assets 733,259 257,269
Total Assets $3,461,048 $3,312,372
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $1,053,430 $804,231
Bank line of credit 250,000 250,000
Current obligations under capital lease 6,148 6,148
Current maturities of long term debt
(Note 2) 407,666 407,666
Loans from stockholders/officers 156,174 Franchise
deposits and customer
deposits 865,263 875,263
Total Current Liabilities 2,738,681 2,343,308
LONG TERM LIABILITIES
Long term debt (Note 2) 31,656 59,048
Obligations under capital leases 138 2,178
Total Long Term Liabilities 31,794 61,226
Total Liabilities 2,770,475 2,404,534
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock Series A $.001
par value, 300,000 shares --- ---
authorized, no shares issued or outstanding.
Preferred stock Series B $.001 par value,
100,000 shares --- ---
authorized, no shares issued or outstanding.
Preferred stock subscribed, 124,250 shares 365,000
365,000
Common stock $.0001 par value 40,000,000
shares authorized: 443 403
4,429,908 shares issued and outstanding Sept 1996 and
4,029,908 shares June 1996 (Note 3
Additional Paid In Capital 11,260,695
11,060,735
Accumulated Deficit (10,935,565)
(10,518,300)
Total Stockholders Equity 690,573 907,838
Total Liabilities and Stockholders' Equity $3,461,048
$3,312,372
See notes to consolidated financial statements
SIMS COMMUNICATIONS INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September
30,
1996 1995
Revenues
Equipment & Other $307,013 $21,027
Activations 541,140 -
Rental 346,246 93,706
Royalty 2,295 15,878
Total revenues 1,196,694 130,611
Cost of Sales 887,452 93,316
Gross profit 309,242 37,295
Operating expenses
General & Administrative 356,251 456,964
Depreciation and amortization 57,996 44,589
Interest-net 12,328 4,768
Selling & Marketing 298,435 5,842
Research & Development 1,497 39,781
Total Expenses 726,507
711,944
Loss before income taxes ($417,265) ($674,649)
Income Tax Expense - -
Net Loss ($417,265) ($674,649)
Net Loss Per Common Share ($0.10) ($0.33)
Weighted Average Common 4,029,908 2,018,871
Shares Outstanding
See notes to consolidated financial statements.
SIMS COMMUNICATIONS INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDING SEPTEMBER 30, 1996 AND 1995
(Unaudited)
September 30,
CASH FLOWS FROM OPERATING ACTIVITIES 1996 1995
Net (loss) ($417,265)
($674,649)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 57,018 39,986
Amortization 978 4,603
Changes in assets and liabilities:
Inventories 241,719 57,923
Accounts and other receivables (312,739) (33,491)
Prepaid Expenses 8,200 325
Accounts payable and accrued expenses 249,199 22,369
Franchise and customer deposits (10,000) (58,749)
Deposits (255) (2,470)
NET CASH FROM (USED IN) OPERATING ACTIVITIES (183,145) (644,153)
CASH FLOWS FROM INVESTING ACTIVITIES
Change in other assets 3,287 (88,988)
NET CASH (USED IN) INVESTING ACTIVITIES 3,287 (88,988)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt - -
Payments on debts (27,392) (1,623)
Loans from officers 156,174 -
Proceeds from issuance of common stock - -
Payment of preferred stock dividends 0 (2,900)
Payments of obligation under capital
lease (2,040) (1,734)
NET CASH PROVIDED BY FINANCING ACTIVITIES 126,742 (6,257)
NET INCREASE (DECREASE) IN CASH (53,116) (739,398)
CASH AT BEGINNING OF PERIOD 322,542 1,160,085
CASH AT END OF PERIOD 269,426 420,687
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid during the 3 months for interest $15,338 $10,688
Cash paid during the 3 months for income taxes $0 $0
See notes to consolidated financial
statements
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY FOR THE 3 MONTHS
ENDING SEPTEMBER 30, 1996 (UNAUDITED)
PREFERRED
STOCK
SUBSCRIBED COMMON STOCK
Series Series
A B Additional Accumu-
Number Number Number of Paid-In lated
of Shares Amt of Shares Amt Shares Amount Capital
Deficit Total
Balance - 25,250 $265,000 10,000 $100,000 4,029,908
$403 $11,060,735 ($10,518,300) (907,838)
June 30, 1996
Net loss, 3 months
(417,265) (417,265)
ended Sept. 30,
1996
Common stock
400,000 40 199,960
200,000
issued for
investment (Note 5)
Balance - 25,250 $265,000 10,000 $100,000 4,429,908
$443 $11,260,695 ($10,935,565) $690,573
(Note 3)
See notes to consolidated financial statements.
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
Note 1 - Organization and Significant Accounting Policies
Organization
Sims Communications Inc. and Subsidiaries (the Company) was
incorporated in the State of Delaware on August 1, 1991. The
company was in the development state since its formation
until fiscal year ending June 30, 1994 when the Company began
earning significant revenue from their planned principal
operations. The Company was formed as a communication
company.
Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information. In
the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the
three month period ended Sept. 30, 1996 are not necessarily
indicative of the results that may be expected for the year
ended June 30, 1997. For further information, refer to the
consolidated financial statements and footnotes included in
the Company's annual
Filing Statement on form 10-KSB.
Principles of Consolidation
The consolidated financial statements includes the accounts
of Sims Communications Inc. and its wholly owned subsidiaries
Sims Franchise Group, Inc., Cellex Communications, Inc., and
Sims Communications International, Inc. All intercompany
balances and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased
with a maturity date of three months or less to be cash
equivalents.
Inventories
Inventories consists primarily of automated cellular
distribution centers (ACDC's), cellular phones and other
communication equipment and are recorded at the lower of cost
or market determined by the first-in, first out method.
Property and Equipment
Property and equipment are recorded and depreciated over
their estimated useful lives (5-7 years), utilizing the
straight-line method. Expenditures for maintenance and
repairs are charged to expense as incurred.
Organization Costs
Organization costs have been capitalized and are being
amortized using the straight-line method over a five year
period.
Net Loss Per Common Share
Net loss per common share is based on the weighted average
number of common shares outstanding during each of the
respective periods. Common shares issuable upon exercise of
the convertible notes and common stock equivalents are
excluded from the weighted average number of shares since the
effect is antidilutive.
Deferred Location Costs
Deferred location costs relate to expenses associated with
the buyback of certain franchises. These costs are amortized
over
five years.
Revenue Recognition
Rental revenue is recognized upon the completion of the
customer phone rental. Activation revenue is recognized upon
the activation of the customers cellular account with the
appropriate carrier. Revenues from the sale of the Automated
Cellular Distribution Center (ACDC) and other equipment are
recognized upon delivery.
Royalty Fees
Royalties as allowed by the franchise agreement are accrued
on a percentage of gross sales, as defined, as reported by
franchisees.
Research and Development
Research and development costs consist primarily of costs
related to the conceptional formation, design, tooling and
development of prototypes and are expensed as incurred.
Note 2- Notes and Loans Payable
Sept. 30,1996
Promissory note payable at 10% interest payable
monthly, commencing Sept. 15, 1995. Balance of principal
is payable in full on March 27, 1997. As additional
consideration,
the Company agrees to pay the note holder 15.5% of all
profits
received through the Company's agreements with Commonwealth
Group International.
$
310,348
Note payable - principal and 11% interest payable in monthly
installments of $541 through June 14, 1998. Collateralized
by
equipment.
10,730
Note payable - $5,500 principal plus 8.5% interest payable
monthly through April 1997.
36,844
Note payable - principal and 9.0% interest payable in
monthly installments of $3,194 through Jan. 28, 1997.
15,400
Note payable - principal (non interest bearing) payable in
monthly installments of $1,500 through June 2000.
66,000
439,322
Less: Current Maturities (407,666)
Total $ 31,656
Note 3 - Continuing Operations and Subsequent Transactions
The accompanying financial statements have been prepared on a going
concern basis which contemplates the realization of assets and
liquidation of liabilities in the ordinary course of business. In
prior years, the Company had been in the
development state and did not begin earning significant revenues until
the middle of fiscal year ended 1994. During the years ending June
1995 and June 1996 and continuing through the three months ended Sept.
1996, the Company continued to suffer recurring losses from
operations. During the fiscal year ended June 30, 1995, the Company
completed an initial public offering for $5.2 million. Management has
sold, in a private placement, 800,000 shares of common stock for
$400,000 during October and November 1996. However, cash flows from
operations may not be sufficient to meet future obligations of the
company.
Note 4- Reverse Stock Split
In February 1996, the Board of Directors declared a 1 for 10 stock
split. This reverse split was effective on March 7, 1996, and has
been retroactively reflected on the enclosed financials.
Note 5-Investment in Non Consolidated Subsidiary
In September 1996, the Company acquired a 10% interest in Smartphone,
Inc. (a corporation that sells a debit cellular telephone) from
certain officers and directors of the Company, in consideration for
the issuance of 400,000 shares of the Company's common stock. The
Company's investment in Smartphone was recorded at $200,000, which was
the original cost of the officers' and directors' investment in
Smartphone.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operation-Three Months Ending September 30, 1996
Hands on telephone rentals, initiated in January 1996
contributed 59 % of the rental income for the three months
ended September 30, 1996. ACDC rental units and rental of
cellular telephones using overnight courier service increased
versus the comparable period of last year.
Franchise royalties declined versus the comparable period of
last year, which is in line with the company's program of
reserving most new rental locations for its own use and
reacquiring franchises.
Additional revenues were recognized from ACDC and telephone
sales for installation at major airports in California.
The cellular telephone activation program (initiated at the
end of 1995) has expanded significantly, with revenues of
$541,140, representing activations of approximately 1700
cellular telephones. Continued profitable growth in this
activity is forecast.
Cost of sales for the three months ending September 30, 1995
increased due to the increases in: the company's rental
operations and cellular telephone activations. Additionally,
increased costs were reflective of the above mentioned ACDC
units sales.
Selling and marketing expense are higher, to support the
expansion of the rental businesses. General and
administrative expenses decreased due to cost controls and
increased emphasis on selling/marketing.
Research and develop spending has been deferred, with cash
being used for operating expenses.
Liquidity and Sources of Capital
During the quarter ended September, 30, 1996, the company
lost $417,265 which was funded by increases in payables and
officers/stockholers loans. The increase in accounts
receivable and reduction in inventories largely reflects ACDC
unit sales. Initial progress collection of this long term
receivable is to commence during the next quarter.
The company does not have any available lines of credit, bank
financing or other external sources of liquidity. Due to
current operating losses, the Company's operations are not a
source of liquidity. In order to obtain capital, the company
sold, a private placement, 800,00 shares of common stock for
$400,000 during October and November 1996.
The Company, in September 1996, acquired a 10% ownership in
Smartphone Inc, a debit cellular telephone company in
consideration for the issuance of 400,000 shares of common
stock.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
SIMS COMMUNICATIONS, INC.
By: /s/ James J. Caprio
James J. Caprio
Secretary, Vice President
of Finance and Principal
Financial Officer
By: /s/ Bruce Schames
Bruce Schames, Chief
Accounting Officer
Date: November 20, 1996
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