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SECURITIES AND EXCHANGE
COMMISSION WASHINGTON,
D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 1
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF
1934
Commission File No. 0-25474
SIMS COMMUNICATIONS, INC.
(Name of Small Business Issuer in its charter)
Delaware 65-
0287588
(State of incorporation) (IRS
Employer
Identification No.) 3333 S. Congress Avenue, Suite 401
Delray Beach, Florida 33445
(Address of Principal Executive Office) Zip Code
Registrant's telephone number, including Area Code: (407) 265-3601
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
Check whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
X
YES NO
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the most recent fiscal year were $2,607,879.
The aggregate market value of the voting stock held by non-affiliates of
the registrant (2,174,264 shares), based upon the average bid and asked
prices of the Registrant's Common Stock on October 31, 1996, was
approximately $2,430,000.
As of October 31, 1996, the Registrant had 4,964,908 shares of common
stock issued and outstanding.
Documents Incorporated by Reference: None
Transitional Small Business Disclosure Format: Yes No
X PAGE 1 OF PAGES
EXHIBIT INDEX BEGINS ON PAGE
FORM 10-KSB
YEAR ENDED JUNE 30, 1996 Table of Contents
Page
ITEM 1. DESCRIPTION OF BUSINESS ............................ 3
ITEM 2. DESCRIPTION OF PROPERTY ............................ 12
ITEM 3. LEGAL PROCEEDINGS .................................. 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS ................................... 12
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS ........................ 12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION .................................. 13
ITEM 7. FINANCIAL STATEMENTS ............................... 16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ................ 16
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND
CONTROL PERSONS, COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT ................................ 16
ITEM 10. EXECUTIVE COMPENSATION ............................. 17
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ..................................... 24
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..... 25
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K ................... 26
ITEM 1. DESCRIPTION OF BUSINESS
Company History
SIMS Communications, Inc. (the "Company") was formed in 1991 to
design and market a computerized system which provides unattended rental of
cellular telephones through a stand-alone dispensing station. The
Company's system, known as an Automated Communications Distribution Center
("ACDC"), was designed to serve the needs of traveling sales people,
convention and seminar participants, and anyone else who is temporarily
away from normal communications facilities and needs to maintain contact
with an office or home while traveling.
Prior to 1996 the Company operated ACDC units for its own account
and also sold franchises which provided third parties the right to operate
ACDC units at various franchised locations.
The Company's first ACDC units became operational in September
l993. In August l995, the Company had 50 ACDC units in operation and the
Company's franchisees (13 in total) had 28 ACDC's in operation. These ACDC
units were located in 30 states and in Puerto Rico.
Since installing its first ACDC unit, the Company found that
certain locations generate more rentals than others. Accordingly, the
Company and the Company's franchisees moved a number of ACDC units from
their original locations to locations which are capable of generating
greater revenues. At the present time, ACDC units located at car rental
agencies provide the highest revenues.
During 1995 the Company discontinued the sale of new franchises.
The Company's decision in this regard was based in part on the Company's
desire to retain more ACDC units for its own use and to decrease the
expenses associated with selling franchises and servicing franchisees.
The Company has introduced four additional programs in an effort
to diversify and broaden the Company's product and service mix: (i)
cellular telephone activations, (ii) sale of pre-paid calling cards, (iii)
sale of long distance telephone service and (iv) rental of cellular
telephones using
over-
night courier service.
In June 1995 the shareholders of the Company approved a 2 for 1 for
ward split of the Company's Common Stock. In February 1996 the shareholders
of the Company approved a 1 for 10 reverse split of the Company's Common
Stock. Accordingly, all historical share data in this Annual Report have
been adjusted to reflect these stock splits.
The Company's executive offices are located at 3333 S. Congress Ave
nue, Suite 401, Delray Beach, Florida 33445. The Company's telephone
number is (561) 265-3601.
Revenues From the ACDC System
An ACDC station is capable of dispensing from 1 to 12 cellular
phones on a user-friendly, completely automated basis. The system uses
electronic funds transfer and accepts American Express, Visa, Mastercard,
Discover and Diner's Club credit cards for payment in advance by the
customer. The system is entirely free-standing and requires no on-site
support personnel.
To rent a cellular telephone from an ACDC, a customer simply places
a credit or bank card in the machine's credit card reader. The ACDC then
pro vides the customer with easy to follow, on-screen instructions regarding
the procedure for renting a cellular telephone. The ACDC validates the
customer's credit card and charges the customer a deposit for the equipment
rented. Once the customer's credit card is accepted, the cellular telephone
is dispensed and the customer can make and receive telephone calls with the
cellular telephone.
The equipment rented by a customer is contained in a carrying case
and
includes a cellular telephone with an active telephone number, two batter
ies, a battery recharger, and a DC power connector which allows the cellular
telephone to be operated with electric current provided by an automobile
ciga rette lighter.
When the customer has completed use of the cellular telephone, he
re turns to the ACDC from which the equipment was rented, places the same
credit card into the ACDC card reader and deposits the full carrying case
into an open receptacle in the ACDC. The ACDC then checks all equipment
returned by the customer to determine that all equipment has been returned
and is in proper working condition. If the cellular telephone, battery or
other item is missing or damaged,the ACDC charges the customer for the
missing or damaged item. If all equipment is returned and in proper working
order, the deposit initially charged to the customer is released. The
transaction is then closed and the ACDC immediately delivers to the customer
a detailed print-out of charges and calls made by the customer. The
customer is billed for the use of the cellular telephone through the
customer's credit card company. All transaction information is communicated
by the ACDC to the Company's central office. Through a telephone connected
to the ACDC, the Company can poll the ACDC sta- tion at any time to monitor
sales and system performance and undertake remote software maintenance.
Each cellular telephone in the ACDC has a pre-assigned telephone
num ber which can only be activated by the ACDC. The Company has programmed
each cellular telephone dispensed from an ACDC in such a manner that the
telephone will cease to operate after a certain number of calls have been
made or re ceived. To continue using the cellular telephone after this call
limit, the customer must return the cellular telephone to the ACDC unit to
have the tele phone reactivated. A cellular telephone which has passed the
specified call limit or which has been stolen from an ACDC will not operate
but will display a Company telephone number and message that the telephone
is the Company's property and is to be returned to the Company. In addition
to short-term ren tals, customers may, all on the basis of credit card
transactions, subscribe to longer term service at the ACDC location.
Each ACDC station requires only a single dedicated business voice
frequency telephone line and a normal 110 volt commercial power outlet. The
ACDC unit requires just over two square feet of floor space within
facilities owned by third parties. To compensate the third party for the
space required, the telephone line and the power outlet, a monthly
percentage of the gross revenue from the ACDC is typically paid to the third
party providing the space for the ACDC. Each ACDC unit normally requires
twelve local cellular tele phone accounts ("lines"). The Company is of the
opinion that local cellular
telephone line availability with major carriers is plentiful and will not be
a limiting factor in the foreseeable future.
At September 30, 1996, the Company had 28 ACDC units in operation
and the Company's franchisees (6 in total) had 7 ACDC's in operation. These
ACDC units were located in 10 states and Puerto Rico. Most of these ACDC
units (27) were located at car rental agencies.
The Company has modified its method of renting cellular telephones
at certain Alamo Car Rental locations. Due to the demand for cellular
telephone rentals at some locations, a Company employee staffs a counter
adjacent to the Alamo Rental Car counter. Rather than dispensing cellular
telephones through a Company ACDC unit, Company employees at the counters
handle all cellular telephone rentals for persons wanting to rent cellular
telephones at select locations. The Company first introduced this program
at the Orlando, Miami and Ft. Lauderdale airports. Rentals from the Alamo
Rental Car locations at these locations accounted for approximately 14% of
the Company's gross revenues during the three months ending March 31, 1996.
Subsequent to March 31, 1996 the Company expanded this program to include
the Alamo Rental Car counters at the following airports: Los Angeles (LAX),
San Francisco, Tampa, Chicago (O'Hare) and Atlanta (Hartsfield). Standard
ACDC units are available at these locations for customers wanting to rent a
cellular telephone during off-peak hours.
As an alternative to selling additional franchises the Company
plans to enter into joint venture or master licensing arrangements with
third parties. It is expected that these arrangements will normally involve
the single sale of 10 or more ACDC units for (i) a large location (such as
an airport), (ii) part or all of a foreign country, or (iii) a specific
region in the United States. As of September 30, 1996 the Company has sold
thirty ACDC units to third parties under a master licensing arrangement.
Overnight Cellular Telephone Rentals
In January 1996 the Company initiated its overnight cellular
telephone rental program which provides for the delivery of cellular
telephones anywhere in the United States through Federal Express overnight
service. Customers include Florida, Louisiana and Mississippi AAA members,
employees of Nike Corpor ation and ESPN, and Alamo Rent-a-Car customers.
The Company also supplies cellular telephones for special events such as
Superbowl XXIX and XXX. A person wanting to rent a cellular telephone
through this service calls the Company's toll free telephone number to
arrange for the short-term rental of a cellular telephone. The Company
ships the cellular telephone via Federal Express to the address designated
by the customer, together with a Federal Express box addressed to the
Company. When the customer no longer needs the cel lular telephone, the
customer returns the telephone to the Company by means of Federal Express.
This program generated approximately $51,000 in revenue during the year
ending June 30, 1996. The Company believes that revenues from this program
will increase as more potential customers become aware of this service.
Cellular Telephone Activation
In January 1996 the Company began offering its cellular telephone
activation program to members of the Florida, Louisiana and Mississippi AAA
Clubs. This program allows a AAA member to receive a free cellular
telephone if the member agrees to a one year service contract with a
cellular telephone carrier. The Company is paid a commission for each
service contract signed by a AAA member. During the year ending June 30,
1996 the Company activated over 2,600 cellular phones. This program
generated about 40% of the Company's fourth quarter revenue and operated at
a gross profit of $150,000 for the fourth quarter. The AAA Clubs in
Florida, Louisiana and Mississippi Clubs have approximately 1.2 million
members. The Company anticipates broadening this service to other AAA
clubs.
Long Distance Telephone Services
Since January 1996 the Company has offered members of AAA Clubs in
Florida, Louisiana and Mississippi pre-paid long distance calling cards and
long distance telephone service. Beginning in January 1996 the pre-paid
long distance calling card program was introduced to Alamo Rent-a-Car
customers.
Calling cards are sold to rental car customers over the counter and through
an automated calling card dispensing machine. The Company receives a
commission for each pre-paid calling card sold.
With respect to long distance telephone service, the Company acts
as an
agent for a long distance telephone company. For each AAA member who
switches their long distance service to this telephone company, the Company
receives a commission based upon the member's long distance usage.
If the Company can raise additional capital of approximately
$1,500,000, the Company plans to become a reseller of telephone long
distance service in all markets in which the Company currently operates. As
a reseller of long distance telephone services, the Company will be able to
earn additional revenue from pre- purchasing airtime and blocks of cellular
numbers.
Retail Kiosks
The cellular telephone industry is currently undergoing significant
changes in marketing techniques. Traditional distribution methods are prov
ing too costly. The high cost of acquiring new customers coupled by
increased competition from new Personal Communication Services Carriers
("PCS") are forcing many wireless carriers to explore new methods of
distribution.
In response to this need, the Company is developing an automated re
tail kiosk which dispenses activated cellular telephones or PCS devices.
The Company's kiosk is designed to replace manned kiosks and act as a
satellite office for cellular telephone carriers, PCS carriers, cellular
resellers and cellular telephone retailers. The kiosk is equipped with live
video conferen cing capabilities enabling a service representative to assist
a customer with the credit approval process, answer any questions the
customer may have and close the sale. The Company plans to test market its
kiosk in October 1996.
Debit Cellular Telephones
The cellular industry has experienced problems in the collection of
debts (bad debt) and the fraudulent use of cellular telephones. In response
to these problems cellular telephone carriers have imposed higher credit
standards to open accounts for cellular service. These higher requirements
result in a 30%-40% decline in applications for cellular service.
The Company plans on implementing a debit cellular telephone that
will enable the Company to offer high risk and declined applicants with a
prepaid cellular service. The users are required to prepay for future usage
when establishing an account. To purchase additional minutes the user
simply calls an 800 service number, provides credit card information to a
customer service representative, and upon approval receives a special code
to restock the cel lular telephone with additional cellular airtime.
The Company has had preliminary discussions with its major cellular
accounts and one car rental company concerning the introduction of cellular
debit telephones. The Company is also exploring additional applications for
the debit telephones, such as retail distribution of debit telephones and of
fering debit telephones to companies which provide cellular telephones to
their employees as a means of controlling costs.
Research and Development
During the years ending June 30, 1994, 1995 and l996, the Company
spent approximately $173,000, $89,000 and $134,000, respectively, on
research and development. Research and development expenditures pertained
to the design, development and testing of enhancements to the ACDC units and
the software used to operate the units.
Third Party Suppliers
Cellular telephone equipment is presently procured by the Company
on a purchase order basis from Panasonic, Inc. and Muratech Corp.
Equivalent equipment is generally available in the open market from a number
of other suppliers. The Company does not have any agreements with respect
to cellular telephone equipment with any supplier and does not currently
foresee the need to seek any supply agreement.
Prior to April 1995 the Company contracted with Keyosk Corporation
("Keyosk") of Lakeland, Florida in April, 1992, for the manufacture,
assembly and testing of the ACDC units. In April 1995 the Company acquired
all of Keyosk's assets and technology relating to the ACDC units. The
Company now uses subcontractors to manufacture the ACDC units for the
Company.
The software used by the Company to provide a customer with an item
ized billing for calls made with the cellular telephone has been licensed to
the Company by Telemac Cellular Corporation ("Telemac"). The Company has a
worldwide, exclusive license (expiring in September, 2003) to use the
Telemac software for automated rentals of cellular telephones. As
consideration for this license, the Company pays Telemac, on a monthly
basis, 7% of the gross pretax revenues derived from the operation of the
ACDC units owned by the Company or the Company's franchisees. The agreement
requires the Company to take certain precautions to prevent the unauthorized
disclosure of the licensed software to persons other than the Company's
employees, agents and franchisees. Telemac may terminate the license in the
event the Company transfers the software subject to the license to any third
party without the consent of Telemac, fails to take adequate measures to
protect the unauthorized disclosure or use of the software, fails to make
any payment required by the agreement, becomes insolvent or otherwise
discontinues its business. Telemac provides a 90 day limited warranty that
the medium of the software is free from defects in workmanship and
materials.
At the present time, the Company does not have any alternative
sources for the software provided by Telemac Cellular.
The Company has agreements with various cellular telephone
companies concerning the use of the particular cellular telephone company's
network by the Company's rental customers. For each cellular telephone in
service, the Company is usually charged a monthly fee (regardless of whether
the cellular telephone is rented) plus air time charges for each minute the
cellular telephone is used to place or receive calls. The Company earns a
profit to the extent amounts received from customers for the rental and use
of the Company's cellular telephones exceed the amounts paid by the Company
to the cellular telephone company for monthly access fees and airtime
charges.
Franchise Operations
At September 30, l996 the Company had six franchisees which were
collectively operating seven ACDC units.
As a franchisor the Company is subject to a number of state laws,
as well as foreign laws, that regulate substantive aspects of the
franchisor/ franchisee relationship, including, but not limited to, those
concerning ter mination and non-renewal. The state laws and regulations
concerning termina tion and non-renewal of franchisees are not expected to
have material impact on the Company's operations. The Company believes that
it is in substantial compliance with applicable laws and regulations
governing its operations.
Each Company franchisee is given the right and authority to use the
Company's trademark and service mark for the operation of an ACDC location.
A franchisee is required to operate, advertise and promote its location
under the ACDC trademark and "INSTA FONE" service mark.
A franchisee is obligated to purchase all ACDC units directly from
the Company. The lease for the space occupied by the ACDC unit is entered
into between the owner of such space and the Company and typically provides
the owner of the space with a monthly rental equal to 10% of the gross
revenues generated by the ACDC placed in the space. The Company then
sublets the space to the franchisee for the term of the franchise agreement.
Other than the physical location of the ACDC machine, the franchisee does
not receive an exclusive territory.
Each franchisee currently pays the Company 17.5% of the
franchisee's gross revenues derived from the operation of the franchisee's
ACDC units. No minimum royalties are required to be paid. Of this amount,
8% is a franchise royalty, 7% is designated as licensing fees for the
software used in the opera tion of the ACDC and 2.5% is a credit card
processing fee. Pursuant to the terms of the franchise agreement the
Company has the right to charge a fran chisee an additional 2% of the
franchisee's gross revenues, which amount would be used by the Company for
advertising, public relations and promotional cam paigns.
From the fees received from the franchisee, the Company pays
Telemac 7% of the franchisee's gross revenues in accordance with the terms
of the software licensing agreement between the Company and Telemac. The
2.5% credit card processing fee collected from the franchisee is paid by the
Company to
the firm that processes the credit card transations generated by cellular
telephone rentals from the franchisee's ACDC unit. With respect to the 2%
advertising fee, the Company has agreed to spend approximately 80% of this
amount on local, regional and national advertising. Although the Company has
primary responsibility to the owner of the space leased for the ACDC unit and
for the software licensing fees to Telemac, the Company has not experienced
any diffi culty in collecting these amounts from its franchisees.
The franchise is for a term of 10 years which may be renewed, under
certain conditions, for subsequent periods of 5 years each. The Company may
terminate the franchise agreement due to the insolvency of the franchisee,
the transfer of the franchise without the Company's consent, criminal
misconduct on the part of the franchisee relating to the operation of the
franchisee or the failure of the franchisee to comply with the provisions of
the franchise agreement.
The franchisee is required to operate the ACDC unit 24 hours a day
each day of the year. All franchises are required to be operated in accord
ance with the Company's standards and guidelines which are set forth in the
Company's operations manual covering day-to-day operations, maintenance of
the ACDC unit, preparation of financial records and other matters. The
Company requires franchisees to submit annual financial statements and may
conduct its own audits of the franchisee's books and records. The Company
provides an initial training program and continuing assistance to the
franchisee during the term of the franchise agreement. Periodic inspections
are conducted to assure compliance with Company standards.
The Company performs recordkeeping, bookkeeping and payment
functions for the franchisee, for which the Company collects a fee. The
Company collects all revenues from the franchisee's ACDC unit and, after
deducting all amounts due the Company, Telemac Cellular, and third parties
providing the space for the ACDC units, remits the balance to the franchisee.
The Company provides franchisees with technical and service support by
telephone on a 24hour basis, 7 days a week.
Equipment and franchise deposits received from Instafone of Califor
nia, one of the Company's franchisees and held by the Company as of June 30,
1996 represented $724,000 (78%) of the total amounts recorded by the Company
as a liability for franchise and customer deposits on such dates.
Proprietary Rights; Patents, Trademark and Service Mark
The United States Patent and Trademark Office has approved the Com
pany's patent for the design of the cabinet which houses the Company's ACDC.
The Company has two other patent applications pending, one for a patent con
cerning the operation of the ACDC and one for the design of the cellular tele
phone kit which is dispensed by the ACDC. There is no assurance that the
pending patent applications will be granted. Since the Company's design
patent covers only the external design of the ACDC cabinet, certain other
aspects of the ACDC system could be duplicated by competitors.
The Company has registered the "ACDC" trademark and the "INSTA
FONE" service mark with the United States Patent and Trademark Office. The
Company regards its trade and service marks as having substantial value and
as being important factors in the marketing of its systems, although the
marks are not as important as the ACDC concept and the product itself. The
Company is not aware of any infringing uses or claim to its trademark or
service mark. In any event, there can be no assurance that the Company will
have the financial resources to enforce or defend its patent, trademark and
service mark in the event these are challenged.
Sales and Marketing
At present the Company is concentrating its efforts with airports
and car rental agencies, locations which studies indicate have a high
customer traffic count. If the Company is successful in placing an ACDC at
a third party facility, the Company normally attempts to obtain a three to
five year lease on the location in the Company's name, with a provision in
the lease that the third party providing the space for the ACDC may not
provide space, during the term of the lease, to any other person renting
cellular telephones on an automated basis.
The Company's marketing staff provides advertising and marketing
sup port for the ACDC field sites through point of purchase displays, signs
and promotions. Currently, ten Company employees work with airport and car
rental agents to promote the rental of the Company's cellular telephones and
to ad vertise the Company's rental program at hotels, convention centers and
other facilities.
Competition
The Company competes with numerous other companies engaged in the
rental of cellular telephones. The Company's competitors include regional
cellular telephone companies as well as numerous other companies. The cellu
lar telephone rental business is relatively easy to enter, since a company
only needs cellular telephones and an agreement with a cellular telephone
company to provide airtime to customers renting the cellular telephones.
The Company is not presently aware of any competitor engaged in the
automated, unattended daily rental of cellular telephones. The Company be
lieves that its patent and pending patent applications together with other
proprietary aspects of its system and the significant costs associated with
development of a comparable system provide obstacles to potential
competitors in terms of automated cellular telephone rentals. However
larger, more estab lished entities with greater financial and personnel
resources than those of the Company may nevertheless enter into direct
competition with the Company, although the Company expects it would have a
one to two year lead time. There can be no assurance that the Company will
be able to successfully compete in the cellular telephone rental business.
The Company is of the opinion that its most significant competitive
advantage is the 24 hour availability and the quick and easy rental/return
process offered by the ACDC units.
In comparison to others engaged in short term rentals of cellular
telephones, the Company's daily rental charges ($4.95 to $6.95 per day) are
in the lower to middle price range. The Company's charges for airtime usage
($1.60 per minute for local calls) are average in relation to the Company's
competitors.
During the past several years, the number of persons who either own
or lease cellular telephones on a long-term basis has increased
significantly
and, in some markets, there has been a general decline in the cost of using
cellular telephones. For persons owning or leasing a cellular telephone on
a long-term basis, the cost of operating a cellular telephone includes the
cost of the cellular telephone, batteries, charging units and other
accessories (in the case of direct ownership), monthly lease payments (in
the case of leased equipment), fixed monthly charges, airtime charges for
calls made or received within the area serviced by the person's cellular
carrier, and higher "roaming" charges
for calls made or received outside the area serviced by the per- son's
cellular carrier. Although the cost of operating a cellular telephone will
vary depending upon various factors, certain persons who own or lease
cellular telephones on a long-term basis may find that the cost of using
their cellular telephone, when traveling, is less expensive than renting a
cellular telephone from the Company, and may therefore elect to use their
own cellular telephone instead of renting a cellular telephone from the
Company.
Employees and Offices
As of September 30, 1996, the Company employed 34 persons on a full
time basis. Thirteen employees serve in management or administrative capaci
ties, and the remainder are hourly workers in the Company's operations.
None of the Company's employees are covered by a collective bargaining
agreement. The Company has never experienced an organized work stoppage,
strike or labor dispute. Management considers the Company's relations with
its employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company occupies office, shipping and repair facilities
consisting of approximately 8,000 square feet in Delray Beach, Florida.
These facilities are leased at an annual rental of $80,724 pursuant to a
lease which expires on February 28, 1998.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any pending legal proceedings. The
Com pany's California franchisee has demanded that the Company purchase this
fran chise, as well as the franchisee's ACDC units, for approximately
$1,000,000. The Company is currently negotiating the terms of this
acquisition with the franchisee. If the Company and the franchisee cannot
reach an agreement as to the acquisition of the franchise, the franchisee
has indicated that it intends to file suit against the Company for breach of
the franchise agreement. As of June 30, 1996 the Company had a liability of
$724,000 for franchise and equip ment deposits paid by this franchisee to
the Company.
In 1996 InstaCall Beheer B.V. and Robert Herbold (the "Plaintiffs")
filed a lawsuit against the Company alleging that the Company breached its
agreement to provide cellular telephones for use by the Plaintiffs in
Europe, and as a result, the Plaintiffs suffered damages of approximately
$3,800,000. The Company has denied the allegations of the Plaintiffs.
Other than the foregoing, there are no legal proceedings to which
the Company is a party or to which its properties are subject, other than
routine litigation incident to the Company's business which is covered by
insurance or which would not have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the Company's past fiscal year, the Company did not submit
any matter to a vote of its shareholders.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of September 30, 1996, there were approximately 1,000 beneficial
owners of the Company's Common Stock, Series A Warrants and Series B
Warrants. The Company's Common Stock and Warrants are traded on the National
Association
of Securities Dealers Automatic Quotation ("NASDAQ") System. Set forth
below are the range of high and low bid quotations for the periods
indicated as re ported by NASDAQ. The market quotations reflect
interdealer prices, without retail mark-up, mark-down or commissions and
may not necessarily represent ac tual transactions. The Company's Common
Stock and Warrants began trading in February 1995. The market quotations
have been adjusted to reflect a two for one forward stock split, which was
effective in June 1995 and a 1 for 10 re verse stock split which was
effective in March 1996.
Series A Series B
Quarter Common Stock Warrants Warrants
Ending High Low High Low High Low
3/31/95 $45.00 $20.00 $1.62 $0.70 $1.03 $0.44
6/30/95 $31.90 $23.80 $2.46 $2.00 $2.25 $1.18
9/30/95 $23.75 $ 5.00 $4.06 $1.87 $3.43 $1.25
12/31/95 $ 7.81 $ 1.87 $3.75 $0.31 $2.50 $0.31
3/31/96 $ 4.68 $ 0.93 $0.93 $0.03 $0.93 $0.03
6/30/96 $ 1.78 $ 1.00 $0.09 $0.03 $0.06 $0.01
Holders of Common Stock are entitled to receive such dividends as
may be declared by the Board of Directors out of funds legally available
therefor and, in the event of liquidation, to share pro rata in any
distribution of the Company's assets after payment of liabilities. The
Board of Directors is not
obligated to declare a dividend. The Company has not paid any dividends
and the Company does not have any current plans to pay any dividends.
The provisions in the Company's Articles of Incorporation relating
to the Company's Preferred Stock would allow the Company's directors to
issue Preferred Stock with rights to multiple votes per share and dividends
rights which would have priority over any dividends paid with respect to the
Company's Common Stock. The issuance of Preferred Stock with such rights
may make more difficult the removal of management even if such removal would
be considered beneficial to shareholders generally, and will have the effect
of limiting shareholder participation in certain transactions such as
mergers or tender offers if such transactions are not favored by incumbent
management.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following selected financial data should be read in conjunction
with the more detailed financial statements, related notes and other
financial information included herein.
Statement of Operations Data:
Years Ended June 30,
1996 1995 1994 1993
Revenue $2,607,879 $ 696,909 $ 1,986,630 $
75,322
Cost of Sales 1,686,188 607,509 (1,337,066) (
16,789)
Operating Expenses 4,645,197 2,540,512 (3,066,942)
(1,778,337)
Net (Loss) (3,723,506) $(2,451,112) $(2,417,378)
$(1,719,804)
Net (Loss) per Share $(1.56) $(0.14) $(.47)
$(.26)
Weighted Average Number
of Shares Outstanding 2,384,055 1,716,580 1,035,698
643,630
Balance Sheet Data:
June 30,
1996 1995 1994
Current Assets $1,983,252 $2,657,070 $
1,413,383
Total Assets $3,312,372 $3,616,793 $
1,726,762
Current Liabilities $2,343,308 $1,438,645 $
3,962,109
Total Liabilities $2,404,534 $1,608,819 $
3,977,261
Working Capital (Deficit) $( 360,056) $1,218,425
$(2,548,726)
Shareholders Equity
(Deficiency) $ 907,838 $2,007,974
$(2,250,499)
Shareholders' Equity
(Pro Forma Basis) $1,307,838 (1)
(1) During October 1996 the Company sold 800,000 shares of common stock in
a private offering at a price of $0.50 per share. As a result of the
sale of these shares, the Company's stockholders' equity increased by
approxi mately $400,000.
No common stock dividends have ever been declared by the Company since its
inception.
Results of Operations
The following table shows the percentage of the Company's gross
revenues by category for the periods indicated.
% of Gross Revenue for
Year Ending June 30, 1996
1994 1995
1996
A.1 Income from Company owned and
operated ACDC units. 4% 17% 30%
A.2 Rental of cellular telephone
directly from Company. -- 12% 3%
B. Initial franchise fees. 8% 7%
- --
C. Royalties from franchisees. 3% 14%
1%
D. Sale of ACDC units, retail
kiosks and related equipment. 79% 48%
29%
E. Fees paid by cellular
telephone companies for
activation of cellular
telephones 4% 1%
32%
F. Sale of prepaid calling
cards. -- --
- --
G. Sale of long distance
telephone service. -- --
- --
H. Miscellaneous Income 2% 1%
5%
Income from categories A and C were minimal for the year ending June 30,
1994, since most of the Company's and the franchisees' ACDC units became
operational in November and December 1993. During fiscal 1997 (as well
as future years thereafter), the Company expects that the percentage of
its gross revenues by category will be as follows: A.1 - 26%; A.2 - 2%;
B 0%; C - .3%; D - 23%; E - 42%; F - 1%; G - 2%; and H - 1%. There can
be no assurance that such percentages will not change significantly
based upon events which may not be within the Company's control.
Year Ending June 30, 1996
Revenues increased from the comparable period in 1995 year due to
the introduction of four new programs in an effort to diversify and broaden
the Company's product and service mix. These programs were (i) cellular
telephone activations, (ii) sale of pre-paid calling cards, (iii) sale of
long distance telephone service and (iv) rental of cellular telephones using
overnight cour ier service.
The activation program of cellular telephones for members of the
Florida, Louisiana, and Mississippi AAA clubs began in January 1996. The
pro gram allows a AAA member to receive a free cellular telephone if the
member agrees to a one year cellular telephone service contract. The
Company receives a commission for each activation. During the year ending
June 30, 1996, the Company activated over 2,600 cellular telephones and
anticipates broadening this service to other AAA clubs.
Franchise royalties declined as franchises were reacquired by the
Com pany. Income from equipment sales to franchisees declined as the
Company re served prime ACDC locations for its own use.
Cost of sales for fiscal l996 largely reflects the expansion of the
Company's rental operations, the newly instituted cellular telephone
activation program and costs of technology development and sales. Due to
significant demand at certain Alamo Car Rental locations, Company personnel
rent cellular telephones directly to customers. This contrasts with the
comparable period in
1995 when cost of sales consisted primarily of expenses associated with the
sale of ACDC units and a more limited telephone rental program.
The higher selling and general and administrative expenses for the
year are due to the Company's new programs and additional personnel needed
for these programs.
Fiscal 1996 operating expenses includes a charge of $1,765,000
which pertains to the issuance of common stock for past services.
Interest expense declined as funds provided by the Company's public
offering in February 1995 were used to repay outstanding debt.
Year Ending June 30, l995
During fiscal l995, revenues from equipment sales to franchisees
and franchise fees declined as the Company reserved more new ACDC locations
for its own use and eventually discontinued the sale of new franchises.
Royalties from franchisees increased over the prior period as the Company's
first ACDC unit did not become operational until September 1993.
Year Ending June 30, 1994
During the year ending June 30, 1994, the Company's general and
admi nistrative expenses increased by $891,100, or 70% from the previous
year, as the Company commenced full operations. Salaries, commissions,
consulting fees and general overhead expenses all increased from the prior
year. The Company's net interest expense increased from the prior period as
a result of additional borrowings. Stock based compensation (approximately
$180,000 during fiscal 1994) is a non-cash charge resulting from the
issuance of Common Stock as additional consideration to certain persons who
loaned funds to the Company.
Liquidity and Capital Resources
During the year ending June 30, 1996 the Company's operating activi
ties used approximately $1,860,000 in cash. The Company does not have any
available lines of credit, bank financing or other external sources of
liquid ity. Due to operating losses, the Company's operations are not a
source of liquidity. In order to obtain capital, the Company plans to sell
additional shares of its Common Stock. There can be no assurance, however,
that the Com pany will be successful in obtaining additional funding. The
Company does not have any material capital commitments during the year
ending June 30, 1997 ex cept for funding its operating expenses.
ITEM 7. FINANCIAL STATEMENTS
See the financial statements attached to this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COM
PLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Officers and Directors
Name Age Position
Melvin Leiner 50 President, Chief Executive Officer, and a
Director
Donald M. Marks 56 Vice President, and a Director
James J. Caprio 33 Chief Financial Officer, Vice President
and
a Director
Darren M. Marks 29 Vice President of Marketing and Sales,
and
a Director
Bruce S. Schames 49 Controller
Donald M. Marks and Darren M. Marks are not related.
Each director holds office for a period of one (1) year and will
serve until his successor is duly elected by the stockholders. Executive
officers serve at the pleasure of the Board of Directors.
The members of the Board of Directors are not compensated in such
capacity; however, the Board of Directors may, by resolution, pay Director's
fees and reimburse Directors for expenses related to the Company's business.
The following sets forth certain information concerning the past
and
present principal occupations of the Company's officers and directors.
Melvin Leiner has been the Company's President and Chief Executive
Officer since November 1994. Between November 1994 and August 1991 Mr.
Leiner was the Company's Chief Operating Officer and Executive Vice
President. Mr. Leiner has been a director of the Company since August 1991.
Donald M. Marks has been an officer and director of the Company
since l99l.
James J. Caprio has been the Company's Chief Financial Officer,
Vice President, Secretary and a director since August, 1991.
Darren M. Marks joined the Company in August, 1991 as its Vice
President and a director.
Bruce S. Schames has been the Company's Controller since December,
1993. From 1991 to 1993 Mr. Schames was self-employed as a Certified Public
Accountant. Between 1983 and 1991, Mr. Schames was employed as Manager of
Financial Reporting for the Dole Fresh Fruit Company.
Donald Marks, Melvin Leiner, James Caprio and Darren Marks may be
deemed "Parents" and "Founders" of the Company as such terms are defined
under the federal securities laws.
During the year ending June 30, 1996 Melvin Leiner, James Caprio,
Darren Marks and Donald Marks, each officers and directors of the Company,
failed to file reports requied by Section 16 of the Securities and Exchange
Act of 1934 for the months of May and June 1996 disclosing the purchase and
sale of shares of the Company's common stock. The purchases and sales made
by such persons during these months were as follows: Melvin Leiner:
acquisition of 423,714 shares and sale of 26,185 shares; Donald Marks:
acquisition of 434,378 shares and sale of 22,037 shares; James Caprio:
acquisition of 434,492 shares and sale of 22,037 shares; and Darren Marks:
acquisition of 408,568 shares and sale of 32,685 shares.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation re
ceived by or accrued for (i) the persons who held the position of Chief Exe
cutive Officer during the three years ending June 30, 1996 and (ii) each
other executive officer of the Company who received salary and bonus in
excess of $75,000 during the past three years.
Annual Compensation Long Term Compensation
Re- All
Other stric- Other
Annual ted LTIP Com-
Compen- Stock Options Pay- pensa-
Name and Princi- Fiscal Salary Bonus sation Awards Granted outs tion
pal Position Year (1) (2) (3) (4) (5) (6) (7)
Melvin Leiner, 1996 $21,038 -- -- 250,000 -- -- --
President and 1995 $92,063 -- $8,400 -- 40,000 -- --
Chief Executive 1994 $89,919 -- $8,400 -- -- -- --
Officer (since
November 1994)
Donald M. Marks, 1996 $21,038 -- -- 250,000 -- -- --
Vice President 1995 $77,189 -- $8,400 -- 40,000 -- --
since April l993 1994 $85,858 -- $8,400 -- -- -- --
Darren M. Marks, 1996 $21,038 -- -- 250,000 -- -- --
Vice President 1995 $86,594 -- $8,400 -- 40,000 -- --
1994 $87,900 -- $8,400 -- -- -- --
James Caprio, 1996 $21,038 -- -- 250,000 -- -- --
Chief Financial 1995 $95,419 -- $8,400 -- 40,000 -- --
Officer 1994 $92,515 -- $8,400 -- -- -- --
(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
3) Any other annual compensation not properly categorized as salary or bonus,
including perquisites and other personal benefits, securities or property.
Amount in the table represents automobile allowances.
(4) During the period covered by the foregoing table, the shares of restricted
stock issued as compensation for services. The table below shows the num-
ber
of shares of the Company's Common Stock owned by the officers listed above,
and
the value of such shares as of June 30, 1996.
Name Shares Value
Melvin Leiner 554,913 $624,000
Donald M. Marks 569,725 $641,000 Darren M.
Marks 532,167 $599,000 James Caprio
569,839 $641,000
(5) The shares of Common Stock to be received upon the exercise of all stock
options granted during the period covered by the table.
(6) "LTIP" is an abbreviation for "Long-Term Incentive Plan". An LTIP is
any plan that is intended to serve as an incentive for performance to
occur over a period longer than one fiscal year. Amounts reported in
this column represent payments received during the applicable fiscal year
by the named officer pursuant to an LTIP.
(7) All other compensation received that the Company could not properly
report in any other column of the Table including annual Company
contributions or
other allocations to vested and unvested defined contribution plans, and the
dollar value of any insurance premiums paid by, or on behalf of, the Company
with respect to term life insurance for the benefit of the named executive
officer, and the full dollar value of the remainder of the pre- miums paid by,
or on behalf of, the Company.
Employment Contracts
In October, 1994, the Company entered into employment agreements with
Melvin Leiner, Donald M. Marks, James J. Caprio and Darren M. Marks. Each em
ployment agreement provides for the following:
1. Term of three years.
2. Salary of $105,000 during the first year of the employment
term,
increasing to $120,000 during the second year and $150,000 dur
ing the third year.
3. Incentive bonus computed according to the following formula:
Cumulative Company Revenues Bonus Payable
From Operations to
Employee
$3,000,000 to $5,000,000
$22,500 $5,000,000 to $7,500,000
$45,000 $7,500,000 to $10,000,000
$67,500 Over $10,000,000
$90,000
4. Automobile allowance of $700 per month.
5. Four weeks of paid vacations and the right to participate in
any
group medical, group life insurance or any other employee bene
fit plan that the Company may, from time to time, maintain.
6. Disability benefits equal to 50% of the employee's base salary,
determined at the time of disability, and payable to the em
ployee for the remaining term of the employment agreement.
The four officers listed in the above above agreed to amend their re
spective employment agreements such that the collective salaries paid to these
four officers (effective September 30, 1996) will not exceed $360,000.
Except for the employment agreements described above, the Company does
not have any written employment contracts with respect to any of its executive
officers, and does not have any compensatory plan or arrangement that results
or will result from the resignation, retirement, or any other termination of
any executive officer's employment with the Company or from a changein-control
of the Company or a change in an executive officer's responsibilities following
a change-in-control.
Long Term Incentive Plans - Awards in Last Fiscal Year
None.
Employee Pension, Profit Sharing or Other Retirement Plans
Except as provided in the Company's employment agreements with its
executive officers, the Company does not have a defined benefit, pension plan,
profit sharing or other retirement plan, although the Company may adopt one or
more of such plans in the future.
Compensation of Directors
Standard Arrangements. At present the Company does not pay its di
rectors for attending meetings of the Board of Directors, although the Company
expects to adopt a director compensation policy in the future. The Company has
no standard arrangement pursuant to which directors of the Company are
compensated for any services provided as a director or for committee partici
pation or special assignments.
Other Arrangements. During the year ended June 30, 1996, and except
as disclosed elsewhere in this report, no director of the Company received any
form of compensation from the Company.
Compensation Committee Interlocks and Insider Participation
The Company does not have a compensation committee. During the year
ended June 30, 1996, all of the Company's present officers participated in
deliberations of the Company's Board of Directors concerning executive officer
compensation.
During the year ended June 30, 1996, no director of the Company was
also an executive officer of another entity, which had an executive officer of
the Company serving as a director of such entity or as a member of the compen
sation committee of such entity.
Committees
The Company plans to establish an Audit Committee and a Compensation
Committee. The Audit Committee will (i) recommend to the Board of Directors a
firm of independent public accountants to conduct the annual audit of the Com
pany's financial statements, (ii) review with such accounting firm the scope
and result of annual audits and the adequacy of the Company's internal con
trols, and (iii) otherwise oversee the auditor's review of management controls
and the Company's financial performance. The Compensation Committee will re
view the compensation of the Company's senior management and recommend any
changes in such compensation to the Board of Directors, as well as administer
the Company's Stock Option Plans, Stock Bonus Plan, and other compensation
programs. The Company anticipates that directors who are not officers or
principal shareholders will constitute a majority of the members of each Com
mittee. Stock Option and Bonus Plans
The Company has an Incentive Stock Option Plan, a Non-Qualified Stock
Option Plan and a Stock Bonus Plan. A summary description of each Plan fol
lows. In some cases these three Plans are collectively referred to as the
"Plans".
Incentive Stock Option Plan. The Incentive Stock Option Plan auth
orizes the issuance of options to purchase up to 1,500,000 shares of the Com
pany's Common Stock, less the number of shares already optioned under both this
Plan and the Non-Qualified Stock Option Plan. The Incentive Stock Option Plan
became effective on April 15, 1993 and will remain in effect until April 15,
2001 unless terminated earlier by action of the Board. Only officers, di
rectors and key employees of the Company may be granted options pursuant to the
Incentive Stock Option Plan.
Options granted pursuant to the Plan not previously exercised termi
nate upon the first to occur of the following dates:
(a) The expiration of thirty (30) days after the date on which an
option holder's employment by the Company is terminated (whether
such termination is by the Company or due to disability or
death); or
(b) The expiration of one year after the date on which an option holder's
employment by the Company is terminated, if such termi nation is
due to the Employee's disability or death.
In the event of an option holder's death while in the employ of the
Company, his legatees or distributees may exercise (prior to the option's ex
piration) the option as to any of the shares not previously exercised.
The total fair market value of the shares of Common Stock (determined
at the time of the grant of the option) for which any employee may be granted
options which are first exercisable in any calendar year may not exceed
$100,000.
Options may not be exercised until one year following the date of
grant. Options granted to an employee then owning more than 10% of the Common
Stock of the Company may not be exercisable by its terms after five years from
the date of grant.
The purchase price per share of Common Stock purchasable under an op
tion is determined by the Committee but cannot be less than the fair market
value of the Common Stock on the date of the grant of the option (or 110% of
the fair market value in the case of a person owning the Company's stock which
represents more than 10% of the total combined voting power of all classes of
stock).
Non-Qualified Stock Option Plan. The Non-Qualified Stock Option Plan
authorizes the issuance of options to purchase up to 1,500,000 shares of the
Company's Common Stock less the number of shares already optioned under both
this Plan and the Incentive Stock Option Plan. The Non-Qualified Stock Option
Plan became effective on April 15, 1993 and will remain in effect until April
15, 2001 unless terminated earlier by the Board of Directors. The Com pany's
employees, directors, officers, consultants and advisors are eligible to be
granted options pursuant to the Plan, provided however that bona fide services
must be rendered by such consultants or advisors and such services must not be
in connection with the offer or sale of securities in a capitalraising
transaction. The option exercise price is determined by the Committee but
cannot be less than the market price of the Company's Common Stock on the date
the option is granted.
Options granted pursuant to the Plan not previously exercised termi
nate upon the first to occur of the following dates:
(a) The expiration of one year after the date on which an option
holder's employment by the Company is terminated (whether
termination is by the Company, disability or death); or
(b) The expiration of the option which occurs five (5) years from the
date the option was granted.
In the event of an option holder's death while in the employ of the
Company, his legatees or distributees may exercise the option as to any of the
shares not previously exercised prior to the option's expiration.
Stock Bonus Plan. Up to 3,000,000 shares of Common Stock may be
granted under the Stock Bonus Plan. Such shares may consist, in whole or in
part, of authorized but unissued shares, or treasury shares. Under the Stock
Bonus Plan, the Company's employees, directors, officers, consultants and ad
visors are eligible to receive a grant of the Company's shares; provided, how
ever, that bona fide services must be rendered by consultants or advisors and
such services must not be in connection with the offer or sale of securities in
a capital-raising transaction.
Other Information Regarding the Plans. The Plans are administered by
the Company's Board of Directors. The Board of Directors has the authority to
interpret the provisions of the Plans and supervise the administration of the
Plans. In addition, the Board of Directors is empowered to select those
persons to whom shares or options are to be granted, to determine the number of
shares subject to each grant of a stock bonus or an option and to determine
when, and upon what conditions, shares or options granted under the Plans will
vest or otherwise be subject to forfeiture and cancellation.
In the discretion of the Board of Directors, any option granted pur
suant to the Plans may include installment exercise terms such that the option
becomes fully exercisable in a series of cumulating portions. The Board of
Directors may also accelerate the date upon which any option (or any part of
any options) is first exercisable. Any shares issued pursuant to the Stock
Bonus Plan and any options granted pursuant to the Incentive Stock Option Plan
or the Non-Qualified Stock Option Plan will be forfeited if the "vesting"
schedule established by the Board of Directors at the time of the grant is not
met. For this purpose, vesting means the period during which the employee must
remain an employee of the Company or the period of time a non-employee must
provide services to the Company. At the time an employee ceases working for
the Company (or at the time a non-employee ceases to perform services for the
Company), any shares or options not fully vested will be forfeited and
cancelled. In the discretion of the Board of Directors payment for the shares
of Common Stock underlying options may be paid through the delivery of shares
of the Company's Common Stock having an aggregate fair market value equal to
the option price, provided such shares have been owned by the option holder for
at least one year prior to such exercise. A combination of cash and shares of
Common Stock may also be permitted at the discretion of the Board of Directors.
Options are generally non-transferable except upon death of the option
holder. Shares issued pursuant to the Stock Bonus Plan will generally not be
transferable until the person receiving the shares satisfies the vesting
requirements imposed by the Board of Directors when the shares were issued.
The Board of Directors of the Company may at any time, and from time
to
time, amend, terminate, or suspend one or more of the Plans in any manner it
deems appropriate, provided that such amendment, termination or suspension
cannot adversely affect rights or obligations with respect to shares or op
tions previously granted. The Board of Directors may not, without shareholder
approval: make any amendment which would materially modify the eligibility re
quirements for the Plans; increase or decrease the total number of shares of
Common Stock which may be issued pursuant to the Plans except in the case of a
reclassification of the Company's capital stock or a consolidation or merger of
the Company; reduce the minimum option price per share; extend the period for
granting options; or materially increase in any other way the benefits ac
cruing to employees who are eligible to participate in the Plans.
Any options granted under the Incentive Stock Option Plan or the Non
Qualified Stock Option Plan must be granted before April 15, 2001. Any shares
granted pursuant to the Stock Bonus Plan must be issued prior to April 15,
2001. The Plans are not qualified under Section 401(a) of the Internal Revenue
Code, nor are they subject to any provisions of the Employee Retirement Income
Security Act of 1974.
Summary. The following sets forth certain information as of October
31, 1996, concerning the stock options and stock bonuses granted by the
Company. Each option represents the right to purchase one share of the Com
pany's Common Stock.
Total Shares Remaining
Shares Reserved for Shares Options/
Reserved Outstanding Issued As Shares
Name of Plan Under Plan Options Stock Bonus Under
Plan Incentive Stock Option Plan 1,500,000 90,000 N/A
1,410,000 Non-Qualified Stock Option
Plan 1,500,000 - N/A 1,500,000
Stock Bonus Plan 3,000,000 N/A 2,435,000 565,000
As of October 31, 1996, the Company has issued stock options and
granted stock bonuses to the following officers and directors.
Incentive Stock Options
Shares
Expiration
Subject to Exercise Date
of Option Holder Option Price
Option
Melvin Leiner 20,000 $3.25
9/30/99
Donald M. Marks 20,000 $3.25
9/30/99
James T. Caprio 20,000 $3.25
9/30/99
Darren M. Marks 20,000 $3.25
9/30/99
Other Options (1)
Shares
Expiration
Subject to Exercise Date
of Option Holder Option Price
Option
Melvin Leiner 20,000 $2.75
9/30/99
Donald M. Marks 20,000 $2.75
9/30/99
James T. Caprio 20,000 $2.75
9/30/99
Darren M. Marks 20,000 $2.75
9/30/99
(1) These options were not granted pursuant to any of the Company's stock
option plans.
Stock Bonuses
Shares Issued as
Name Stock Bonus
Melvin Leiner 250,000
Donald M. Marks
250,000
James J. Caprio
250,000
Darren M. Marks
250,000
Bruce S. Schames
75,000
As of October 31, 1996, the Company had not granted any options pur
suant to its Non-Qualified Stock Option Plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The
following table sets forth certain information as of September
30, 1996 regarding the number and percentage of outstanding shares of the Com
pany's Common Stock beneficially owned by (i) each person owning more than 5%
of the Company's Common Stock; (ii) each officer and director; and (iii) all
officers and directors as a group:
Amount and Nature of
Beneficial Ownership Percent of
Number of Shares (1) Class (1)
Melvin Leiner 697,579 14.0%
Donald M. Marks 707,625 14.2%
James J. Caprio 736,506 14.8%
Darren M. Marks 676,934 13.6%
Bruce S. Schames 72,000 1.4%
Officers and Directors as a
Group (5 persons) 2,890,644 58.0%
(1) Gives effect to issuance of shares of common stock upon conversion of
Series B Preferred Stock. See Item 12 of this report. Does not include
shares of Common Stock issuable upon exercise of any outstanding warrants
or options.
Unless otherwise noted, the Company believes that all persons named in
the table have sole investment power with respect to all Common Stock bene
ficially owned by them. The address of each person in the foregoing table is
3333 S. Congress Avenue, Suite 401, Delray Beach, Florida 33445.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company had a consulting agreement with Compass Consulting, Inc.
pursuant to which Kenneth Zubay, a former officer and director of the Company,
rendered software and systems development, consulting, training and installa
tion services to the Company. The consulting agreement expired on July 31,
1994. Through July 31, l994, the Company delivered (or was obligated to de
liver) equipment (at a cost to the Company of approximately $66,000) to Com
pass Consulting as payment for services provided to the Company. During fis
cal 1995, equipment was delivered to Compass Consulting pursuant to and in
satisfaction of the amounts owed pursuant to the consulting agreement. In June
1995, the equipment previously delivered to Compass Consulting was repurchased
by the Company for $l6,000 and the agreement to issue l6,000 shares of the
Company's preferred stock, valued at $80,000, to Compass Consulting.
In December 1995 the Company issued 43,778 shares of its Common Stock
to Melvin Leiner, Donald Marks, James Caprio and Darren Marks (175,112 shares
in total) as repayment of loans, each in the amount of $90,500, made by such
persons to the Company.
In March 1996 the Company issued 25,000 shares of its Series B Pre
ferred Stock to Melvin Leiner, Donald Marks, James Caprio and Darren Marks
(100,000 shares in total) as repayment of loans, each in the amount of $25,000,
made by such persons to the Company. Each share of Series B Preferred Stock is
convertible into one share of the Company's common stock.
In June 1996 the Company issued shares of its Common Stock to the
following officers and directors in repayment of loans made by such persons to
the Company: Melvin Leiner: 103,686 shares in repayment of loan of $51,843;
Donald Marks: 114,350 shares in repayment of loan of $57,175; James Caprio:
114,464 shares in repayment of loan of $57,232; and Darren Marks: 87,440 shares
in repayment of loan of $43,720.
Effective May 1, 1996, the Company's Board of Directors amended the
Company's Incentive Stock Option Plan, Non-Qualified Stock Option Plan and
Stock Bonus Plan such that each Plan authorized the issuance of 1,500,000
shares of Common Stock pursuant to options or stock bonuses granted pursuant to
these Plans. In July 1996 the Company's Board of Directors again amended the
Company's Stock Bonus Plan such that this Plan now authorizes the issuance of
3,000,000 shares of Common Stock pursuant to stock bonuses granted pursuant to
the Plan.
In May and August 1996 the Company, in accordance with the terms of
its Stock Bonus Plan, issued 2,435,000 shares of Common Stock to certain Com
pany officers, employees and consultants. The shares were issued in
consideration for past services rendered to the Company. The following
officers re- ceived shares of the Company's Common Stock in these transactions:
Shares Issued as Stock Bonus Name
May 1996 (1) November 1996(2)
Mel Leiner 250,000
James J. Caprio
250,000
Darren Marks
250,000
Don Marks
250,000
Bruce Schames 75,000 --
Other Employees and
Consultants as a group 425,000 300,000
(1) Shares were issued in consideration for past services rendered to the
Company and, in the case of all officers except Mr. Schames, in
consideration for the agreement among these officers to amend their
respective employment agreements such that the collective salaries paid to
these four officers (effective September 30, 1996) willnot exceed $360,000,
instead of the $600,000 which would have otherwise been payable to these
officers pursuant to their employment agreements.
(2) Shares were issued in consideration of services rendered to Company.
In June 1996 the Company issued shares of its Common Stock to the following
officers and directors in repayment of loans made by such persons to the
Company: Melvin Leiner: 103,686 shares in repayment of loan of $51,843;
Donald Marks: 114,350 shares in repayment of loan of $57,175; James Caprio:
114,464 shares in repayment of loan of $57,232; and Darren Marks: 87,440
shares in repayment of loan of $43,720.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Exhibit No.
No. Description Page No.
3.1 Certificate of Incorporation, as amended (1)
3.1.1 Amendment to Articles of Incorporation (3)
3.2 Bylaws of the Company (1)
10.7 Software Licensing Agreement with Telemac
Cellular Corporation (1)
10.13 Form of Franchise Agreement (2)
10.14 Employment Agreements with Donald Marks,
Melvin Leiner, James Caprio and Darren Marks (3)
28.1 Form of 1993 Incentive Stock Option Plan
and 1993 Non-Statutory Stock Option Plan (1)
28.2 Stock Bonus Plan (2)
(1) Incorporated by reference, and as same exhibit number, from Registration
Statement on Form SB-2 (Commission File Number 33-70546-A).
(2) Incorporated by reference, and as same exhibit number, from Amendment No. 1
to Registration Statement on Form SB-2 (Commission File Number 33-70546-A).
(3) Incorporated by reference, and as same exhibit number, from Amendment No. 5
to Registration Statement on Form SB-2 (Commission File Number 33-70546-A).
2341D
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its be
half by the undersigned, thereunto duly authorized.
SIMS COMMUNICATIONS, INC.
By Melvin
Leiner, President and
Chief Executive Officer
By
James J. Caprio, Principal
Financial Officer
By
Bruce Schames, Principal Accounting
Officer
Date: December 31, 1996
In accordance with 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
Director December 31, 1996
Melvin Leiner
Director December 31, 1996
Donald M. Marks
Director December 31, 1996
Darren Marks
Director December 31, 1996
James J. Caprio
