SIMS COMMUNICATIONS INC, 10KSB, 1997-10-14

SIMS COMMUNICATIONS INC
10KSB, 1997-10-14
REFRIGERATION & SERVICE INDUSTRY MACHINERY

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB
(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, 1997
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 65-0287558
(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
(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 10-KSB or any
amendment to this Form 10-KSB. [ ]

The issuer's revenues for the most recent fiscal year were $4,730,112.

The aggregate market value of the voting stock held by non-affiliates of the
registrant, (7,744,203 shares) based upon the average bid and asked prices of
the Registrant's Common Stock on October 10, 1997, was approximately $7,800,000.

As of September 30, 1997 the Company had 9,276,995 issued and outstanding shares
of common stock.

<PAGE>

ITEM 1. DESCRIPTION OF BUSINESS

SIMS Communications, Inc. (the "Company") was incorporated in Delaware
on August 15, 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.

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.

At September 30, 1997, the Company had 18 ACDC units in operation and
the Company's only remaining franchisee had five ACDC's in operation. The ACDC
units operated by the Company were located at car rental agencies (9 units) and
certain AAA Club offices (9 units).

Since 1996 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
overnight courier service.

Effective December 31, 1996 the Company acquired all the issued and
outstanding shares of Link International, Inc. ("Link"). Link manufactures and
distributes machines which dispense prepaid calling cards and terminals which
are used by merchants to perform a variety of transactions, including accepting
credit cards and bank debit cards in payment for sales of merchandise and
services. Unless otherwise indicted, all references to the Company's business
and operations included the business and operations of Link.

In June 1995 the shareholders of the Company approved a 2 for 1 forward
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 report have been adjusted to
reflect this stock split.

The Company's executive offices are located at 3333 S. Congress
Avenue, Suite 401, Delray Beach, Florida 33445. The Company's telephone
number is (561) 265-3601.

<PAGE>

Link International Technologies, Inc.

Effective December 31, 1996, the Company acquired Link International
Technologies, Inc. ("Link") in consideration for the issuance of 674,157 shares
of the Company's Common Stock. For financial statement purposes the acquisition
was accounted for under the purchase method and the assets acquired from Link
(net of liabilities) were valued by the Company at approximately $600,000.

Link has developed a series of state-of-the art pre-paid long distance
telephone card dispensing machines which allow for payment with bank debit
cards, credit cards or cash.

Link has developed and patented certain technologies which provide
unique features for its phone card vending machines. The first and most
important feature is that LINK's machine is the only vending machine in the
market which can individually activate prepaid phone cards (or other "value
stored" cards, including chip-embedded "smart" cards) at the point of sale. All
prepaid phone cards stored in LINK's machines are "dead" (i.e. "inactive") until
each one is individually activated once cash is recieved or a customer's credit
or debit card has been accepted by the machine and sucessfully processed. This
patented device, using a proprietary bar code technology, eliminates the risk of
fraud or theft as well as the need for large capital investment which is
required by other machines that dispense only pre-activated (or "live") cards.
The machines can be operated either by direct telephone line or wireless
technology, at the option of the customer. Second, although LINK's machines
accept cash and credit cards, Link's machines are the only vending devices that
requires the customer to use personal identification number when purchasing
prepaid phones cards with a bank debit card. This particular feature serves to
eliminate the expense (ie. "charge backs") to the merchant for mistakingly
accepting fraudulent or stolen credit cards.

Link has designed two versions of its prepaid telephone card machine.
Its first product (introduced in 1995) is a full sized stand-alone vending
machine which is used in locations where size is not important and where the
machine's lighted billboard signage is desired for advertising. Typical
locations include check cashing locations, office product stores, motels,
airports, universities, and other high traffic locations. This machine, with six
vending slots and a thermal graphic printer, offers other sales opportunities to
the merchant such as recharging cellular phone time, dispensing promotional
coupons, dispensing prepaid gas cards for service station chains, and selling
and dispensing tickets for concerts, sporting events, lotteries, ski lifts, and
the like. Although capable of dispensing a variety of products, Link has decided
to concentrate heavily on the market for prepaid telephone cards and plans to
market this machine to large regional accounts and chains.

In order to appeal to locations where pay telephones are clustered for large
scale use (such as airports, higher end hotels, stadiums, etc.), Link has
designed a second, smaller version of its machine (scheduled to be introduced in
1997) which fits inside the stainless steel cabinets used at

<PAGE>

such locations to house standard pay telephones. All major hardware is
subcontracted and virtually snaps into place allowing this miniature dispensing
machine to be moved and installed in under 30 minutes by one individual. The
location for the machine needs only electrical power and a telephone line. The
machine requires very little maintenance and can be connected to an on-line
computer in order to monitor sales, cash on hand and inventory requirements.

Link's phone card machines can also be used to dispense other items
such as:

- pre-paid gasoline cards
- smart chip cards
- coupons
- stamps
- sporting, theatrical and other event tickets

Link has also developed a counter top credit Point-of-Sale ("POS")
transaction terminal, primarily for use in the sale of goods and services. This
terminal, which accepts bank debit cards as well as major credit cards includes
the capability of pre-paid long distance phone card activation, customer
frequency programs, check guarantee and pre-paid cellular time activation. The
POS transaction terminal uses the same technology and host reporting as Link's
phone card dispensing machines. The Company plans to market POS terminals to
smaller stores, most of which do not have point-of-sale debit card capability.
The Company began marketing Link's POS transaction terminals in August 1997.

See Item 6 of this report for information concerning Link's revenues
for the year ending June 30, 1997.

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 provides
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 batteries, a
battery recharger, and a DC power connector which allows the cellular telephone
to be operated with electric current provided by an automobile cigarette
lighter.

<PAGE>

For the ACDC units located at car rental agencies, a Company employee
staffs a counter adjacent to the rental car counter. Rather than dispensing
cellular telephones through an ACDC unit, the Company employee at the counter
handles all cellular telephone rentals for persons wanting to rent cellular
telephones. Standard ACDC units are available at these locations for customers
wanting to rent a cellular telephone during off-peak hours. Rentals from staffed
locations accounted for approximately 90% of the Company's revenues from
cellular telephone rentals from ACDC units during the year ending June 30, l997.
In January 1996 the Company began renting cellular telephones from ACDC units
installed at certain AAA Club offices in Florida and Louisianna.

At September 30, l997, the Company had 18 ACDC units in operation and
the Company's only franchisee had five ACDC's in operation. The ACDC units
operated by the Company were located at car rental agencies (9 units) and
certain AAA Club offices (9 units).

As an alternative to selling additional franchises the Company has
entered into various master licensing arrangements with third parties. These
arrangements 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 June 30, l997 the Company
had sold thirty ACDC units to third parties under master licensing arrangements,
resulting in gross revenues of approximately $664,000, and had sold 10 ACDC
units to a corporation affiliated with certain officers and directors of the
Company for $150,000. Although all of these sales occurred prior to December 3l,
l996, as a result of credit terms extended by the Company, approximately
$793,000 was still owed to the Company as of June 30, l997 for these equipment
sales. See "Management - Transactions with Related Parties".

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
Corporation 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 cellular
telephone, the customer returns the telephone to the Company by means of Federal
Express. This program generated approximately $215,000 in revenue during the
year ending June 30, 1997. The Company believes that revenues from this program
will increase as more potential customers become aware of this service.

<PAGE>

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, 1997 the Company activated over
5,400 cellular phones. This program generated about 38% of the Company's fourth
quarter revenue and operated at a gross profit of approximately $527,000 for the
year ending June 30, 1997. 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.

Research and Development

During the years ending June 30, 1995, 1996 and l997, the Company spent
approximately $89,000, $134,000 and $35,000, respectively, on research and
development. Research and development expenditures pertained to the design,
development and testing of enhancements to Link's Point-Of-Sale transaction
terminals.

Franchise Operations

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 1993. In
August 1995, the Company had 50 ACDC units in operation and the Company's
franchisees (13 in total) had 28 ACDC's in operation.

<PAGE>

Instafone of California, one of the Company's former franchisees, had
previously paid the Company $1,000,000 for deposits of ACDC units and
franchises. Instafone of California is no longer in the business of renting
cellular telephones and has advised the Company that it wants a refund of the
deposits paid to the Company. The Company is attempting to negotiate a
settlement with Instafone of California concerning this matter. The amounts
recieved by the Company for equipment and franchise deposits as of June 30, 1997
represented 90% of the total amounts recorded by the Company as a liability for
franchise and customer deposits on such date. See "Litigation"

Patents

The United States Patent and Trademark Office has issued the Company a
patent for the design of the cabinet which houses the Company's ACDC Units.
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 also been granted a patent covering certain aspects
of its prepaid phone card dispensing machines. See "Risk Factors."

Competition

The Company competes with numerous other companies engaged in the
rental and activation of cellular telephones, the sale of prepaid long distance
calling cards, the resale of long distance telephone service, and the sale of
point-of-sale terminals. Many of these competitors have greater financial and
marketing resources than those of the Company.

Sales and Marketing

Organizations such as AAA travel clubs and credit unions continue to be
the Company's primary market for cellular telephone activation, cellular
telephone rentals and sales of prepaid calling cards and long distance service.

The Company plans to market it's prepaid calling-card dispensing
machines and it's ACDC units to major corporations with significant customer
bases consisting primarily of business and recreational travelers. The Company
markets it's Point-Of-Sale transaction terminals to small retail locations such
as convenience stores and gasoline stations.

The Company uses through trade shows, database marketing, direct mail,
and sales brochures to market its products.

Employees and Offices

As of September 30, 1997, the Company employed thirty-six persons on a
full-time basis. Nineteen employees serve in management or administrative
capacities, 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.

<PAGE>

ITEM 2. DESCRIPTION OF PROPERTIES

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.

Link leases a 7,000 square foot production and office facility in
Tampa, Florida at an annual rent of $35,000. The lease on this facility expires
in June 2002. Link's administrative and sales offices are located in Irvine,
California and consist of 1600 square feet of space which are leased at an
annual rent of $18,000. This lease on the space expires in February 1998.

ITEM 3. LEGAL PROCEEDINGS.

The Company is not a party to any pending legal proceedings. The
Company's California franchisee has demanded that the Company purchase this
franchise, 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, 1997 the Company had a liability of $770,000 for franchise and equip-
ment deposits paid by this franchisee to the Company.

The Company is a defendant in a lawsuit filed in Palm Beach County,
Florida. The plaintiff in this lawsuit seeks damages in excess of $3,800,000 for
breach of contract. The Company has filed an Answer and has asserted various
affirmative defenses denying the plaintiff's claims.

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, 1997, there were approximately 800 beneficial
owners of the Company's Common Stock, Series A Warrants and Series B Warrants.
The Company's Common Stock is 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 reported by NASDAQ. The
market quotations reflect interdealer prices, without retail

<PAGE>

mark-up, mark-down or commissions and may not necessarily represent actual
transactions. The Company's Common Stock and Warrants began trading in February
1995. The Company's Warrants have not traded since January 1997. 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 reverse stock split which was
effective in March 1996.

Quarter
Series A Series B
Ending Common Stock Warrants Warrants
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

9/30/96 $ 1.34 $ 0.50 $0.09 $0.03 $0.06 $0.03
12/3l/96 $ 1.12 $ 0.66 $ 0.03 * $ 0.03 *
3/31/97 $ 1.94 $ 0.86 $ 0.03 * $ 0.03 *
6/30/97 $2.81 $1.03 * * * *

* -No quotation

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 on it's
Common Stock and the Company does not have any current plans to pay any Commmon
Stock 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.

<PAGE>

Statement of Operations Data:

Years Ended June 30,

l997 1996 1995
Revenue $4,730,112 2,607,879 696,909
Cost of Sales (2,861,421) (1,686,188) (607,509)
Operating and other
Expenses (4,657,587) (4,645,197) (2,540,512)

Net (Loss) (2,788,896) $(3,723,506) $(2,451,112)

Net (Loss) per Share $(0.42) $(1.56) $(1.43)

Weighted Average
Number of Shares
Outstanding 6,667,291 2,384,055 1,716,580

Balance Sheet Data:
June 30,
l997 1996 1995

Current Assets $2,006,289 $ 1,983,252 2,657,070
Total Assets $5,544,173 $3,312,372 3,616,793
Current Liabilities $3,630,430 $2,343,308 1,438,465
Total Liabilities $3,716,349 $2,404,534 1,608,819
Working Capital (Deficit) $(1,624,141) $(360,056) 1,218,425
Shareholders Equity $1,827,824 $907,838 2,700,974

No Common Stock dividends have 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, as well as the anticipated
revenue percentage from each category for the year ending June 30, 1998.

<PAGE>

Percent of Gross Revenues
,
Years Ending Year Ending
June 30, (Projected)(1)
June 30, 1998
1995 1996 l997

A.1 Income from Company
owned and operated
ACDC units. 17% 30% 15% 4%

A.2 Rental of cellular
telephones directly
from Company. 12% 3% 4% 2%

B. Initial franchise fees. 7% -- -- --

C. Royalties from fran-
chisees. 14% 1% -- --

D. Sale of ACDC units,
and related
equipment. 48% 29% 25% 2%

E. Fees paid by cellular
telephone companies for
activation of cellular
telephones 1% 32% 38% 20%

F. Sale of prepaid calling
cards. -- -- 5% 6%

G. Sale of long distance
telephone service. -- -- 1% 6%

H. Revenues from Link
International -- -- 12% 58%

I. Miscellaneous Income 1% 5% -- --

(l) There can be no assurance that these percentages will not change
significantly based upon events which may not be within the Company's control.
Projected revenues for the year ending June 30, l998 constitute a
forward-looking statement which is subject to risks and uncertainties which
could cause actual results to differ materially from those projected. Factors
that could cause or contribute to such differences include lack of adequate
funding, loss of major customers and inability to meet sales projections. The
Company undertakes no obligation to publicly release any revision to these
forward-looking statements which may be made to reflect events or circumstances
after the date of this report or to reflect the occurrence of unanticipated
events.

<PAGE>

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 1995, the Company had 50 ACDC units in
operation and the Company's franchisees (13 in total) had 28 ACDC's in
operation. 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. As of September 3, 1997 only
one Company franchisee was operating ACDC units. At September 30, 1997, the
Company had 18 ACDC units in operation and the Company's only remaining
franchisee had five ACDC's in operation.

Effective December 31, 1996, the Company acquired Link International
Technologies, Inc. in consideration for the issuance of 674,157 shares of the
Company's Common Stock. See Item 1 of this report and the discussion below of
the Company's results of operations for the year ending June 30, 1997.

Year Ending June 30,l997

Revenues during the year ending June 30, 1997 increased from the
comparable period in 1996 year due to the introduction and/or expansion of four
programs which were recently introduced in an effort to diversify and broaden
the Company's product and service mix. These programs are (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 courier
service.

Revenues also increased as the result of a one-time licensing fee
($500,000) received pursuant to a License Agreement between the Company and
Cancall Cellular Communications, Inc. (Cancall).

The activation program of cellular telephones for members of the
Florida, Louisiana, and Mississippi AAA clubs began in January 1996. This
program 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.

Revenues from the rental of cellular telephones through ACDC units
decreased during the year ending June 30,1997 as the Company closed certain ACDC
locations that were not profitable.

As an alternative to selling ACDC units to franchises the Company has
entered into various master licensing arrangements with third parties. These
arrangements 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,

<PAGE>

or (iii) a specific region in the United States. As of June 30, 1997 the Company
had sold 30 ACDC units to third parties under master licensing arrangements,
resulting in gross revenues of approximately $664,000, and had sold 10 ACDC
units to a corporation affiliated with certain officers and directors of the
Company for $150,000. Although all of these sales occurred prior to December 31,
1996, as a result of credit terms extended by the Company approximately $793,000
was still owed to the Company as of June 30, 1997 for these equipment sales.

Effective December 31, 1997 the Company acquired all the issued and
outstanding shares of Link International, Inc. ("Link"). Link manufactures and
distributes machines which dispense prepaid calling cards and terminals which
are used by merchants to perform a variety of transactions, including accepting
credit cards and bank debit cards in payment for sales of merchandise and
services. The terminals manufactured by Link are sometimes referred to as "POS
terminals". As a result of this acquisition, Link's revenue and expenses have
been consolidated with those of the Company for the six months ending June 30,
1997. During this six month period, Link's revenues from sales of equipment,
prepaid calling cards and technical service were approximately $60,000, which
amount excludes revenues attributable to the Licensing Agreement between the
Company and Cancall. During the six month period ending June 30, 1997 Link's
cost of sales accounted for 0.4% of the Company's consolidated cost of sales and
Link's other expenses accounted for 0.9% of the Company's Consolidated Operating
Expenses.

In March 1997 the Company entered into a License agreement with Cancall
whereby the Company provided Cancall with a license to operate and/or distribute
the Company's ACDC units, as well as Link's prepaid calling card machines and
POS terminals (collectively the "Products"). The License Agreement grants
Cancall the exclusive right to operate and distribute the Products in Canada and
Europe and in the United States on a non-exclusive basis. However, if Cancall
does not purchase a minimum of 2,000 POS terminals for use in Europe between
September 1, 1997 and January 1, 1999 then Cancall will lose its exclusive right
to operate and distribute the Products in Europe. In consideration for the
rights granted pursuant to the Licensing Agreement, Cancall agreed to pay the
Company $500,000 which amount is either payable in cash or in equivalent shares
of the Class B Preferred shares of Cancall. The Class B Preferred shares can be
converted into the common stock of Cancall on the basis of 1.6 shares of
Cancall's common stock for each share of Cancall's Class B Preferred stock. Any
common shares of Cancall issued upon the conversion of the Class B Preferred
shares may not be sold until March l998 or such other date as determined by the
Vancouver Stock Exchange. The common stock of Cancall trades on the Vancouver
Stock Exchange. As of June 30, 1997 the closing price of Cancall's common stock
(in U.S. dollars) was $0.32. The Licensing Agreement also requires Cancall to
purchase a certain number of ACDC units and POS terminals from the Company.
During the year ending June 30, 1997 the Company sold thirty ACDC units to
Cancall for $705,000. In payment of the $500,000 licensing fee and the thirty
ACDC units, Link issued 1,807,800 shares of it's Class B Preferred Stock to the
Company.

Income from franchise operations is no longer significant since the
Company discontinued its franchise operations during 1995.

<PAGE>

The increase in Cost of Sales during the year period ending June 30,
1997 reflects the acquisition of Link, the expansion of the Company's cellular
telephone rental, cellular telephone activation, prepaid calling cards and long
distance telephone programs.

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 courier
service.

The activation program of cellular telephones for members of the
Florida, Louisiana, and Mississippi AAA clubs began in January 1996. The program
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
Company. Income from equipment sales declined as the Company reserved 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
current nine month period are due to the Company's new programs and additional
personnel needed for these programs.

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.

<PAGE>

Liquidity and Sources of Capital

During the year ending June 30, 1997 the Company's operations used
approximately $1,853,000 of cash. The licensing fee from Cancall. ($500,000) and
the sale of thirty ACDC units to Cancall ($705,000) did not generate cash since
Cancall paid the licensing fee and the cost of the ACDC units with non-tradable
shares of Cancall's preferred stock. In addition, due to credit terms extended
by the Company, approximately $793,000 was still owed to the Company for
equipment sales made by the Company prior to December 31, 1996.

In order to fund its operating losses, the Company sold shares of its
common stock in private placements and borrowed funds from private lenders.

The Company does not have any available credit, bank financing or other
external sources of liquidity. Due to historical operating losses, the Company's
operations have not been a source of liquidity. In order to obtain capital, the
Company plans to sell additional shares of its common stock or borrow funds from
private lenders. During the next twelve months the Company will need capital to
fund its operations, repay outstanding debt and fund receivables and inventory
balances.

The Company may suffer future losses, in which case the Company will
need to obtain additional sources of capital in order to continue operations.
There can be no assurance, however, that the Company will be successful in
obtaining additional funding.

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,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Officers and Directors

Name Age Position

Melvin Leiner 51 President, Chief Executive Officer, and a
Director
Darren M Marks 30 Vice President of Marketing and Sales, and a
Director
Donald M. Marks 57 Vice President
James J. Caprio 34 Vice President
Bruce S. Schames 50 Chief Financial Officer
David P. Barnhill 68 Director
Mark Bennett 38 Director
Michael Malet 50 Director
Chet Howard 54 Director
George Pursglove 46 Director

Donald M. Marks and Darren M. Marks are not related.

<PAGE>

Each director holds office until his successor is duly elected by the
stockholders. Executive officers serve at the pleasure of the Board of
Directors.

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.

Darren M. Marks joined the Company in August, 1991 as its Vice
President and a Director.

Donald M. Marks was a Director of the Company between August 1991 and
April 1997. Mr. Marks has been an officer and director of the Company since
l99l.

James J. Caprio was a Director and the Company's Chief Financial
Officer between August 1991 and April 1997. In April 1997 Mr. Caprio resigned
as a Director and as the Company's Chief Financial Officer. Mr. Caprio has
been a Vice President of the Company since August 1991.

Bruce S. Schames has been the Company's Controller since December,
1993. In April 1997 Mr. Schames became the Company's Chief Financial
Officer. 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.

David P. Barnhill has been a director of the Company since November
1996. From January 1991 to September 1992 Mr. Barnhill was President and
Chief Executive Officer of Telenetics, Inc., a company involved in the
manufacture of computer modems. When Telenetics was sold to a group of
private investors in September 1992, Mr. Barnhill joined Lynx Automation
Incorporated as Chief Financial Officer. In April 1994, Mr. Barnhill was
promoted to President and Chief Executive Officer of Lynx. Lynx is engaged in
the manufacture of telephone accessories.

Mark Bennett has been a Director of the Company since September 1997.
Mr Bennett has been the President, Chief Executive Officer and a Director of
Link International Technologies, Inc., a subsidiary of the Company, since
January 1996. Since April 1995 Mr Bennett has also been the President of New
View Technologies, a wholly owned subsidiary of Link. From 1985 to 1987 Mr.
Bennett was the General Manager for MovieBar, a video vending company servicing
the hotel and hospitality industry, with installations in over 35,000 hotel
rooms worldwide. In 1987 Mr. Bennett became Vice President of International
Operations and General Manager of MovieBar and was subsequently named as
President of MovieBar Company USA. In December 1995 Mr. Bennett resigned his
position with MovieBar to co-found Link.

Michael Malet has been a director of the Company since September
1997. Mr. Malet has been the President of New View Technologies, Inc., a
wholly owned subsidiary of Link International Technologies, Inc., since July
1995. From 1986 to 1987 Mr. Malet was the President

<PAGE>

of Vending Control Systems, a manufacturer of video vending machines. Mr. Malet
was a Sales Manager (1987-1990) and later President (1991-1995) of Keyosk
Corporation, a Company involved on the development and sale of intelligent
on-line vending machines, including the Company's ACDC Units.

Chet Howard has been a director of the Company since September 1997.
Since 1992 Mr. Howard has been a principal of Consolidated Business Group, a
company providing financial consulting services for development stage business.
From 1988 to 1992 Mr. Howard was Executive Vice President and Chief Financial
Officer of HQ Office Supplies, Inc.

George Pursglove has been a Director of the Company since September
1997. Since November 1995 Mr. Pursglove has been a principal of Conslidated
Business Group, a company providing financial consulting services to development
stage businesses. Between March 1993 and November 1995 Mr. Pursglove was a
Senior Divisional Merchandise Manager, and later Director of Merchandising for
Office Depot. Between April 1992 and March 1993 Mr. Pursglove was Divisional
Merchandise Manager for the Price Company, a retailer of home improvement goods.

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.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth in summary form the compensation
received by or accrued for (i) the persons who held the position of Chief
Executive Officer during the three years ending June 30, 1997 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, 1997 $26,000 -- -- 500,000 -- --
President and 1996 $21,038 -- 250,000 -- --
Chief Executive 1995 $92,063 -- $8,400 -- 40,000 -- --
Officer

Darren M. Marks, l997 $26,000 500,000
Vice President 1996 $21,038 -- 250,000 -- --
1995 $86,594 -- $8,400 -- 40,000 -- --

Donald M. Marks, l997 26,000 500,000
Vice President 1996 $21,038 -- 250,000 -- --
1995 $77,189 -- $8,400 -- 40,000 -- --

James Caprio, l997 $26,000 500,000
Vice President 1996 $21,038 -- 250,000 -- --
1995 $95,419 -- $8,400 -- 40,000 -- --

<PAGE>

(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 number of
shares of the Company's Common Stock owned by the officers listed above, and the
value of such shares as of June 30, 1997.

Name Shares Value

Melvin Leiner 299,081 $523,300
Darren M. Marks 258,242 $451,900
Donald M. Marks 330,242 $577,900
James Caprio 258,242 $451,900

(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 premiums 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
employment 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 during the third
year.

3. Incentive bonus computed according to the following formula:

<PAGE>

Annual 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 benefit 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 employee for the
remaining term of the employment agreement.

The four officers listed in the above above agreed to amend their
respective employment agreements such that the collective salaries paid to these
four officers (effective September 30, 1996) will not exceed $360,000.

In January 1997 the employment agreement's for Melvin Leiner and Darren
Marks were amended such that Mr. Leiner and Mr. Marks will each be paid a base
salary of $95,000 per year for five years and will recieve six weeks of paid
vacation each year. Each officer's base salary will increase by 15% each year
when the Company is profitable and by 10% each year during which the Company
suffers a loss.

In April 1997 Mr. Caprio's employment agreement was amended such that
Mr. Caprio will be paid a base salary of $90,000 per year for five years and
will receive six weeks of paid vacation each year. Mr. Caprio's base salary will
increase by 15% each year when the Company is profitable and by 5% each year
during which the Company suffers a loss.

Effective December 31, 1996, Link International Inc. ("Link"), a wholly
owned subsidiary of the Company, entered into employment agreements with Mark
Bennett (the president of Link) and Michael Malet (the vice president of Link).
Each employment agreement provides for the following:

1. Term of five years.

2. Annual salary of $72,000.

3. Incentive bonus computed according to the following formula:

<PAGE>

Annual Consolidated Company Bonus Payable
Revenues From Operations to Employee

$11,000,000 to $13,000,000 $22,500
$13,000,000 to $16,500,000 $45,000
$16,500,000 to $18,500,000 $67,500
Over $18,500,000 $90,000

4. Automobile allowance of $700 per month.

5. Options for the purchase of 322,000 shares of the Company's common
stock. The options were granted pursuant to the Company's Incentive Stock Option
Plan, are exercisable at $1.00 per share, and expire on December 31, 2000.

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 change-in-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
directors 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
participation or special assignments.

Other Arrangements. During the year ended June 30, 1997, and except as
disclosed elsewhere in this report, no director of the Company received any form
of compensation from the Company.

In August 1997 the Company issued 50,000 shares of its common stock to
David P. Barnhill in consideration of past services rendered to the Company.
Prior to June 30, 1998, the Company plans to issue 50,000 shares of it's Common
Stock to Chet Howard and George Pursglove in consideration of services provided
to the Company.

<PAGE>

Compensation Committee Interlocks and Insider Participation

During the year ended June 30, 1997, all of the Company's present
officers participated in the deliberations of the Company's Board of Directors
concerning executive officer compensation.

During the year ended June 30, 1997 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 compensation
committee of such entity.

Committees

In September 1997 the Company formed an Executive Committee, the
members of which are Melvin Leiner, Michael Malet, David Barnhill and George
Pursglove. The purpose of the Executive Committee is to review proposed
expenditures that would require the Company to spend in excess of $50,000.

In September 1997 the Company established an Audit Committee, the
members of which are David Barnhill, Chet Howard and George Pursglove. The Audit
Committee will (i) recommend to the Board of Directors a firm of independent
public accountants to conduct the annual audit of the Company's financial
statements. (ii) review with such accounting firm the scope and result of annual
audits and the adequacy of the Company's internal controls, and (iii) otherwise
oversee the auditor's review of management controls and the Company's financial
performance.

The Company has a Compensation Committee comprised of Melvin Leiner,
David Barnhill and Chet Howard. The Compensation Committee will review 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.

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 follows.
In some cases these three Plans are collectively referred to as the "Plans".

Incentive Stock Option Plan. The Incentive Stock Option Plan authorizes
the issuance of options to purchase up to 5,000,000 shares of the Company'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, directors and
key employees of the Company may be granted options pursuant to the Incentive
Stock Option Plan.

<PAGE>

In order to qualify for incentive stock option treatment under the
Internal Revenue Code, the following requirements must be complied with:

1. Options granted pursuant to the Plan must be exercised no later
than:

(a) The expiration of thirty (30) days after the date on which an
option holder's employment by the Company is terminated.

(b) The expiration of one year after the date on which an option
holder's employment by the Company is terminated, if such termination is due to
the Employee's disability or death.

2. 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
expiration) the option as to any of the shares not previously exercised.

3. 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.

4. 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.

5. The purchase price per share of Common Stock purchasable under an
option 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 3,000,000 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 Company'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 capital-raising
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 terminate
upon the first to occur of the following dates:

<PAGE>

(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 advisors are
eligible to receive a grant of the Company's shares; provided, however, 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
pursuant 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.

<PAGE>

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 options
previously granted. The Board of Directors may not, without shareholder
approval: make any amendment which would materially modify the eligibility
requirements 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 accruing
to employees who are eligible to participate in the Plans.

Any options granted under the Incentive Stock Option Plan or the
NonQualified 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 September
30, 1997, concerning the stock options and stock bonuses granted by the Company.
Each option represents the right to purchase one share of the Company's Common
Stock.

Total Shares
Shares Reserved for Shares Remaining
Reserved Outstanding Issued As Options
Name of Plan Under Plan Options Stock Bonus Under Plan

Incentive Stock Option Plan 5,000,000 2,734,000 N/A 2,266,000
Non-Qualified Stock Option
Plan 3,000,000 1,040,000 N/A 1,960,000
Stock Bonus Plan 3,000,000 N/A 2,292,500 707,500

As of September 30, 1997, the Company has issued stock options and
granted stock bonuses to the following officers and directors.

<PAGE>

Incentive Stock Options
Shares Expiration
Subject to Exercise Date of
Option Holder Option Price Option

Melvin Leiner 20,000 $3.25 9/30/99
Melvin Leiner 50,000 $1.00 12/31/06
Darren M. Marks 20,000 $3.25 9/30/99
Darren M. Marks 50,000 $1.00 12/31/06
James J. Caprio 20,000 $3.25 9/30/99
James J. Caprio 500,000 $1.00 12/31/06
Donald M. Marks 20,000 $3.25 9/30/99
Donald M. Marks 500,000 $1.00 12/31/06
Other Company Employees
and other parties 654,000 $1.00 to $3.25 9/30/99 to 12/31/06

Non-qualified Stock Options

Melvin Leiner 500,000 $1.25 7/29/02
Darren Marks 500,000 $1.25 7/29/02

Other Options (1)

Donald M. Marks 20,000 $2.75 9/30/99
Melvin Leiner 20,000 $2.75 9/30/99
James J. Caprio 20,000 $2.75 9/30/99
Darren M. Marks 20,000 $2.75 9/30/99
Other Company employees
and third parties85,000 $1.00 to $3.25 9/30/99 to 5/31/00 (1) These options
were not granted pursuant to any of the Company's stock option plans.

Options Granted During Fiscal Year Ending June 30, l997

The following tables set forth information concerning the options
granted, during the fiscal year ended June 30, 1997, to the persons named below,
and the fiscal year-end value of all unexercised options (regardless of when
granted) held by these persons.

<PAGE>

Potential
Individual Grants Realizable Value at
% of Total Assumed Annual Rates
Options of Stock Price
Granted to Exercise Appreciation for
Options Employees in Price Per Expiration Option Term (3)
Name Granted (#) Fiscal Year Share Date 5% 10%

Melvin
Leiner 500,000 (1)(2) 19% $1.00 12/31/06 $314,447 $678,973

Darren
Marks 500,000 (1)(2) 19% $1.00 12/31/06 $314,447 $678,973

Donald M.
Marks 500,000 19% $1.00 12/31/06 $314,447 $678,973

James J.
Caprio 500,000 19% $1.00 12/31/06 $314,447 $678,973

(1) Susequent to June 30, 1997 options, relating to 150,000 shares of the
Company's common stock were exercised. The exercise price relating to these
options was paid by surrendering 300,000 options which had an exercise price of
$1.00 per shares.

(2) Subsequent to June 30, 1997 the Company granted an additional 500,000
options to Melvin Leiner and Darren Marks. These options were granted pursuant
to the Company's Non-Qualified Stock Option Plan, are exercisable at $1.25 per
share, and expire on July 29, 2002.

(3) The potential realizable value of the options shown in the table assuming
the market price of the Company's Common Stock appreciates in value from the
date of the grant to the end of the option term at 5% or 10%.

Stock Bonuses

In May and November 1996 and in May and August l997 the Company, in
accordance with the terms of its Stock Bonus Plan, issued 2,192,000 shares of
Common Stock to certain Company officers, employees and consultants. The
following persons received shares of the Company's Common Stock in these
transactions:

Shares Issued as Stock Bonus
Name May 1996 (1) November 1996 May l997 August 1997

Melvin Leiner 250,000 -- -- 50,000
Darren Marks 250,000 -- -- 50,000
James J. Caprio 250,000 -- -- --
Donald Marks 250,000 -- -- --
Bruce Schames 75,000 -- -- --
Other Employees and
Consultants as a group 425,000 345,000 137,500 210,000

<PAGE>

(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) will not exceed $360,000, instead of the $600,000
which would have otherwise been payable to these officers pursuant to their
employment agreements.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information as of September 30,
1997 regarding the number and percentage of outstanding shares of the Company'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:

Percent of
NAME Number of Shares (1) Class (1)

Melvin Leiner 299,081 3.2
3333 S. Congress Ave.
Suite 401
Delray Beach, FL 33445

Darren M. Marks 258,242 2.8%
3333 S. Congress Ave.
Suite 401
Delray Beach, FL 33445

Donald M. Marks 330,242 3.6%
3333 S. Congress Ave.
Suite 401
Delray Beach, FL 33445

James J. Caprio 258,242 2.8%
3333 S. Congress Ave.
Suite 401
Delray Beach, FL 33445

Bruce S. Schames 3,825 *
3333 S. Congress Ave.
Suite 401
Delray Beach, FL 33445

David P. Barnhill 50,000 *
3333 S. Congress Ave.
Suite 401
Delray Beach, FL 33445

Mark Bennett 166,580 1.8%
1967 Vista Caudal
Newport Beach, CA 92660

<PAGE>

Percent of
NAME Number of Shares (1) Class (1)

Michael Malet 166,580 1.8%
28 Oakdale
Irvine, CA 92604

Chet Howard
8954 Canary Ave.
Fountain Valley, CA 92708

George Pursglove - -
9380 N.W. 39 Court
Coral Springs, FL 33065

Officers and Directors as a
Group (10 persons) 1,532,792 16.7%

* Less than 1%.

(1) Excludes shares issuable upon the exercise of any warrants or options or
upon the conversion of any promissory notes or other convertible securities.

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 installation
services to the Company. The consulting agreement expired on July 31, 1994.
Through July 31, l994, the Company delivered (or was obligated to deliver)
equipment (at a cost to the Company of approximately $66,000) to Compass
Consulting as payment for services provided to the Company. During fiscal l995,
equipment was delivered to Compass Consulting pursuant to and in satisfaction of
the amounts owed pursuant to the consulting agreement. In June l995, the
equipment previously delivered to Compass Consulting was repurhased 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
Preferred 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.

In June 1996 the Company issued 250,000 shares of its Common Stock to
Melvin Leiner, Donald Marks, James Caprio and Darren Marks (1,000,000 shares in
total) as repayment of loans, each in the amount of $125,000, made by such
persons to the Company.

<PAGE>

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 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.

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.

During the year ended June 30, 1996, the Company sold five ACDC units
and related technology to Lonestar, Inc., a corporation owned by Melvin Leiner,
Darren Marks, James Caprio and Donald Marks, all officers of the Company, for
$350,000. The sales price for these units was paid by offsetting advances of
$350,000 which had previously been made to the Company by such officers. In
December l996 the Company sold ten additional ACDC units to Lonestar for
$l50,000. Lonestar made an initial payment of $l5,000 for these ACDC units and
the balance is payable in 33 equal monthly intallments of $2,753, which includes
interest at 8.25% per year. The first monthly payment was made on April l5,
l997.

<PAGE>

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 (1)
Telemac Cellular Corporation

10.13 Form of Franchise Agreement (2)

10.14 Employment Agreements with Donald (3)
Marks, Melvin Leiner, James Caprio
and Darren Marks

28.1 Form of 1993 Incentive Stock Option Plan (1)
and 1993 Non-Statutory Stock Option Plan

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).

2812D

<PAGE>

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
behalf by the undersigned, thereunto duly authorized.

SIMS COMMUNICATIONS, INC.

By /s/ Melvin Leiner
Melvin Leiner, President and
Chief Executive Officer

By /s/ Bruce Schames
Bruce Schames, Principal
Financial and Accounting Officer

Date: October 14, 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

/s/ Melvin Leiner Director October 14, 1996
Melvin Leiner

/s/ Darren Marks Director October 14, 1996
Darren Marks

Director October 14, 1996
David P. Barnhill

/s/ Mark Bennett Director October 14, 1996
Mark Bennett

/s/ Michael Malet Director October 14, 1996
Michael Malet

Director October 14, 1996
Chet Howard

Director October 14, 1996
George Pursglove

2812D

<PAGE>

FORM 10-KSB

(EXHIBITS)

SIMS Communications, Inc.
3333 S. Congress Avenue
Suite 401
Delray Beach, FL 33445

<PAGE>

Exhibits

Number Exhibit Page Number

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 (1)
Telemac Cellular Corporation

10.13 Franchise Agreement (2)

10.14 Employment Agreements with Donald (3)
Marks, Melvin Leiner, James Caprio
and Darren Marks

28.1 Form of 1993 Incentive Stock Option Plan (1)
and 1993 Non-Statutory Stock Option Plan

28.2 Stock Bonus Plan (2)

(1) Filed with initial Registration Statement.

(2) Filed with Amendment No. 1 to Registration Statement.

(3) Filed with Amendment No. 5 to Registration Statement.

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Table of Contents

Page

Independent Auditors' Report...........................................F - 1

Financial Statements

Consolidated Balance Sheet..........................................F - 2

Consolidated Statements of Operations...............................F - 3

Consolidated Statements of Stockholders' Equity.....................F - 4

Consolidated Statements of Cash Flows...............................F - 5

Notes to Consolidated Financial Statements.............................F - 6

<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
SIMS Communications, Inc. and Subsidiaries
Delray Beach, Florida

We have audited the accompanying consolidated balance sheet of SIMS
Communications, Inc. and Subsidiaries as of June 30, 1997 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended June 30, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SIMS Communications,
Inc. and Subsidiaries as of June 30, 1997 and the results of their operations
and cash flows for the years ended June 30, 1997 and 1996 in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
which raise substantial doubt about its ability to continue as a going concern.
Management's plan in regard to these matters is also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

Ehrhardt Keefe Steiner & Hottman PC
October 8, 1997
Denver, Colorado

F - 1

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Balance Sheet
June 30, 1997

<TABLE>
<S> <C>
Assets
Current assets
Cash and cash equivalents ($250,000 restricted) $ 295,900
(Note 6)
Accounts receivables, less allowance for doubtful
accounts of $27,584 $ 205,888
Inventories 1,083,199
Prepaid expenses and other current assets, net of
accumulated amortization of $178,185 205,860
Notes receivable, current portion (Notes 4 and 9) 215,442
---------
Total current assets 2,006,289
---------

Property and equipment, net of accumulated 737,079
depreciation of $424,002 (Note 3) --------

Other assets
Notes receivable (Notes 4 and 9) 726,448
Patents, net of accumulated amortization
of $41,804 (Note 17) 474,941
Investments (Note 5) 1,510,000
Other 89,416
---------
Total other assets 2,800,805
---------
Total assets $5,544,173
==========

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 567,407
Accrued expenses 727,698
Bank line of credit (Note 6) 250,000
Current obligations under capital lease (Note 7) 8,377
Current maturities of long-term debt (Note 7) 1,066,985
Franchise deposits and deferred revenue (Note 5) 944,154
Officer advances payable (Note 9) 65,809
---------
Total current liabilities 3,630,430

Long-term liabilities
Long-term debt (Note 7) 48,000
Obligations under capital lease (Note 7) 37,919
---------
Total long-term liabilities 85,919

---------
Total liablities 3,716,349
---------
Commitments and contingencies (Notes 4 and 15)

Stockholders' equity (Notes 10 and 11)
Preferred stock, Series A, $.001 par value,
50,000 shares authorized, 25,250 shares issued
and outstanding (liquidation preference of 25
$505,000)
Preferred stock, Series B, $.001 par value, 100,000 shares authorized,
100,000 shares issued
or outstanding (liquidation preference of 100
$100,000)
Common stock $.0001 par value 40,000,000 shares
authorized, 8,481,995 issued and outstanding 848
Additional paid in capital 15,134,047
Accumulated deficit (13,307,196)
---------
Total stockholders' equity 1,827,824
---------
Total liabilities and stockholders' equity $5,544,173
==========

</TABLE>

See notes to consolidated financial statements.

F - 2

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Year Ended June 30,
--------------------
1997 1996

----------- -----------
<TABLE>
<S> <C> <C>
Revenue
Cellular phone rentals $ 904,351 $ 849,877
Cellular phone activations 1,780,019 846,524
Calling cards 244,309 -
Equipment and other 1,298,222 831,171
Licensing 500,000 -
Franchise, royalty and licensing 3,211 80,307
Total revenue 4,730,112 2,607,879

Cost of sales 2,861,421 1,686,188

Gross profit 1,868,691 921,691

Operating expenses
General and administrative 1,774,162 1,518,950
Depreciation and amortization 247,990 206,581
Selling expenses 1,128,395 982,130
Equity based compensation 1,431,741 1,765,000
Research and development 34,686 134,470
Total expenses 4,616,974 4,607,131

Operating loss (2,748,283) (3,685,440)

Other income (expense)
Interest expense (71,537) (65,221)
Interest income 30,924 27,155
(40,613) (38,066)
Loss before income taxe (2,788,896) (3,723,506)

Income tax benefit (Note 8) - -

Net loss $(2,788,896) $(3,723,506)

Net loss per common share $ (.42) $ (1.56)

Weighted average common shares outstanding
(Notes 11 and 12) 6,667,291 2,384,055
</TABLE>

See notes to consolidated financial statements.

F - 3

<PAGE>

Consolidated Statements of Stockholders' Equity
Years Ended June 30, 1997 and 1996

Subscribed Preferred Stock Preferred Stock Series A Preferred Stock Series B
Subscribed
Number of Number of Number of
Shares Amount Shares Amount Shares Amount

Balance June 30, 1995 24,250 245,000 - $ - - $ -

Adjustment of stock upon reverse stock - - - - - -
split of 1 for 10 (Note 12)

Issuance of common stock for cash - - - - - -
(ranging from $.75 to $1.88 per share)

Issuance of common stock upon
conversion of officer notes payable - - - - - -
($2.07 per share) (Note 11)

Issuance of common stock for services - - - - - -
($1.00 per share) (Note 11)

Issuance of common stock upon
conversion of officer notes payable - - - - - -
($.50 per share) (Note 11)

Officer notes payable forgiven (Note - - - - - -
11)

Accrued officer salaries forgiven - - - - - -
(Note 11)

Preferred stock - subscribed (Note 11) 101,000 120,000 - - - -

Dividends paid on preferred stock - - - - - -
Net loss for the year - - - - - -
Balance - June 30, 1996 125,250 365,000 - - - -

Issuance of common stock issued for - - - - - -
investments (Notes 5 and 11) - - - - - -

Isssuance of common stock for services - - - - - -
(Note 11)

Issuance of common stock for cash
(ranging from $.50 to $.70 per - - - - - -
share), net of $198,160 in offering
costs (Note 11)

Issuance of common stock upon
conversion of notes payable (ranging - - - - - -

Imputed value of stock options granted - - - - - -
for consulting services and interest
(Note 11)

Subscribed preferred stock issued (125,250) (365,000) 25,250 25 100,000 100

Net loss - - - - - -

Balance June 30, 1997 - $ - 25,250 $ 25 100,000 $ 100

</TABLE>

Additional
Number of Paid-in Accumulated
Shares Amount Capital Deficit Total
(Note 11)

Balance June 30, 1995 20,188,710 2,018 8,547,550 (6,786,594) 2,007,974

Adjustment of stock upon reverse stock (18,169,780) (1,816) 1,816 - -
split of 1 for 10 (Note 12)

Issuance of common stock for cash 50,928 5 50,301 - 50,306
(ranging from $.75 to $1.88 per share)

Issuance of common stock upon
conversion of officer notes payable 175,110 18 361,982 - 362,000
($2.07 per share) (Note 11)

Issuance of common stock for services 1,365,000 136 1,364,864 - 1,365,000
($1.00 per share) (Note 11)

Issuance of common stock upon
conversion of officer notes payable 419,940 42 209,928 - 209,970
($.50 per share) (Note 11)

Officer notes payable forgiven (Note 11) - - 124,294 - 124,294

Accrued officer salaries forgiven (Note 11) - - 400,000 - 400,000

Preferred stock - subscribed (Note 11) - - - - 120,000

Dividends paid on preferred stock - - - (8,200) (8,200)

Net loss for the year - - - (3,723,506) (3,723,506)

Balance - June 30, 1996 4,029,908 403 11,060,735 (10,518,300) 907,838

Issuance of common stock issued for 1,074,157 108 799,892 - 800,000
investments (Notes 5 and 11)

Issuance of common stock for services 892,500 89 927,889 - 927,978
(Note 11)

Issuance of common stock for cash
(ranging from $.50 to $.70 per 2,292,570 229 1,176,411 - 1,176,640
share), net of $198,160 in offering
costs (Note 11)

Issuance of common stock upon
conversion of notes payable (ranging 192,860 19 124,981 - 125,000
from $.50 to $.70 per share) (Note 11)

Imputed value of stock options granted - - 679,264 - 679,264
for consulting services and interest
(Note 11)

Subscribed preferred stock issued - - 364,875 - -

Net loss - - - (2,788,896) (2,788,896)

Balance June 30, 1997 8,481,995 $ 848 $15,134,047 $(13,307,196) $1,827,824
</TABLE>

F-4

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities
Net (loss) $(2,788,896) $(3,723,506)
----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 206,186 205,021
Amortization 41,804 1,560
Imputed value of options granted for services 503,763 -
and interest
Gross profit on sales of equipment to officers
in settlement of advances payable (Note 9) - (284,060)
Sales settled by receipt of note receivable (280,000) -
Sales settled by receipt of officer notes (150,000) -
receivable
Sales settled by receipt of investments (1,310,000) -
Stock issued for services 927,978 1,765,000
Changes in assets and liabilities
Accounts and other receivables 116,737 (304,171)
Inventories 662,655 (80,724
Prepaid expenses 28,545 4,149
Accounts payable 104,909 350,330
Accrued expenses (5,002) 303,383
Franchise deposits and customer deposits 88,391 (96,186)
----------- -----------
935,966 1,864,302
----------- -----------
Net cash used in operating activities (1,852,930) (1,859,204)
----------- -----------

Cash flows from investing activities
Repayments (advances) on notes receivable 7,110 (234,000)
Capital expenditures (13,522) (52,000)
Change in other assets (24,855) 24,292
----------- -----------
Net cash used in investing activities (31,267) (261,708)
----------- -----------

Cash flows from financing activities
Proceeds from issuance of long-term debt 797,500 160,348
Proceeds (payments to) from officer advances 50,209 1,146,264
Payments under capital lease obligation (7,565) (7,440)
Proceeds from issuance of common stock 1,176,640 50,306
Payments on long-term debt (159,229) (57,909)
Dividends paid - (8,200)
----------- -----------
Net cash provided by financing activities 1,857,555 1,283,369
----------- -----------

Net decrease in cash (26,642) (837,543)

Cash at beginning of year 322,542 1,160,085
----------- -----------
Cash at end of year $ 295,900 $ 322,542
========== ==========
</TABLE>

Supplemental disclosure of cash flows information
Cash paid during the year for interest was $70,710 (1997) and $57,311 (1996).

Non-cash investing and financing activities (Note 16)

See notes to consolidated financial statements.

F - 5

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1 - Organization and Significant Accounting Policies

Organization

SIMS COMMUNICATIONS, Inc. and Subsidiaries was incorporated in the state of
Delaware on August 15, 1991. The Company was formed as a communication equipment
company and has expanded its focus to include telecommunication services,
cellular telephone activations and rentals, long distance, prepaid calling
cards, inbound 800 service and international operator services. Its customers
are located throughout the states of Florida, North and South Carolina,
California, Michigan, Wisconsin, Mississippi and Louisiana. Additionally, the
Company has established relationships for future international sales in Europe,
Asia and Canada.

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.,
and Link International Technologies, Inc. and its wholly owned subsidiaries New
View Technologies, Inc., Link Dispensing Systems, Inc., and Southeast Phone
Card, Inc. All significant intercompany balances and transactions have been
eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Management believes that such estimates
have been based on reasonable assumptions and that such estimates are adequate,
however, actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a maturity of
three months or less to be cash equivalents.

Inventories

Inventories consists primarily of automated cellular distribution centers
(ACDC's), cellular phones, telephone debit card dispensers and other
miscellaneous communications equipment and are recorded at the lower of cost or
market determined by the first-in, first-out method.

F - 6

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1 - Organization and Significant Accounting Policies (continued)

Property and Equipment

Property and equipment are recorded at cost and depreciated over their estimated
useful lives (5 to 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 upon the weighted average number of common
shares outstanding during each of the respective periods. Common shares issuable
upon the exercise of convertible notes and common stock equivalents are excluded
from the weighted average number of shares since the effect is anti-dilutive.

Patents

Patent costs are those costs related to filing for patents and the value
allocated to the patents based upon the business acquisition (Note 17). These
costs are amortized on a straight-line basis over the estimated useful live of
ten years.

Fair Value of Financial Instruments

The carrying amounts of financial instruments including cash and cash
equivalents, receivables, accounts payable, and accrued expenses approximated
fair value as of June 30, 1997 because of the relatively short maturity of these
instruments.

The carrying amounts of debt issued approximate fair value because interest
rates on these instruments approximate market interest rates and a significant
portion are classified as current maturities.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates expected to be recovered or settled. 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.

F - 7

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1 - Organization and Significant Accounting Policies (continued)

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), telephone debit card dispensers and other
equipment are recognized upon delivery. Reviews from license agreements are
recognized upon the completion of all obligations pursuant to the agreement.

Royalty Fees

Royalties as allowed by the franchise agreement are accrued on a percentage of
gross sales, as defined, as reported by franchisees and are included in accounts
receivable.

Research and Development

Research and development costs consist primarily of costs related to the
conceptual formation, design, tooling and development of prototypes and are
expensed as incurred.

Concentration of Credit Risks

Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of temporary cash investments. The Company places
its cash investments with high credit quality financial institutions and, by
policy limits the amount of credit exposure to any one institution.

Reclassifications

Certain accounts in the June 30, 1996 financial statements have been
reclassified to conform to the June 30, 1997 presentation.

Note 2 - Continued Operations

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. During the year ended June 30,
1997, the Company continued to suffer recurring losses from operations in excess
of $2,788,000, resulting in an accumulated deficit of approximately $13,307,000.
The Company is looking to raise additional equity capital through private
placements. Additionally, the Company is in the process of negotiating
significant licensing and sales agreements. However, there can be no assurance
that the Company will be successful in obtaining additional licensing or sales
agreements or in raising additional capital. The consolidated financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.

F - 8

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 3 - Property and Equipment

Property and equipment consist of the following:

June 30,
1997
--------
Property and equipment
Vehicles $ 20,608
Furniture and fixtures 127,230
Machinery and equipment 961,243
Software 52,000
Less accumulated depreciation (424,002)
--------

$ 737,079
==========

Note 4 - Note Receivable

The Company made advances to and entered into a joint venture agreement with
Commonwealth Group International, Inc. and Frederick C. Sayle. The $150,000 note
receivable bears interest at a rate of 10% per annum, with principal and
interest payable by February 1, 1998. Additionally, the Company is entitled to
16.7% of the gross revenues from agreements with Commonwealth Group
International, Inc. which include cable television and cellular communications
licenses owned by CGI-UKRAINE Ltd and ASWEST, Commonwealth Group International,
Inc. joint venture partners.

During the years ended June 30, 1997 and 1996, the Company sold equipment to a
customer for a total sales price of $280,000 and $384,000, respectively. No
payments have been received as of June 30, 1997. During the years ended June 30,
1997 and 1996, a Company was contracted to provide services necessary to get the
units operational but failed to perform. That Company is no longer involved and
operations are to commence by October 1997. As such, all amounts due related to
the sales have been extended. The total amount of $664,000 is payable under the
terms of a note receivable which bears interest at 8.5%. Principal and interest
is payable commencing by December 31, 1997 in equal monthly installments of
approximately $14,000 through November 30, 2002.

Note 5 - Investments
Smartphone
During the year ended June 30, 1997, the Company acquired a 10% minority
interest in Smartphone, Inc. (a company that sells prepaid cellular air time)
from certain officers and directors of the Company at their original cost basis
of $200,000. This was effected by the issuance of 400,000 shares of common stock
which were valued at $.50 a share.

F - 9

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 5 - Investments (continued)
Cancall
During the year ended June 30, 1997, the Company sold 30 ACDC units and 100
telephone debit card dispensers for $810,000 as well as entering into a
licensing agreement for $500,000 with Cancall Cellular Communications, Inc.,
(Cancall) for a total price of $1,310,000. The licensing agreement entitles
Cancall the right to market, distribute and operate the Company's products and
trademarks on an exclusive basis within the territories of Canada and Europe and
on a non-exclusive basis within the territories of the United States and Asia.
The exclusive license within the European territory is subject to certain
minimum purchase commitments the must be met by Cancall over a two year period.

In consideration for the above transaction, the Company received 1,807,800
shares of Cancall's Class A $ 1.00 par value preferred stock. The preferred
stock can be converted into 3,013,000 shares of Cancall's common stock at a rate
of $.60(Canadian) per share after a one year mandatory holding period. Cancall's
common stock is traded on the Vancouver Stock Exchange under the symbol CLE,
however, the preferred stock has no established market or readily determinable
market value. As such, the transaction was valued at the cost of the underlying
goods sold.

As of June 30, 1997, the 100 telephone debit card dispensers had not yet been
delivered. As such, deferred revenue in the amount of $105,000 has been recorded
in the financial statements.

Note 6 - Bank Line of Credit

The Company maintains a secured revolving line-of-credit with a bank for up to
$250,000. The balance at June 30, 1997 was approximately $250,000. The
line-of-credit is secured by a restricted certificate of deposit with a balance
at June 30, 1997 of approximately $250,000. The line-of-credit bears interest at
5.77% payable monthly. The line-of-credit expires June 7, 1998.

Note 7 - Notes Payable and Capital Leases
June 30,
1997
--------
Promissory note payable at 10% interest payable monthly commencing September 15,
1995. Balance of principal is payable in full by February, 1997. As additional
consideration, the Company agrees to pay the note holder 8.0% of all profits
received through the Company's agreements with
Commonwealth Group International, Inc. (Note 4). $ 310,348

F - 10

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 7 - Notes Payable and Capital Leases (continued)

June 30,
1997
--------
8.0% convertible notes payable - individuals, interest payable quarterly,
principal due at maturity dates ranging from August 1997 to April 1998. Debt
includes conversion to common stock feature with conversion rates ranging from
$1.25 to $2.50 per share. Additionally, each note holder
was issued options to purchase shares of the 672,500
Company's stock (Note 11)

Note payable - individual, bearing interest at bank prime plus 1% (8.5% at June
30, 1997), principal
payments of $5,000 plus interest due monthly 75,000
through September 1998.

Non interest bearing note payable - individual, principal payable in monthly
installments of $1,500
through June 2000. 51,000

11% Note payable - bank, principal and interest payable in monthly installments
of $541 through
June 14, 1998. Collateralized by equipment. 6,137
--- ----- -----
1,114,985
Less current maturities (1,066,985)
----------

Total $ 48,000
==========

Principal payment on notes payable subsequent to June 30, 1997 are as follows:

Year Ending June 30,
--------------------

1998 $1,066,985
1999 33,000
2000 15,000
---- ------

$1,114,985
==========

Capital Leases

The Company leases various office equipment which is accounted for as
capitalized leases. The following is a schedule of future minimum capital lease
payments together with the net present value of the minimum lease obligation as
of June 30, 1997.

F - 11

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 7 - Notes Payable and Capital Leases (continued)

Year Ending June 30,
--------------------

1998 $ 14,079
1999 12,294
2000 12,294
2001 12,294
2002 11,270
---- ------
Total 62,231
Less interest (15,935)
-------

$ 46,296
Less current portion (8,377)
========
$ 37,919

The assets recorded under capital leases are as follows:

Furniture and fixtures $ 45,535
Less accumulated amortization (10,221)
-------

$ 35,314
========

Amortization expense for equipment under capital lease was $2,271 and $7,780 for
the years ended June 30, 1997 and 1996, respectively.

Note 8 - Income Taxes

Deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. The measurement of deferred tax assets is reduced, if necessary, by
the amount of any tax benefits that, based on available evidence, are not
expected to be realized.

The principal temporary differences that will result in deferred tax assets and
liabilities are certain expenses and losses accrued for financial reporting
purposes not deductible for tax purposes until paid, depreciation for tax
purposes in excess of depreciation for financial reporting purposes and the
deferral of franchise costs and franchise sales revenues for financial reporting
purposes which are recognized for tax purposes in the period paid. The effect of
the differences outlined above generated a long-term deferred tax asset that is
fully impaired because of a lack of profitable operating history. The fully
impaired asset, computed at a 34 percent tax rate at June 30, 1997 was
approximately $4,112,000. Accordingly, there is no net deferred tax asset
reflected in the accompanying consolidated financial statements.

F - 12

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 8 - Income Taxes (continued)

The differences between the federal income tax rate and the effective income tax
rate as reflected in the accompanying statements of operations are:
Year Ended
June 30,
----------------------
1997 1996
---- ----

Statutory federal income tax rate (benefit) (34.0)% (34.0)%
Valuation allowance for net operating loss 34.0 34.0
---- ----

Effective tax rate (benefit) - % - %
==== ====
The deferred tax asset consists of the following:
June 30,
1997
----

Total long-term deferred tax asset $4,112,000
Valuation allowance (4,112,000)
----------

$ -
===========

At June 30, 1997, the Company has approximately $12,094,000 of net operating
loss carryforwards for income tax reporting purposes which expire in 2007
through 2012. During 1995, there was a change in ownership due to the initial
public offering, which could restrict the utilization of net operating loss
carryforwards in the future.

Note 9 - Related Party

Sales

During the year ended June 30, 1997 and 1996, the Company sold equipment and
other technology to Lonestar, Inc., an entity owned entirely by the officers of
the Company. The sales price was $150,000 and $350,000, respectively, and was
used to satisfy $15,000 of officer advances payable and created $135,000 note
receivable for the year ended June 30, 1997 and was used to satisfy $350,000 of
officer advances payable for the year ended June 30, 1996. The note receivable
bears interest at 8.25% and is payable in equal monthly installments of
principal and interest of approximately $2,750 commencing April 1997 through
March 2002. As of June 30, 1997 the outstanding balance was $127,890.

During the fiscal year ended June 30, 1997, the officers sold telephone debit
card dispensers to the Company for a sales price of $30,600 which was recorded
as officer advances payable.

During the fiscal year ended June 30, 1997, the Company purchased a 10% interest
in Smartphone, Inc. from officers of the Company (Note 10).

F - 13

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 9 - Related Party (continued)

Officer Advances Payable

During the year ended June 30, 1997, officers advanced amounts to the Company to
help fund operations and meet obligations. At June 30, 1997, $65,809 remains
outstanding and due on demand to certain officers and directors of the Company.

Note 10 - 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 follows.

Incentive Stock Option Plan

The Incentive Stock Option Plan authorizes the issuance of up to 5,000,000
shares of the Company's Common Stock to persons that exercise options granted
pursuant to the Plan. It 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, directors and key employees of the Company may be granted options
pursuant to the Incentive Stock Option Plan.

In order for the stock options to qualify for Incentive Stock Option treatment:

1. 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.

2. Options may not be exercised until one year following the date of grant.
Options granted to an employee 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.

3. The purchase price per share of Common Stock purchasable under an option is
determined by a 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).

F - 14

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 10 - Stock Option and Bonus Plans (continued)

Non-Qualified Stock Option Plan

The Non-Qualified stock Option Plan authorizes the issuance of up to 3,000,000
shares of the Company's Common Stock to persons that exercise options granted
pursuant to the Plan. It became effective April 15, 1993 and will remain in
effect until April 15, 2001 unless terminated earlier by the Board of Directors.
The Company's employees, directors, officers, consultants or advisors are
eligible to be granted options pursuant to this 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 of sale of securities in a
capital-raising transaction. The option exercise price is determined by a
Committee but cannot be less than the market price of the Company's Common Stock
on the date the option is granted.

The following is a summary of options and warrants granted:
<TABLE>
<CAPTION>

Non-Qualified Options
Incentive Stock Issued Not Exercise
Stock Related to a Price Per
Options Options Plan Share
---------- ------- ------------ --------------

Outstanding June 30, 1995 180,000 - - $ 5.50 - $6.50
Options expired - - - -
Options exercised - - - -
Options granted - - - -
---------- ------- ------------ --------------

Outstanding June 30, 1996 180,000 - - 5.50 - 6.50
Options expired - - - -
Options exercised - - - -
Options granted 2,769,000 40,000 809,250 1.00 - 3.25
---------- ------- ------------ ---------------

Outstanding June 30, 1997 2,949,000 40,000 809,250 $ 1.00 - $6.50
=== ==== ========= ======== =========== ==============
</TABLE>

F - 15

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 10 - Stock Option and Bonus Plans (continued)

The Company has the following stock options outstanding as of June 30, 1997:

Currently
Options Exercise Exercisable
Outstanding Price Expiration Date Options
----------- ------- --------------- --------
90,000 5.50 September 1999 90,000
90,000 6.50 September 1999 90,000
2,000,000 1.00 December 2006 -
644,000 1.00 December 2001 -
90,000 3.25 September 1999 -
35,000 1.25 December 2006 -
20,000 1.25 September 1999 20,000
20,000 2.00 September 1999 20,000
90,000 2.75 September 1999 90,000
160,000 .50 December 2001 160,000
100,000 1.25 December 2001 100,000
100,000 1.25 August 2001 100,000
50,000 1.75 December 2001 50,000
75,000 1.00 May 2000 75,000
37,500 2.50 May 2000 37,500
43,750 1.25 May 2000 43,750
153,000 2.00 May 2000 - July 2002 153,000
------- -------

3,798,250 1,029,250
========= =========

Effective for the year ended June 30, 1997, the Financial Accounting Standards
Board issued Statement No. 123, "Accounting for Stock Based Compensation," ("FAS
123") which encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options and other equity
instruments to employees. FAS 123 requires the recognition of expense for such
grants, described above, to acquire goods and services from all nonemployees.
Additionally, although expense recognition is not mandatory for issuances to
employees, FAS 123 requires companies that choose not to adopt the new fair
value accounting rules to disclose pro forma net income and earnings per share
information using the new method.

The Company has adopted the disclosure-only provisions of FAS 123. Accordingly,
no compensation cost has been recognized for the issuances of stock options to
employees. For the year ended June 30, 1997, employees of the Company were
issued options to purchase a total of 2,899,000 shares of the Company's common
stock at rates ranging from $1.00 to $3.25 per share expiring from September
1999 to December 2006. Had compensation cost for the Company's issuances of
stock options during the year ended June 30, 1997 been determined based on the
fair value at the date of grant consistent with the provisions of FAS 123, the
Company's 1997 net income and earnings per share would have been decreased to
the pro forma amounts indicated below:

F - 16

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 10 - Stock Option and Bonus Plans (continued)

Net loss - as reported $(2,788,896)
Net loss - pro forma $(6,429,498)
Net loss per share - as reported $ (.42)
Net loss per share - pro forma $ (.96)

The Company utilizes the Black-Scholes options-pricing model to calculate the
fair value of each individual issuance of options or warrants with the following
assumptions used for grants during the year ended June 30, 1997; dividends yield
of 0.0%; expected average annual volatility of 100.10%; average annual risk-free
interest rate of 8%; and expected terms ranging from 1.5 to 4.5 years.
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 advisors are eligible to receive a grant of
the Company's shares; provided, however, 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. For the
years ended June 30, 1997 and 1996, 892,500 and 1,365,000 shares of the
Company's common stock have been issued under the Stock Bonus Plan,
respectively.

Note 11 - Stockholders' Equity

Common Stock

The Company is authorized to issue 40,000,000 shares of $.0001 par value Common
Stock.

Preferred Stock

The Company is authorized to issue up to 300,000 shares of $.001 par value
Preferred Stock. The Board of Directors has the authority to divide the
Preferred Stock into series and, within the certain limitations, to set the
relevant terms of such series created.

In April 1995, the Company's directors established the Company's Series A
Preferred Stock and authorized the issuance of up to 50,000 shares. Each share
of series A Preferred Stock is entitled to a dividend at the rate of $1.60 per
share when, as and if declared by the Board of Directors. Dividends not declared
do not cumulate. Additionally, each share of Series A Preferred Stock is
convertible into .80 shares of the Company's Common Stock at any time after July
1, 1999. Upon any liquidation or dissolution of the Company, each outstanding
share of Series A Preferred Stock is entitled to distribution of $20 per share
prior to any distribution to the holders of the Company's common stock. As of
June 30, 1997, the Company has 25,250 shares of Series A Preferred Stock issued
and outstanding.

F - 17

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 11 - Stockholders' Equity (continued)

Preferred Stock (continued)

In March 1996, the Company's directors established the Company's Series B
Preferred Stock and authorized the issuance of up to 100,000 shares. Each share
of series B Preferred Stock is entitled to a dividend at the rate of $.15 per
share when, as and if declared by the Board of Directors. Dividends not declared
do not cumulate. Additionally, each share of Series B Preferred Stock is
convertible into one share of the Company's Common Stock. Upon any liquidation
or dissolution of the Company, each outstanding share of Series B Preferred
Stock is entitled to distribution of $1.00 per share prior to any distribution
to the holders of the Company's common stock. As of June 30, 1997, the Company
has 100,000 shares of Series B Preferred Stock issued and outstanding.

During the year ended June 30, 1996, the Company paid a total of $8,200 in
dividends to Preferred Stockholders. For the year ended June 30, 1997, the
Company did not declare any dividends payable.

Warrants

In conjunction with the Company's February, 1995 Public Offering, the Company
issued 1,811,250 Series A and Warrants and 1,811,250 Series B Warrants. Every
block of five Series A warrants entitles the holder to purchase one share of the
Company's Common Stock at a price of $ 35.00 per share until February 10, 1998.
Every block of five Series B warrants entitles the holder to purchase one share
of the Company's Common Stock for $ 45.00 per share until February 10, 1998.
Under specific conditions, the Company may redeem both the Series A and Series B
Warrants.

Equity Transactions

During the year ended June 30, 1996, the following equity transactions occurred:

The Company agreed to issue an additional 1,000 shares of the Series A
preferred stock as payment for the repurchase of certain franchises
valued at $20,000.

The Company converted $362,000 of officer advances payable into
175,110 shares of the Company's common stock at $2.07 per share.

The Company issued 1,365,000 shares of the Company's common stock at
$1 per share for a total of $1,365,000 as compensation for services
from officers and other employees.

The Company agreed to issue 100,000 shares of $.001 par value Series B
convertible preferred stock as repayment of certain officer advances
payable valued at $100,000. Each share of the Series B preferred stock
can be converted into one share of the Company's common stock at the
option of the holder.

F - 18

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 11 - Stockholders' Equity (continued)

Equity Transactions (continued)

The Company issued 419,940 shares of its common stock in repayment of loans
of $209,970 from certain officers.

Certain officers of the Company forgave $124,294 of officer advances
payable and $400,000 of accrued salaries. For financial statement purposes
this amount has been treated as a contribution to capital.

During the year ended June 30, 1997, the following equity transactions occurred:

The Company acquired a 10% minority interest in Smartphone valued at
$200,000 for 400,000 shares of the Company's common stock (Note 5).

The Company acquired Link Technologies, Inc. and Subsidiaries for
674,157 shares of the Company's common stock with a value of $600,000
(Note 17).

The Company issued 892,500 shares of the Company's common stock for
$927,978 of professional services received.

The Company issued 800,000 shares and 1,392,570 shares at $.50 per
share and $.70 per share in private placements, respectively, raising
$1,176,640 net of $198,160 in offering costs. The Company also issued
100,000 shares to the underwriter in connection with these offerings.

The Company converted $125,000 of convertible debt to 192,860 shares
of the Company's stock at rates ranging from $.50 to $.70 per share.

The Company issued options to purchase 250,000 shares of the Company's
Common Stock at rates ranging from $1.25 to $1.75 per share in
exchange for professional consulting services. $325,578 of expense has
been recognized at imputed values ranging from $1.23 to $1.38 per
option. These options expire from August 2001 to December 2001.

The Company issued options to purchase 309,250 shares of the Company's
common stock at rates ranging from $1.00 to $2.50 per share in
connection with the 8% convertible notes payable. These options have
an imputed value of $353,686 based on rates ranging from $1.01 to
$1.29. The amount was recorded as deferred loan costs and is being
amortized over the life of the loans. As of June 30, 1997, $178,185
has been expensed. These options expire from May 2000 to July 2002.

F - 19

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 12 - Stock Splits

In March 1996, the Company declared a 1 for 10 reverse stock split. Accordingly,
all weighted average share, per share and option information throughout the
consolidated financial statements has been restated to reflect these split.

Note 13 - Significant Customers

As of June 30, 1997, one individual accounted for approximately $500,000 (100%)
of licensing revenue. One Corporation accounted for $985,000 (79%) of equipment
and other revenue. Another franchisee and stockholder accounts for $724,264
(85%) of the franchise and customer deposits.

As of June 30, 1996, one franchisee accounted for $50,000 (62%) of franchise
revenue and $384,000 (46%) of equipment and other revenue. Another franchisee
and stockholder accounts for $724,264 (83%) of the franchise and customer
deposits.

Note 14 - Business Segments

The Company's principal operations are in the telecommunications and cellcular
industries. In prior years, the Company also generated significant revenues from
the franchising of cellular related technology. However, trends in the industry
forced the Company to change their focus, therefore, franchising no longer
generates significant revenues or losses. The Company still is involved in
minimal franchising activities, however, franchising is no longer considered a
significant segment and does not require separate disclosures. No formal plan
has been adopted related to the discontinuance of franchising operations.

Note 15 - Commitments and Contingencies

Operating Leases

The Company leases its administrative offices under a noncancelable operating
lease through February 1998. The minimum annual rent will increase each year by
an amount based in the Consumer Price Index. The Company is also responsible for
paying its portion of the common area maintenance, real estate taxes and
insurance expenses. The Company also leases two other facilities; one in Florida
and one in California, under noncancelable operating leases through February
1998 to June 2002. Additionally, the Company also leases various office
equipment under noncancelable operating leases with terms up to 4 years. Rental
expense for the years ended June 30, 1997 and 1996 was $101,039 and $106,705,
respectively.

F - 20

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 15 - Commitments and Contingencies (continued)

Operating Leases (continued)

Future minimum lease commitments at June 30, 1997 are as follows:

Year Ending June 30,

1998 $ 122,656
1999 37,227
2000 35,000
2001 35,000
2002 35,000
---- ------

$ 264,883
=========

Employment Agreements

The Company has entered into five year employment agreements with four
officers of the Company commencing April 7, 1997. Each officer is entitled
to a first year salary of $90,000, increasing 15% per year until the
agreement is expired. If the Company has not demonstrated its ability to
operate profitably within one year, the increase will only be 5% until such
time that profitable operations have been achieved. Each officer is granted
500,000 options to purchase shares of the Company's common stock for $.50
per share until December 31, 2002 pursuant to the Non-Qualified Stock
Option Plan. Additionally, the officer will receive 50,000 options to
purchase shares of the Company's common stock for $.50 per share until
December 31, 2002. These shares are not pursuant to any plan. As additional
compensation, each officer is entitled to receive an incentive bonus
computed based upon annual Company revenues from operations and is entitled
to other benefits, including an automobile allowance. As of June 30, 1997,
$256,000 of accrued officer salaries payable is included in accrued
expenses.

The Company has also entered into five year employment agreements with two
officers of a subsidiary of the Company commencing on January 1, 1997. Each
officer is entitled to a salary of $ 72,000 per year. Each officer is
granted 302,000 options to purchase shares of the Company's common stock
for $1.00 per share until December 31, 2001 pursuant to the Incentive Stock
Option Plan. Additionally, the officer will receive 20,000 options to
purchase shares of the Company's common stock for $1.00 per share until
December 31, 2001. These shares are not pursuant to any plan. As additional
compensation, each officer is entitled to receive an incentive bonus
computed based upon annual Company revenues from operations and is entitled
to other benefits, including an automobile allowance.

F - 21

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 15 - Commitments and Contingencies (continued)

Royalty Agreement

The Company has entered into an agreement with Telemac, Inc., the developer
of the software for real time billing. This agreement provides for the
Company to pay Telemac 7% of gross receipts based on cellular telephone
rentals.

Additionally, the Company has an agreement with an individual requiring
payments based upon the net profits of Cellex Communications, Inc.
(Cellex). 20% of Cellex's net profits are to be remitted to this individual
pursuant to the terms of the agreement. As of June 30, 1997, Cellex has
remitted $22,818 in profit participation payments to this individual.

Consulting Agreements

The Company has entered into a one year consulting agreement effective from
August 1996 and a two year consulting agreement effective from October
1996. The one year agreement provides the consultant with 175,000 shares of
the Company's common stock and options to purchase 150,000 shares of the
Company's common stock in exchange for general business services such as
execution of a business plan, public relations and identification of sales
opportunities. The two year agreement provides the consultants with 100,000
shares of the Company's common stock and options to purchase an additional
100,000 shares of the Company's common stock in exchange for the
consultant's assistance in introducing the Company to potential European
investors and in setting up relationships with international business
contacts. The options have exercise prices ranging from $1.25 to $1.75 per
share and expire five years from the date of grant (Note 11).

Litigation

A matter is pending in state court in Palm Beach County, Florida, whereby
the plaintiff seeks damages in excess of $3,800,000 for breach of
agreement. The Company has filed an Answer and Affirmative Defenses denying
the claims and intends to continue to vigorously defend themselves against
these claims. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

Additionally, a franchisee has demanded that the Company repurchase his
franchises for approximately $1,000,000 or a suit for breach of the
franchise agreement will be filed. The Company is currently attempting to
negotiate a settlement and has approximately $770,000 accrued relating to
this obligation.

The Company is also involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations, or liquidity.

F - 22

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 16 - Statements of Cash Flows

During the fiscal year ended June 30, 1996, the Company transferred $517,017 of
ACDC units, from inventory to property, plant, and equipment as these units
represented company owned locations. During the fiscal year ended June 30, 1997,
the Company transferred $419,275 of ACDC units from property, plant and
equipment to inventory.

During the fiscal year ended June 30, 1996, the Company had a 1 for 10 reverse
stock split.

During the fiscal year ended June 30, 1996, the Company bought back franchisees
upon the issuance of preferred stock (Note 11).

During the fiscal year ended June 30, 1996, the Company converted accrued
officer salaries, officer advances payable, debt and accrued interest to common
and preferred stock (Note 10).

During the fiscal year ended June 30, 1997 and 1996, the Company bought back
franchisees by entering into debt obligations totaling $135,000 and $147,000,
respectively, equal amounts of inventory and other assets were received by the
Company.

During the fiscal year ended June 30, 1997, the Company issued 400,000 shares of
common stock for a 10% interest in Smartphone which was valued at $200,000.

During the fiscal year ended June 30, 1997, the Company converted an account
receivable to a note receivable in the amount of $150,000.

During the fiscal year ended June 30, 1997, the Company acquired Link
Technologies, Inc., and Subsidiaries for 674,157 shares of common stock, with a
value of $600,000 (Note 17). During the fiscal year ended June 30, 1997, the
Company acquired fixed assets of $45,535 through a capital lease.

During the fiscal year ended June 30, 1997, the Company converted $125,000 of
convertible notes payable to 192,860 shares of common stock.

During the fiscal year ended June 30, 1997, the Company purchased $30,600 of
Debit Link machines from officers of the Company and was recorded as a notes
payable to officers.

During the fiscal year ended June 30, 1997, the Company issued stock options
to individuals as an inducement to provide financing pursuant to the 8%
convertible notes payable. The options had an imputed value of $353,686. As of
June 30, 1997, $178,185 has been amortized to expense with the remaining
$175,501 recorded as deferred loan costs and included in prepaids and other
current assets (Note 11).

F - 23

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 17 - Acquisition

Effective January 1, 1997, the Company acquired Link Technologies, Inc. and
Subsidiaries (Link) for 674,157 shares of the Company's common stock, with a
value of $600,000.

The accompanying consolidated financial statements includes the results of
operations from the effective date of the acquisition, January 1, 1997, of Link.

The acquisitions are accounted for under the purchase method of accounting
applying the provisions of Accounting Principles Board Opinion No. 16 ("APB
16"). Pursuant to the requirements of APB 16, the aggregate purchase price,
based on fair values, will be allocated to the tangible and intangible assets
and liabilities assumed based on their estimated fair value at the date of the
acquisitions.

The aggregate purchase price allocated to the assets acquired and liabilities
assumed which are included in the consolidated financial statements consists of:

Assets acquired
Cash $ 2,737
Accounts Receivable 142,234
Inventory 160,742
Fixed assets 201,032
Patents 484,222
-------
990,967
Liabilities assumed:
Accounts payable and accrued expenses (390,967)
--------

Net assets acquired 600,000

Fair value of common stock issued 600,000

The common stock issued in the acquisition was recorded at the market value of
the stock on the date of the acquisition which was $.89 per share.

F - 24

<PAGE>

SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 17 - Acquisition (continued)

Pro Forma Statement of Operations

The unaudited pro forma results of operations had the Company acquired Link as
of July 1, 1996 and 1995 are as follows for the fiscal years ended June 30, 1997
and 1996:
June 30,
--------
1997 1996
----------- ----------

Revenues $4,792,000 $3,119,000
========== ==========

Net loss $(2,780,000) $(4,206,000)

Net loss per common share $ (.42) $ (1.76)
========== ===========

F - 25

<ARTICLE> 5
<CIK> 0000907127
<NAME> SIMS COMMUNICATIONS, INC.

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 295,900
<SECURITIES> 1,510,000
<RECEIVABLES> 233,742
<ALLOWANCES> 27,584
<INVENTORY> 1,083,199
<CURRENT-ASSETS> 2,006,289
<PP&E> 1,161,081
<DEPRECIATION> 424,002
<TOTAL-ASSETS> 5,544,173
<CURRENT-LIABILITIES> 3,630,430
<BONDS> 0
0
125
<COMMON> 848
<OTHER-SE> 1,826,851
<TOTAL-LIABILITY-AND-EQUITY> 5,544,173
<SALES> 4,730,112
<TOTAL-REVENUES> 4,730,112
<CGS> 2,861,421
<TOTAL-COSTS> 4,616,974
<OTHER-EXPENSES> 40,613
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,788,896)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,788,896)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,788,896)
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> (0.42)

</TABLE>