SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,1997
SIMS COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 65-0287558
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3333 South Congress Avenue, Suite 401, Delray Beach, FL 33445
(address of principal executive offices) (Zip Code)
(561) 265-3601
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) or the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes_X___ No____
As of November 14,1997 the Company had 9,166,995 shares of Common Stock issued
and outstanding.
Page 1 of 14 Pages
<PAGE>
PART I. FINANCIAL INFORMATION
Part 1. Financial Information
Item 1. Index to Financial Statements
SIMS COMMUNICATIONS, INC.
CONSOLIDATED FINANCIAL STATEMENTS Page
Consolidated Balance Sheets at
September 30 1997 and June 30, 1997 3
Consolidated Statements of Income for the Three Months
Ended September 30, 1997 and 1996 5
Consolidated Statement of Cash Flows for the
Three Months Ended September 30, 1997 and 1996 6
Consolidated Statement of Stockholders' Equity
for the Three Months Ended September 30, 1997. 7
Notes to Consolidated Financial Statements. 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 12
Part 11. Other Information 14
<PAGE>
SIMS COMMUNICATIONS INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
ASSETS (Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ($250,000 restricted) $275,758 $295,900
Accounts receivables, less allowance for doubtful 173,728 205,888
accounts of $27,584
Inventories 1,096,890 1,083,199
Prepaid expenses and other current assets 113,589 205,860
Notes receivable, current portion 215,923 215,442
-------------- ---------
Total Current Assets 1,875,888 2,006,289
PROPERTY AND EQUIPMENT
Property & Equipment net of accumulated 691,115 737,079
depreciation of
$457,072 in Sept. 1997 and $424,002 June 1997
OTHER ASSETS
Notes receivables 725,967 726,448
Patents, net of accumulated amortization 462,836 474,941
Investments (Note 5) 1,510,000 1,510,000
Other 85,215 89,416
--------------- ---------
Total Other Assets 2,784,018 2,800,805
--------------- ---------
Total Assets $5,351,021 $5,544,173
========== ==========
</TABLE>
-3-
<PAGE>
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and Accrued Expenses $1,529,366 $1,295,105
Bank Line of credit 250,000 250,000
Current obligations under capital lease (Note 3) 8,377 8,377
Current maturities of long term debt (Note 2) 1,259,361 1,066,985
Franchise deposits and deferred revenue 923,019 944,154
Officer advances payable 231,694 65,809
------------- ----------
Total Current Liabilities 4,201,817 3,630,430
LONG TERM LIABILITIES
Long term debt (Note 2) 40,000 48,000
Obligations under capital leases (Note 3) 37,145 37,919
------------- ----------
Total Long Term Liabilities 77,145 85,919
------------- ----------
Total Liabilities 4,728,962 3,716,349
------------- ----------
Commitments and contingencies
STOCKHOLDERS' EQUITY (Notes 6 and 7)
Preferred stock, Series A, $.001 par value,50,000 25 25
shares authorized,
25,250 shares issuedand outstanding (liquidation
preference of $505,000)
Preferred stock, Series B, $.001 par value, 100,000 100 100
shares authorized,
100,000 shares issued or outstanding (liquidation
preference of
$100,000)
Common Stock $.0001 par value 40,000,000 shares 917 848
authorized:
shares issued and outstanding 9,166,995 Sept. 30,
1997 and 8,481,995
June 1997
Additional Paid In Capital 15,721,578 15,134,047
Accumulated Deficit (14,650,561) (13,307,196)
------------- ----------
Total Stockholders Equity 1,072,059 1,827,824
------------- ----------
Total Liabilities and Stockholders' Equity $5,351,021 $5,544,173
========== ==========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED SATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
<S> <C> <C>
Revenues
Equipment & Other 26,234 $308,382
Activations 368,177 541,140
Rental 136,010 346,246
Calling Card & Long Distance 87,063 926
------------ ---------
Total Revenues 617,484 1,196,694
Cost of Sales 405,103 887,452
------------ ---------
Gross Profit 212,381 309,242
Operating Expenses 500,148 356,251
General & Administrative 61,889 57,996
Depreciation and Amortization 285,516 298,435
Selling & Marketing 682,901 0
Equity Based Compensation/Services 0 1,497
Research & Development ------------ ---------
1,530,454 714,179
Total Expenses ------------ ---------
Operating Loss (1,318,073) (404,937)
Other income (expense)
Interest income 8,174 3,010
Interest Expense (33,466) (156,338)
------------ ---------
(25,292) (12,328)
------------ ---------
Loss before income taxes (1,343,365) (417,265)
Income tax benefit -- --
------------ ---------
Net Loss ($1,343,365) ($417,265)
============ =========
Net loss per common share ($0.15) ($0.10)
Weighted Average Common Shares Outstanding 8,891,995 4,029,908
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
SIMSCOMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDING SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
September 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net (loss) ($1,343,365) ($417,265)
Adjustmentsto reconcile net loss to net cash used
in operating activities
Depreciation and Amortization 61,889 57,996
Imputed value of options granted for services 87,751 0
and interest
Expenses of prior period stock issued (7,550) 0
Stock issued for services 595,150 0
Changes in assets and liabilities
Inventories (13,691) 241,719
Accounts and other receivables 31,679 (312,739)
Prepaid Expenses and Other 4,520 7,945
Current Assets
Accounts Payable and Accrued 234,261 249,199
Expenses
Franchise and customer deposits (21,135) (10,000)
------------- ---------
NET CASH FROM (USED IN) OPERATING ACTIVITIES (370,491) (183,145)
CASH FLOWS FROM INVESTING ACTIVITIES
Repayments (advances) on notes receivable 481 0
Capital expenditures (3,820) 0
Change in other assets 4,201 3,287
------------- ---------
NET CASH FROM INVESTING ACTIVITIES 862 3,287
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 194,000 0
Proceeds (payments to) from officer advances 165,885 156,174
Payments of obligation under capital lease (774) (2,040)
Payments on long-term debts (9,624) (27,392)
------------- ---------
NET CASH PROFIDED BY FINANCING ACTIVITIES 349,487 126,742
------------- ---------
NET INCREASE (DECREASE) IN CASH (20,142) (53,116)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $295,900 322,542
------------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $275,758 269,426
============= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid during the 3 months for interest $13,981 $15,338
NON-CASH INVESTING AND FINANCING ACTIVITIES (Note 16)
</TABLE>
See notes to consolidated financial statements
-6-
<PAGE>
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE 3 MONTHS ENDING SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
PREFERREED STOCK SUBSCRIBED COMMON STOCK
SERIES A SERIES B
NUMBER NUMBER NUMBER ADDITIONAL
OF OF OF PAID IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1997 25,250 $25 100,000 $100 8,481,995 $848 $15,134,047 $(13,307,196) $1,827,824
Net loss - 3 months (1,343,365) (1,343,365)
ended
September 30, 1997
Common stock issued for 200,000 20 (20) 0
the conversion of
incentive stock options
net of the shares
returned to Company as
payment
Issuance of Common Stock 485,000 49 595,101 595,150
For Services
Prior Year Common Stock (7,550) (7,550)
Issuance Cost
----------------------------------------------------------------------------------------------------
Balance - September 30, 25,250 $25 100,000 $100 9,166,995 $917 $15,721,578 ($14,650,561) $1,072,059
1997
======= ======= ======== ======== ======== ========= ========= ========== ========
</TABLE>
-7-
<PAGE>
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Significant Accounting Policies
Organization
Sims Communications Inc. and Subsidiaries (the Company) was incorporated in the
State of Delaware on August 15, 1991. The Company was formed as a communications
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.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ended June 30, 1998. For further information, refer to the consolidated
financial statements and footnotes included in the Company's annual Filing
Statement on form 10-KSB.
Principles of Consolidation
The consolidated financial statements includes the accounts of Sims
Communications Inc. and its wholly owned subsidiaries Sims Franchise Group,
Inc., Cellex Communications, Inc., Sims Communications International, Inc. and
Link Technologies Inc. and its wholly owned subsidiaries New View Technologies,
Inc., Link Dispensing Systems, Inc., and Southeast Phone Card, Inc. All
intercompany balances and transactions have been eliminated in consolidation.
The minority investments in Smartphone and Cancall are accounted for under the
cost method.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with a maturity
date of three months or less to be cash equivalents.
Inventories
Inventories consists primarily of automated cellular distribution centers
(ACDC's), cellular phones, other communication equipment and Link Technologies'
debit and calling card vending machines and equipment and Point of Sale( POS )
materials. This is recorded at the lower of cost or market determined by the
first-in, first out method.
Property and Equipment
Property and equipment are recorded and depreciated over their estimated useful
lives (5-7 years), utilizing the straight-line method. Expenditures for
maintenance and repairs are charged to expense as incurred
-8-
<PAGE>
Organization Costs
Organization costs have been capitalized and are being amortized using the
straight-line method over a five year period.
Net Gain / (Loss) Per Common Share
Gain/(Loss) per common share is based on the weighted average number of common
shares outstanding during each of the respective periods. Common shares issuable
upon exercise of the convertible preferred stock and common stock equivalents
are excluded from the weighted average number of shares since the effect is
dilutive.
Deferred Location Costs
Deferred location costs relate to expenses associated with the buyback of
certain franchises. These costs are amortized over five years.
Revenue Recognition
Rental revenue is recognized upon the completion of the customer phone rental.
Activation revenue is recognized upon the activation of the customers cellular
account with the appropriate carrier. Revenues from the sale of the Automated
Cellular Distribution Center (ACDC) and other equipment are recognized upon
delivery.
Research and Development
Research and development costs consist primarily of costs related to the
conceptional formation, design, tooling and development of prototypes and are
expensed as incurred.
Patents
Patent costs are those costs related to filing for patents and the value
allocated to patents based upon the business acquisition of Link Technologies
and subsidiaries . They will be amortized based on the expected useful life over
a ten year period.
-9-
<PAGE>
Note 2- Notes and Loans Payable
During the quarter ended September 30, 1997 the company issued $ 194,000 of 8%
convertible debt maturing January through May 1998. The debt is convertible into
Common stock at $1.25 per share ,and 58,200 common stock options at $ 2.00 per
share (options expire through 2002) were issued as additional benefits.
A detail listing of debt follows:
Sept. 30,1997
Promissory note payable at 10% interest payable
monthly, commencing Sept. 15, 1995. Balance of principal
is payable in full on January 31, 1998. As additional
consideration, the Company agrees to pay the note holder
15.5% of all profits received through the Company's
agreements with Commonwealth Group International $310,348
Note payable - principal and 11% interest payable in monthly installments of
$541 through June 14, 1998.
Collateralized by equipment. 4,513
8% Convertible notes payable, principal due at maturity dates ranging from
January thru 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 share of the Company's stock. 866,500
Note payable - $5,000 principal plus interest (prime +1%), 70,000 payable
monthly through September 1998
Note payable - principal (non interest bearing) payable in
monthly installments of $1,500 through June 2000. 48,000
-----------
1,299,361
Less: Current Maturities ( 1,259,361)
-----------
Total Long Term $ 40,000
===========
Note 3 Capital Leases
The company leases various office equipment which, is accounted for as capital
leases. The current liability for the leases is $ 8,377 and the long term
portion is $37,145 payable through the year 2002.
Note 4 - Continuing Operations and Subsequent Transactions
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and liquidation of
liabilities in the ordinary course of business. In prior years, the Company had
been in the development state and did not begin earning significant revenues
until the middle of fiscal year ended 1994. During the years ending June 1995
and June 1996 and June 1997, the Company continued to suffer recurring losses
from operations. In fiscal year ended June 30, 1995, the Company completed an
initial public offering for $5.2 million.
-10-
<PAGE>
Subsequent to September 1997, the company obtained $ 1 Million from the sale of
convertible notes to foreign investors. These notes are convertible into the
Company' s after December 1997 under SEC Reg S. The formula for conversion is
72% of the average closing bid price for the 5 days preceding the conversion
date.
The company is looking to raise additional funds through equity capital private
placements or debt. However, there can be no assurance that the Company will be
successful in obtaining additional funds or that cash flows, from operations may
be sufficient to meet future obligations of the company. The consolidated
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
Note 5-Investment in Non Consolidated Subsidiaries
In September 1996, the company acquired a 10% minority investment in Smartphone,
Inc. (a company that sells a debit cellular telephone) from Sims management at
their original cost basis. This was effected by the issuance of 400,000 shares
of common stock at a $ .50 per share value. This investment is recorded under
the cost method.
During the year ended June 1997 the Company received 1,807,800 shares of Cancall
Cellular Communications, Inc. Class A preferred stock with a recorded value of $
1.310,000 , from the sale of licensing rights and equipment. The Cancall stock
can be converted in 3,013,000 shares of Cancall's common stock at the 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.
Note 6 Stockholders Equity
During the quarter ended September 30, 1997, the company issued 165,000 shares
of common stock to officers, a director and employees for services at prices
between $ 0.65- $ 1.39 per share. The company issued 320,000 shares to
consultants for services valued at $ 402,000.
The company issued 200,000 shares of common stock to two officers for the
conversion of incentive stock options valued at $ 1.00 per share, net of options
for common stock returned to the company, then valued at $ 1.50 per share.
Note 7-Stock Options
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No 123 "Accounting for Stock-based Compensation" (SFAS No.
123). Accordingly, no compensation cost has been recognized for stock options
and warrants granted. Consistent with the disclosure-only provisions of SFAS No.
123, the Company must provide pro forma net earnings and pro forma earnings per
share disclosures for employee stock option grants made in 1995 and future years
as if the fair value based method defined in SFAS No. 123 had been applied.
The Company uses one of the most widely used option pricing models, the
Black-Scholes model (the Model), for purposes of valuing in stock option grants.
The Model was developed for use in estimating the fair value of traded options
which have no vesting restrictions and are fully transferable. In addition, it
requires the input of highly subjective assumptions including the expected stock
price volatility, expected dividend yields, the risk free interest rate and the
expected life. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the value determined by the Model is not necessarily
indicative of the ultimate value of the granted options.
-11-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operation-Three Months Ending September 30, 1997
During the three month period ended September 30, 1997, total revenues amounted
to $617,484 versus $1,196,694 for the comparable period of the prior year. The
company has continued a transition to change its existing sales matrix to
include new focal points for expanding its sales into new markets and
categories. This is to include vertical expansion of prepaid calling cards, home
long distance and the company's newly acquired Link DebitLink Point of Sales
(POS) terminals which emphasize the new company posture. The company still
remains focused on cutting costs and improving the bottom line.
Revenues from cellular rentals decreased to $136,010 in the quarter ending
September 30, 1997 from $346,246 for the comparable period of the prior year due
to the closing of phone rental locations that were not profitable. Cellular
activations decreased to $368,177 from $541,140 from the comparable period of
the prior year due to the overall reduction and competitive pressure for new
cellular service. The new shift is to focus on providing profitable full
telecommunications services to its AAA auto clubs and increases in efforts to
acquire new profitable AAA clubs. The goal is to duplicate the success the
company had demonstrated with the Florida Louisiana and Mississippi Club.
Calling card and home long distance revenue increased to $ 87,063 in the quarter
ending September 1997 versus $926 for the prior years comparable quarter, with
the continuance of calling cards at Alamo Rent a Car and select AAA Auto Club
locations and a continued building of the home long distance customer base. The
company will continue its expansion of the calling cards to include new channels
of distribution utilizing its automated calling card dispensing technologies in
locations such as Amtrak stations and McCrory convenience stores.
Cost of sales for the three months ending September 30, 1997 largely reflect
costs associated with the company's cellular rental and calling card operations
and cellular phone activation program.
Total operating expenses for the current quarter ending September 30, 1997
($1,530,454) have increased from last year ($714,179) due to stock based
compensation of $ 682,901 (conserving cash) and the increase in general and
administrative expenses by $ 143,897 (primarily reflective of the Link
acquisition, startup of a new production facility and employee expenses), net of
cost controls. The company has continued to implement changes in senior
management, in the position of COO, with the mission to control costs, and to
lay the ground work necessary for a well managed and profitable growth in all
product lines.
Interest expenses have increased reflective of the financing the company has
secured to develop its business plans and adoptive strategies.
Liquidity and Sources of Capital
During the quarter ended September 30, 1997 the company had a net loss of
$1,343,365 versus a $417,265 loss in the comparable quarter from the prior year.
The current quarter's liquidity short fall has been funded through private
placements of the company's short term convertible debt, loans from officers,
and increase in payables and accruals. Additionally, $.6 million in common stock
has been issued for services rendered.
-12-
<PAGE>
Subsequent to September 30, 1997 the company received funding of $1 million from
the sale of convertible notes to foreign investors. At anytime after December 3,
1997 the notes are convertible into shares of the company stock. For conversion
purposes, the Company's common stock will be valued at 72% of the average
closing bid price of the common stock on the five trading days preceding the
conversion date. Current conversations with these note holders indicate that
they desire to convert the debt into common stock (REG S).
Additional financing is being pursued to provide the company with the resources
to support the planned expansion opportunities brought about by the Link
Technologies acquisition.
The company does not have any available credit, bank financing or other firm
external sources of liquidity. Due to historical operating losses, the company's
operations had not been a source of liquidity. In order to obtain capital, the
company plans to sell additional shares of its common stock in the form of
private placements and/or issue debt. The company does not have any material
capital commitments during the year ending June 30, 1998 except for normal
operations, working capital requirements, and the future rollout of its new
products lines.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIMS COMMUNICATIONS, INC.
By: /s/ Melvin Leiner
Melvin Leiner
President
/s/ Bruce S. Schames
Bruce S. Schames
Chief Financial Officer
Date: November 21, 1997
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000907127
<NAME> SIMS COMMUNICATIONS INC
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 275,758
<SECURITIES> 1,510,000
<RECEIVABLES> 201,312
<ALLOWANCES> 27,584
<INVENTORY> 1,096,890
<CURRENT-ASSETS> 1,875,888
<PP&E> 1,148,187
<DEPRECIATION> 457,072
<TOTAL-ASSETS> 5,351,021
<CURRENT-LIABILITIES> 4,201,817
<BONDS> 0
0
125
<COMMON> 917
<OTHER-SE> 1,071,017
<TOTAL-LIABILITY-AND-EQUITY> 5,351,021
<SALES> 617,484
<TOTAL-REVENUES> 617,484
<CGS> 405,103
<TOTAL-COSTS> 1,530,454
<OTHER-EXPENSES> 8,174
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,466
<INCOME-PRETAX> 1,343,365
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,343,365
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,343,365
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
