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 March 31,1997
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 May 26, 1997 the Company had 8,089,495 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
March 31 1997 and June 30, 1996 3
Consolidated Statements of Income for the
Three and Nine Months Ended March 31,
1997 and 1996. 5
Consolidated Statement of Cash Flows for the
Nine Months Ended March 31, 1997 and 1996 6
Consolidated Statement of Stockholders' Equity
for the Nine Months Ended March 31, 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
MARCH 31, JUNE 30,
1996 1997
ASSETS (Unaudited) (Audited)
CURRENT ASSETS
Cash and cash equivalent $273,469 $322,542
Accounts & Other Receivables, net of
$l0,000 allowance 940,859 359,532
Inventories 1,170,133 1,059,637
Prepaid expenses 34,529 58,904
Notes Receivable, current option 220,205 182,637
------------ ---------
Total Current Assets 2,639,195 1,983,252
PROPERTY AND EQUIPMENT,
Property & Equipment 1,602,648 1,393,096
Less Accumulated Depreciation 479,051 321,245
------------ ---------
Net Property and Equipment 1,123,597 1,071,851
OTHER ASSETS
Notes receivable 577,199 201,363
Minority Investment (Note 4) 200,000 --
Deferred location costs 48,204 38,100
Deposits 14,016 13,761
Patents-net (Note 5) 472,117 --
Organization Costs - Net and
other assets 1,111 4,045
------------ ---------
Total Other Assets Assets 1,312,647 257,269
------------ ---------
Total Assets $5,075,439 $3,312,372
======= =======
<PAGE>
MARCH 31, JUNE 30,
1997 1996
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $868,436 $804,231
Bank line of credit 250,000 250,000
Current obligations under capital lease 2,308 6,148
Current maturities of long term debt (Note 2) 581,340 407,666
Loans from stockholders/officers 60,569 --
Franchise deposits and customer deposits 838,180 875,263
---------- --------
Total Current Liabilities 2,600,833 2,343,308
LONG TERM LIABILITIES
Long term debt (Note 2) 76,299 59,048
Obligations under capital leases -- 2,178
---------- ---------
Total Long Term Disabilities 76,299 61,226
----------- ---------
Total Liabilities 2,677,132 2,404,534
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock Series A & B $.00l par value
300,000 & l00,000 shares authorized, no
shares issued or outstanding. -- --
Preferred stock subscribed, l24,250 shares 365,000 365,000
Common stock $.0001 par value 40,000,000 809 403
shares authorized: 8,089,495 shares issued
and outstanding March 1997 and 4,029,908
shares June 1996 (Note 3)
Additional paid in capital 13,502,443 11,060,735
Accumulated Deficit (11,469,945) (10,518,300)
------------ ----------
Total Stockholder's Equity 2,398,307 907,838
------------ ----------
Total Liabilities and Stockholders' Equity $5,075,439 $3,312,372
========== ========
See Notes to consolidated financial statements
<PAGE>
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended March 31, 1997 and 1996
(Unaudited)
Three Nine Months Ended
Months Ended March 31,
March 31, 1997 1996
1997 1996
Revenues $42,979 $394,600 $531,886 $462,269
Equipment & Other
Activations 374,010 321,765 1,388,257 358,299
Rental 187,175 344,901 755,875 550,669
Calling Card & Long
Distance 65,349 -- 225,060 --
License Fee Income 500,000 -- 500,000 --
--------- ---------- -------- ---------
Total Revenues 1,169,513 1,061,266 3,401,078 1,371,237
Cost of Sales 414,180 438,286 1,922,511 664,546
--------- ---------- -------- ---------
Gross Profit 755,333 622,980 1,478,567 706,691
Operating Expenses
General & Administrative 394,739 344,025 1,008,120 1,267,364
Depreciation and Amortiza-
tion 62,008 53,857 170,000 144,110
Interest-net 4,690 6,157 29,613 25,278
Selling & Marketing 266,961 326,283 812,724 622,141
Stock Based Compensation/ -- -- 381,393 --
Services
Research and Development 1,294 13,777 28,362 113,458
--------- ---------- -------- ---------
Total Operating Expenses 729,692 744,099 2,430,212 2,172,351
--------- ---------- --------- ---------
Income/(Loss) Before Income $25,641 ($121,119) ($951,645) ($1,465,660)
Taxes
--------- ---------- --------- ---------
Income Tax Expense - - - -
--------- ---------- -------- ---------
Net Income/(Loss) $25,641 ($121,119) ($951,645) ($1,465,660)
======== ========= ======== =======
Preferred Stock Dividends $0 $0 $0 $8,200
Net Income/(Loss) $0.00 ($0.05) ($0.19) ($0.71)
Per Common Share
======== ========= ======= =======
Weighted Average
Common Shares
Outstanding 7,,710,21 2,205,451 5,097,239 2,069,154
========= ========= ======== ========
<PAGE>
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDING MARCH 31, 1997 AND 1996
(Unaudited)
March 31
CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996
Net (loss) ($951,645) ($1,465,660)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation & Amortization 170,000 144,110
Stock issued for services 381,393 --
Changes in assets and liabilities:
Inventories 197,930 1,453
Accounts and other receivables (547,519) (118,202)
Prepaid Expenses (625) (70,292)
Accounts payable and accrued expenses (234,318) 388,833
Franchise and customer deposits (37,083) (46,187)
Deposits (255) (2,469)
Deferred location costs (10,104) (3,200)
NET CASH FROM (USED IN) OPERATING ACTIVITIES (1,032,226) (1,171,614)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (44,120) (451,785)
Net cash received from acquisition (Note 5) 2,737 --
Net cash used for acquisition (48,660) --
Notes receivable (413,404) --
Change in other assets (812) --
NET CASH (USED IN) INVESTING ACTIVITIES (504,259) (451,785)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 422,500 286,137
Payments on debts (264,020) (31,375)
Loans from officers 60,569 45,462
Proceeds from issuance of common stock 1,274,381 383,500
Proceeds from issuance of preferred stock 100,000
Payment of preferred stock dividends -- (8,200)
Payments ofobligation under capital lease (6,018) (5,331)
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,487,412 770,193
NET INCREASE (DECREASE) IN CASH (49,073) (853,206)
CASH AT BEGINNING OF PERIOD 322,542 1,160,085
CASH AT END OF PERIOD 273,469 306,879
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid during the 9 months for interest $49,670 $35,913
Cash paid during the 9 months for income taxes $0 $0
Acquisitions were made for common stock- (Notes 4 & 5)
See notes to consolidated financial statements
6
<PAGE>
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY FOR THE 9
MONTHS ENDING MARCH 31, 1997 (UNAUDITED)
PREFERRED STOCK SUBSCRIBED
SERIES A SERIES B
NUMBER OF NUMBER OF
SHARES AMOUNT SHARES
AMOUNT
Balance - June 30, 1996 25,250 $265,000 10,000
$100,000
Net loss -9 months ended
March 31, 1997
Common stock issued for
investment Smartphone
(Note 4)
Common stock issued for
investment Link Technolo-
gies (Note 5)
Issuance of Common Stock
for Services
Issuance of Common Stock
for Cash (Ranging from $.50
to $.70 per share, net of
$165,439 expenses
Balance-March 31, 1997 25,250 $265,000 10,000 $100,000
COMMON STOCK
ADDITIONAL ACCUMU-
NUMBER OF PAID IN LATED
SHARES AMOUNT CAPITAL DEFICIT
TOTAL
Balance-June 30,
1996 4,029,908 $403 $11,060,735 ($10,518,300)
$907,838
Net loss -9
months ended (951,645) (951,645)
March 31, 1997
Common stock
issued for in-
vestment 400,000 40 199,960 200,000
Smartphone
(Note 4)
Common stock
issued for in-
vestment 674,157 67 586,273 586,340
Link Technologies
(Note 5)
Issuance of
Common Stock 200,000 20 155,873 155,893
for Services
Issuance of
Common Stock 2,785,430 279 1,499,602 1,499,881
for Cash
(Ranging from
$.50 to $.70
per share, net
of $165,439
expenses
Balance-March 31,
1997 8,089,495 $809 $13,502,443 ($11,469,945) $2,398,307
(Note 3)
<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 1, 1991 as a
communication company.
Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine month period
ended March 31, 1997 are not necessarily indicative of the
results that may be
expected for the year ended June 30, 1997. For further
information, refer to the consolidated financial statements and
footnotes included in the Company's annual Filing Statement on
form 10-KSB.
Principles of Consolidation
The consolidated financial statements includes the accounts of
Sims Communications Inc. and its wholly owned subsidiaries Sims
Franchise Group, Inc., Cellex Communications, Inc., Sims
Communications International, Inc. and Link Technologies Inc.
(Note 5) All intercompany balances and transactions have been
eliminated in consolidation. The 10% minority investment in
Smartphone is 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 POS materials (Note 5). 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.
Organization Costs
Organization costs have been capitalized and are being amortized
using the straight-line method over a five year period.
<PAGE>
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
The patents acquired by the Link acquisition will be amortized
based on the expected useful life.
<PAGE>
Note 2- Notes and Loans Payable Mar. 31, 1997
Promissory note payable at 10% interest payable monthly,
commencing Sept. 15, 1995. Balance of principal is payable in
full on September 30, 1997. As additional consideration, the
Company agrees to pay the note holder 15.5% of all profits
received through the Company's agreements with Commonwealth
Group International. $310,348
Note payable - principal and 11% interest payable
in monthly installments of $541 through June 14,
1998. Collateralized by equipment. 7,761
Notes payable, due Sept. 1997 principal
payable at maturity (or convertible to common
stock), 8% interest. 162,500
Note payable - $5,000 principal plus interest
(prime +1%), payable monthly through October 1998 95,000
Note payable - principal and 7% interest, payable in monthly
installments of $2,000. 26,530
Note payable - principal (non interest bearing) payable in
monthly installments of $1,500 through
June 2000. 55,500
_________
657,639
Less: Current Maturities (581,340)
Total Long Term $ 76,299
Note 3 - Continuing Operations and Subsequent
Transactions
The accompanying financial statements have been prepared on a going
concern basis which contemplates the realization of assets and
liquidation of liabilities in the ordinary course of business. In
prior years, the Company had been in the development state and did
not begin earning significant revenues until the middle of fiscal
year ended 1994. During the years ending June 1995 and June 1996
and continuing through the six months ended Dec. 1996, the Company
continued to suffer recurring losses from operations. During the
fiscal year ended June 30, 1995, the Company completed an initial
public offering for $5.2 million. Currently, management has sold,
at private placements, 2,445,430 shares of common stock for $
1,471,800 from October 1996 through March 1997. However, cash
flows, from operations may not be sufficient to meet future
obligations of the company.
<PAGE>
Note 4-Investment in Non Consolidated Subsidiary
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.
This investment is recorded under the cost method.
Note 5-Acquisition of Link Technologies Inc. and Subsidiaries
At December 31, 1996, the company acquired Link Technologies Inc.
and Subsidiaries for 674,157 shares of common stock, with a value
of $600,000. The transaction was treated under purchase accounting. Link
is in the business of manufacturing prepaid telephone calling card
vending machines and a combined countertop Point of Sale Debit
Card processing and prepaid telephone card activation unit. The
summarized acquired balance sheet of Link is:
Cash $ 2,737
Other current assets-fair value 342,234
Non current assets -excl. intangibles 161,774
Intangibles- Patents 484,222
Liabilities assumed-principally current (390,967)
Net Assets Acquired 600,000
Deferred costs associated with Link
acquisition $ 13,660
Note 6-Stock Options
The company issued in the 9 months ended March 31 1997, 2,920,250
common stock options, under both its qualified and non qualified
option plans, exercisable at $1.00 to $2.00. All options were
exercisable at prices above fair market value and, as a result, no
expense has been recognized.
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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operation- Nine Months Ending March 31, 1997
Revenues during the nine month period ending March 31, 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 the of cellular telephones through ACDC units
decreased during the quarter ending March 1997 as the Company closed
certain ACDC locations that were not profitable.
As an alternative to sellilng ACDC units to franchises the Compnay 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.
During the nine months ending March 31, 1997 the Company sold a number of
ACDC units to third parties under master licensing arrangements. As a
result of credit terms extended by the Company with respect to certain of
these sales, as of May 31, 1997 certain amounts were still owed to the
Company for equipment sales made by the Company during the six months
ended December 31, 1996.
Effective December 31, 1996 the Company acquired all the issued and out
standing 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
merchan dise 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 quarter ending March 31, 1997. During this quarter,
Link's revenues from sales
of equipment, prepaid calling cards and technical service were
approximately $47,000, which amount excludes revenues attributable to
the Licensing Agreement between the Company and Cancall. During the
quarter ending March 31, 1997 Link's cost of sales accounted for 2.5%
of the Company's consolidated cost of sales and Link's other expenses
accounted for 16% of the Company's 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 1998 or such other date as
determined by the Vancouver Stock Exchange. As of June 2, 1997 the
closing bid and asked price of Cancall's common stock (in Canadian
dollars) were $0.35 and $0.40 respectively. As of June 3, 1997 the
Company had not received any shares of Cancall's Class B Preferred
shares nor any cash from Cancall in
payment of the licensing fee. The Licensing Agreement also requires
Cancall to purchase a certain number of ACDC units and POS terminals from
the Company.
Income from franchise operations is no longer significant since the
Company discontinued its franchise operations during 1995.
The increase in Cost of Sales during the nine month period ending March
31, 1997 reflects the expansion of the Company's cellular telephone
rental, cellular telephone activation and long distance telephone
programs.
Operating Expenses increased primarily due to recording as an expense
the value of shares of the Company's common stock issued to
employees and consultants in consideration for services rendered
to the Company.
Liquidity and Sources of Capital
During the nine month period ending March 31, 1997 the Company's
operations used $1,032,226 of cash. In order to fund this
deficit, 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.
<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/ Mel Leiner
Mel Leiner President
By: /s/ Bruce Schames
Bruce S. Schames
Chief Financial Officer
Date: May 30, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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