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 December
31,1996 SIMS COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 65-0287558
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
3333 South Congress Avenue, Suite 401, Delray Beach,
FL 33445 (address of principal executive offices)
(Zip Code)
(561) 265-3601
(Registrant's telephone number, including area
code)
N/A
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) or
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes_X___ No____
As of February 19, 1997 the Company had 8,029,496 shares of
Common Stock issued and outstanding.
Page 1 of 13 Pages
PART I. FINANCIAL INFORMATION
Part 1. Financial Information
Item 1. Index to Financial Statements
SIMS COMMUNICATIONS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets at
December 31 1996 and June 30, 1996 3
Consolidated Statements of Income
for the Three and Six Months Ended
December 31, 1996 and 1995. 4
Consolidated Statement of Cash Flows for the
Six Months Ended December 31, 1996.and 1995. 5
Consolidated Statement of Stockholders' Equity
for the Six Months Ended December 31, 1996. 6
Notes to Consolidated Financial Statements. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 11
Part 11. Other Information 12
SIMS COMMUNICATIONS INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31 JUNE 30,
1996 1996
ASSETS (Unaudited)
(Audited) CURRENT ASSETS
Cash and cash equivalents $274,467 $322,542
Accounts Receivables 166,122 150,950
Franchise & Other Receivables, net of$l0,000
allowance 217,497 208,582
Inventories 1,084,246
1,059,637
Prepaid expenses 59,904 58,904
Notes Receivable, current portion 220,205 182,637
Total Current Assets 2,022,441 1,983,252
PROPERTY AND EQUIPMENT,
Property & Equipment 1,592,140 1,393,096
Less Accumulated Depreciation 430,939 321,245
Net Property & Equipment 1,161,201 1,071,851
OTHER ASSETS
Notes receivables 578,790 201,363
Minority Investment (Note 4) 200,000 -
Deferred location costs 40,826 38,100
Deposits 14,016 13,761
Patents (Note 5) 484,222 -
Organization Costs -net and Other Assets 19,750 4,045
Total Other Assets 1,337,604 257,269
Total Assets $4,521,246 $3,312,372
LIABILITIES AND STOCKHOLDERS EOUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $1,268,170 $804,231
Bank line of credit 250,000 250,000
Current obligations under capital lease 3,806 6,148
Current maturities of long term debt ~ote 2) 445,887 407,666
Loans from stockholders/officers 56,832 -
Franchise deposits and customer deposits 828,762 875,263
Total Current Liabilities 2,853,457 2,343,308
LONG TERM LIABILITIES
Long term debt (Note 2) 104,836 59,048
Obligations under capital leases ---- 2,178
Total Long Term Liabilities 104,836 61,226
Total Liabilities 2,958,293 2,404,534
STOCKHOLDERS EQUITY (DEFICIT)
Preferred stock Series A & B $.001 par value,
300,000 & 100,000 shares authorized, no shares
issued or outstanding - -
Preferred stock subscribed, 124,250 shares 365,000 365,000
Common stock $~000l par value 40,000,000 shares
authorized: 639 403
6,396,925 shares issued and outstanding Dec 1996 and
4,029,908 shares June 1996 (Note 3)
Additional Paid In Capital 12,467,400 11,060,735
Accumulated Deficit (11,270,086) (10,518,300)
Total Stockholders Equity 1,562,953 907,838
Total Liabilities and Stockholders' Equity $4,521,246 $3,312,372
See notes to consolidated financial statements
- 3 -
SIMS COMMUNICATIONS INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and Six Months Ended December 31, 1996 and 1995
(Unaudited)
Three Months Ended Six Months Ended
December 31 December 31
1996 1995 1996 1995
Revenues
Equipment & Other $339,944 $24,056 $646,031 $45,083
Activations 473,107 36,534 1,014,247 36,534
Rental 222,454 112,062 568,700 205,768
Calling Card & Long Distance 158,785 --- 159,711 ---
Royalty 292 6,708 2,587 22,586
Total revenues 1,035,797 179,360 2,231,565 309,971
Cost of Sales 620,879 132,944 1,508,331 226,260
Grossprofit 414,918 46,416 723,234 83,711
Operating expenses
General & Administrative 257,130 466,375 613,381 923,339
Depreciation and amortization 49,996 45,664 107,992 90,253
Interest-net 12,595 14,353 24,923 19,121
Selling&Marketing 247,328 130,016 545,763 295,858
StockBasedCompensation/Services 155,893 --- 155,893 ---
Research&Development 25,571 59,900 27,068 99,681
Total Expenses 748,513 716,308 1,475,020 1,428,252
Loss before income taxes ($333,595) ($669,892) ($751,786)($1,344,541)
Income Tax Expense - - - -
NetLoss ($333,595) ($669,892) ($751,786)($1,344,541)
Preferred Stock Dividends $0 $8,200 $0 $8,200
Net Loss Per Common Share ($0.06) ($0.33) ($0.17) ($0.66)
Weighted Average common 5,357,744 2,079,375 4,485,480 2,036,158
Shares Outstanding
See notes to consolidated financial statements.
-4-
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDING DECEMBER 31,1996 AND 1995
(Unaudited)
December31
CASH FLOWS FROM OPERATING ACTIVITIES 1996 1995
Net (loss) ($751,786) ($1,344,541)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation & Amortization 107,992 90,253
Stock issued for services 155,893 -
Changes in assets and liabilities:
Inventories 283,817 (35,056)
Accounts and other receivables (27,847) (23,676)
Prepaid Expenses (26,000) (27,527)
Accounts payable and accrued expenses 165,416 178,559
Franchise and customer deposits (46,501) (62,286)
Deposits (255) (7,620)
NET CASH FROM (USED IN) OPERATING ACTIVITIES (139,271) (1,231,894)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (33,612) (195,467)
Net cash received from acquisition
(Note 5) 2,737 -
Net cash used for acquistion (35,000) -
Notes receivable (377,427) -
Change in other assets (20,386) -
NET CASH (USED IN) INVESTING ACTIVITIES(463,688) (195,467)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 260,000 211,137
Payments on debts (208,436) (13,748)
Loans from officers 56,832 -
Proceeds from issuance of common stock 451,008 383,500
Payment of preferred stock dividends - (8,200)
Payments of obligation under capital
lease (4,520) (3,509)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 554,884 569,180
NET INCREASE (DECREASE) IN CASH (48,075) (858,181)
CASH AT BEGINNING OF PERIOD 322,542 1,160,085
CASH AT END OF PERIOD 274,467 301,904
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION
Cash paid during the 6 months for interest $32,161 $26,527
Cash paid during the 6 months for income taxes $0 $0
Acquisitions were made for common stock- (Notes 4 & 5)
See notes to consolidated financial statements
-5-
SIMS COMMUNICATIONS INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY FOR THE 6
MONTHS ENDING DECEMBER 31,1996 (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 -6 months ended
Dec31, 1996
Common stock issued for investment
Smartphone Note 4)
Common stock issued for investment
Link Technologies (Note 5)
Issuance of Common Stock
for Services
Issuance of Common Stock
for Cash (Ranging from $.50
to $.70 per share net of expenses
Balance-Dec 31, 1996 25,250 $265,000 10,000 $100,000
COMMON STOCK
ADDITIONAL
NUMBER OF PAID IN
SHARES AMOUNT CAPITAL
TOTAL Balance -June30, 1996 4,029,908 $403 $11,060,735
Net loss -6 months ended
Dec31, 1996
Common stock issued for
investment 400,000 40 199,960
Smartphone (Note 4)
Common stock issued for
investment 674,157 67 599,933
600,000 Link Technologies (Note 5)
Issuance of Common Stock 200,000 20 155,873
for Services
Issuance of Common Stock 992,860 99 450,899
for Cash (Ranging from $.50
to $.70 per share net of
expenses
Balance-Dec 31,1996 6,296,925 $629 $12,467,400
ACCUMULATED
DEFICIT TOTAL
Balance - June 30, 1996 ($10,518,300) $907,838
Net loss - 6 months ended
Dec 31, 1996 (751,786) (751,786)
Common stock issued for
investment Smartphone
(Note 4) 200,000
Common stock issued for
investment Link Technol-
ogies (Note 5) 600,000
Issuance of Common Stock
for Services 155,893
Issuance of Common Stock 451,008
for Cash (Ranging from $.50
to $.70 per share net of
expenses)
Balance - Dec 31, 1996 ($11,270,086) $1,562,953
See notes to consolidated financial statements (Note 3)
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
six month period ended Dec. 31, 1996 are not necessarily
indicative of the results that may be expected for the year
ended June 30, 1997. For further information, refer to the
consolidated financial statements and footnotes included in
the Company's annual Filing Statement on form 10-KSB.
Principles of Consolidation
The consolidated financial statements includes the accounts of
Sims Communications Inc. and its wholly owned subsidiaries
Sims Franchise Group, Inc., Cellex Communications, Inc., 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 " calling card
and POS materials (Note 5) and are recorded at the lower of
cost or market determined by the firstin, first out method.
- 7 -
Property and Equipment
Property and equipment are recorded and depreciated over their
estimated useful lives (5-7 years), utilizing the straightline
method. Expenditures for maintenance and repairs are charged to
expense as incurred.
Organization Costs
Organization costs have been capitalized and are being
amortized using the straight-line method over a five year
period.
Net Loss Per Common Share
Net loss per common share is based on the weighted average
number of common shares outstanding during each of the
respective periods. Common shares issuable upon exercise of the
convertible 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.
Royalty Fees
Royalties as allowed by the franchise agreement are accrued on
a percentage of gross sales, as defined, as reported by
franchisees.
Research and Development
Research and development costs consist primarily of costs
related to the conceptional formation, design, tooling and
development of prototypes and are expensed as incurred.
- 8 -
Patents
The patents acquired by the Link acquisition will be amortized
based on the expected useful life.
Note 2- Notes and Loans Payable
Dec. 31,1996
Promissory note payable at 10% interest
payable monthly, commencing Sept. 15, 1995.
Balance of principal is payable in full on
March 27, 1997. As additional consideration,
the Company agrees to pay the note holder
15.5% of all profits received through the
Company's agreements with Commonwealth Group
International. $ 310,348
Note payable - principal and 11%
interest payable in monthly
installments of $541 through June 14,
1998. Collateralized by equipment.
9,384
Note payable - $5,500 principal plus
8.5% interest payable monthly through
April 1997. 21,015
Note payable - principal balance and
9.0% interest payable at Jan. 28, 1997. 6,032
Note payable - $5,000 principal plus
interest (prime +1%), payable monthly
through October 1998. 110,000
Note payable - principal and 7%
interest, payable in monthly
installments of $2,000. 32,444
Note payable - principal (non
interest bearing) payable in monthly
installments of $1,500 through June 2000. 61,500
550,723
Less: Current Maturities (445,887)
Total $104,836
- 9 -
Note 3 - Subsequent Transactions
Subsequent to December 31, 1996 the Company sold 1,272,571 shares of
common stock for $0.70 per share in a Private Offering.
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
- 10 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operation - Three Months and Six Ending December 31, 1996
During the three month and six month periods ended December 31, 1996, total
revenues increased versus the comparable periods of last year due largely
to new and expanded programs. Total revenues for the three month period
were $1,035,797 as compared to 1995 revenues of $179,360. The market test
for calling cards sales has proven very successful and a rollout to 41
Alamo locations is being implemented.
Hands on telephone rentals at rent a car sites, (initiated in January 1996)
continues to contribute the majority of rental income for the three and six
months ended December 31, 1996. Cellular telephone rentals through ACDC
units has declined as the company is restructuring the operations to more
profitable locations. Rental of cellular telephones using overnight courier
service also increased versus last year.
Franchise royalties declined, which is in line with the company's program of
reserving most new rental locations for its own use and reacquiring franchises.
The cellular telephone activation program (initiated at the end of 1995) has
expandedsignificantly, with 2nd quarter 1996 revenues of $473,107 vs $36,534
for the 1995 quarter. Continued profitable activations and growth in this
activity is forecast.
Cost of sales for the three and six months ending December 31, 1996 were
higher due to increases in : the company's total rental operations,
cellular telephone activations and a higher level of ACDC & equipment sales.
Profit margins are high on the calling card and long distance business
since revenues are largely on a commission basis.
Selling and marketing expense are higher, to support the expansion of the
rental and activation business. General and administrative expenses
decreased due to cost controls and increased emphasis on selling/marketing.
Research and develop spending has been deferred and some operating expenses
were paid with common stock to preserve cash.
Liquidity and Sources of Capital
During the six months ended December 31, 1996, the company's cash requirement
of $487,901 (net loss adjusted for non cash depreciation and stock issued for
services) was primarily funded by $451,008 in proceeds from common stock.
The increase in accounts receivable and reduction in inventories reflects
ACDC unit and equipment sales.
The $1,231,894 operating cash shortfall for the comparable 1995 period was
funded by a reduction in cash, and proceeds from stock and debt placement.
Due to current operating losses, the Company's operations are not a source
of liquidity. In order to obtain capital, and subsequent to December 31,
1996, the Company sold 1,272,571 shares of common stock at $0.70 per share
in a Private Offering.
Link Technologies Inc. was acquired at Dec. 31, 1996 for the issuance of
674,157 shares of common stock (Note 6). Link is in the calling card and
countertop debit card POS vending unit business.
- 11-
EXHIBITS AND ROPORTS ON FORM 8-K
The following exhibits are filed with this report:
Exhibit 27- Financial Data Schedule
Reports on Form 8-K - During the quarter ending December 31, 1996 the
Company filed one report on Form 8-K. This report, dated November 25, 1996,
disclosed the sale of 800,000 shares of the Company's common stock at $0.50
per share.
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 COMMUNICAT IONS, INC.
By:_/s/ James J. Caprio James J.
Caprio Secretary, VP Finance
Date: February 19, 1997
- 12 -
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000907127
<NAME> SIMS COMMUNICATIONS,INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-30-1996
<CASH> $274,467
<SECURITIES> 0
<RECEIVABLES> $1,182,614
<ALLOWANCES> $10,000
<INVENTORY> $1,084,246
<CURRENT-ASSETS> $2,022,441
<PP&E> $1,592,140
<DEPRECIATION> $430,939
<TOTAL-ASSETS> $4,521,246
<CURRENT-LIABILITIES> $2,853,457
<BONDS> 0
0
$365,000
<COMMON> $639
<OTHER-SE> $1,562,314
<TOTAL-LIABILITY-AND-EQUITY> $4,521,246
<SALES> $339,944
<TOTAL-REVENUES> $1,035,797
<CGS> $620,879
<TOTAL-COSTS> $748,513
<OTHER EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> $(333,595)
<INCOME-TAX> 0
<INCOME-CONTINUING> $(333,595)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $(333,595)
<EPS-PRIMARY> $(0.06)
<EPS-DILUTED> $(0.06)
</TABLE>
