SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________
FORM 10-QSB/A
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 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
December 31 1996 and June 30, 1996 3
Consolidated Statements of Income for the Three and
Six Months Ended December 31, 1996 and 1995. 5
Consolidated Statement of Cash Flows for the
Six Months Ended December 31, 1996 and 1995. 6
Consolidated Statement of Stockholders' Equity
for the Six Months Ended December 31, 1996. 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 13
<PAGE>
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
1996 1996
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $274,467 $322,542
Accounts Receivables net of
$10,000 allowance 383,619 359,532
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- net (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
========== ==========
<PAGE>
DECEMBER 31, JUNE 30,
1996 1996
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
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
(Note 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
uthorized, no shares issued or
outstanding. ---- ----
Preferred stock subscribed, 124,250
shares 365,000 365,000
Common stock $.0001 par value
40,000,000 shares authorized: 667 403
6,676,925 Shares issued and outstanding
December 1996 and 4,029,908 shares June
1996 (Note 3)
Additional Paid In Capital 12,692,872 11,060,735
Accumulated Deficit (11,495,586) (10,518,300)
------------ ------------
Total Stockholders Equity 1,562,953 907,838
------------ ------------
Total Liabilities and Stock-
holders' Equity $4,521,246 $3,312,372
=========== ==========
See notes to consolidated financial statements
<PAGE>
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
Dec 31, Dec. 31,
1996 1995 1996 1995
Revenues
Equipment & Other $181,451 $30,764 $488,907 $67,669
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 ----
-------- ------- --------- -------
Total Revenues 1,035,797 179,360 2,231,565 309,971
Cost of Sales 620,879 132,944 1,508,331 226,260
--------- ------- --------- -------
Gross Profit 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
Stock Based Compensation/
Services 381,393 --- 381,393 ---
Research & Development 25,571 59,900 27,068 99,681
-------- ------- ------- ------
Total Expenses 974,013 716,308 1,700,520 1,428,252
-------- ------- --------- ---------
Income/(Loss) Before Income
Taxes $(559,095) $(669,892) $(977,286) $(1,344,541)
--------- ---------- -------- ----------
Income Tax Expense -- -- -- --
--------- ---------- -------- ----------
Net Income/(Loss) $(559,095) $(669,892) $(977,286) $(1,344,541)
======== ========= ======== =========
Preferred Stock Dividends $0 $0 $0 $8,200
Net Income/(Loss) Per Common
Share $(.10) $(0.33) $(0.22) $(0.66)
======== ========= ======= =======
Weighted Average Common
Shares Outstanding 5,404,411 2,079,375 4,498,814 2,036,158
========== ========= ========= =========
<PAGE>
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDING DECEMBER 31, 1996 AND 1995
(Unaudited)
December 31,
CASH FLOWS FROM OPERATING ACTIVITIES 1996 1995
Net (loss) ($977,286) ($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 381,393 --
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 acquisition (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
<PAGE>
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STAEMENT OF STOCKHOLDER'S EQUITY
FOR THE 6 MONTHS ENDING DEC. 31, 1996
(UNAUDITED)
PREFERRED STOCK SUBSCRIBED
SERIES A SERIES B
NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT
Balance - June 30, 25,250 $265,000 10,000 $100,000
1996
Net loss - 6 months
ended Dec. 31, 1996
Common stock issued for
investment Smartphone
(Note 4)
Common stock issued for
investment Link Tech-
nologies (Note 5)
Issuance of Common
Stock for Services
Issuance of Common
Stock for Cash
(Ranging from $.50
to $.70 per share,
net of $73,989
expenses
Balance - December 31, 25,250 $265,000 10,000 $100,000
1996
COMMON STOCK
ADDITIONAL
NUMBER OF PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
Balance-June 4,029,908 $403 $11,060,735 ($10,518,300) $907,838
Net loss - 6 months (977,286) (977,286)
ended Dec. 31,
1996
Common stock issued 400,000 40 199,960 200,000
investment Smartphone
(Note 4)
Common stock issued 674,157 67 599,933 600,000
for investment Link
Technologies (Note 5)
Issuance of Common 480,000 48 381,345 381,393
Stock for Services
Issuance of Common 1,092,860 109 450,899 451,008
Stock for Cash
(Ranging from $.50
to $.70 per share,
net of $73,989
expenses
Balance - December 6,676,925 $667 $12,692,872 ($11,495,586) $1,562,953
31, 1996
<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 six month period ended
December 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 " 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.
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.
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
additionalconsideration, 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
Notes payable, due Jan 28 1997 plus 9% interest 6,032
Notes payable -$5,500 principal plus 8.5% interest
payable monthly through April 1997. 21,015
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 Long Term $ 104,836
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 February 1997. However, cash flows,
from operations may not be sufficient to meet future obligations
of the company.
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 3 months ended December 31 1996,
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-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 other Alamo
locations in being implemented.
Hands on telephone rentals at car rental 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 have 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 expanded significantly, 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 businesses. 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, the company
sold, since December 1996 an additional private placement of
1,352,570 shares of common stock for $ 946,800.
The company, in September 1996, acquired a 10% ownership in
Smartphone Inc., a debit cellular telephone company for 400,000
shares of common stock.
Link Technologies Inc. was acquired at Dec. 31, 1996 for the
issuance of 674,157 shares of stock (Note 6). Link is in the
calling card and countertop debit card POS vending unit business.
<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 Schames,
Chief Financial Officer
Date: May 30, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000907127
<NAME> SIMS COMMUNICATIONS, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 274,467
<SECURITIES> 0
<RECEIVABLES> 613,824
<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> 667
<OTHER-SE> 12,692,872
<TOTAL-LIABILITY-AND-EQUITY> 4,521,246
<SALES> 2,231,565
<TOTAL-REVENUES> 2,231,565
<CGS> 1,508,331
<TOTAL-COSTS> 1,700,520
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (977,286)
<INCOME-TAX> 0
<INCOME-CONTINUING> (977,286)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (977,286)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
