SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES
As filed with the Securities and Exchange Commission on
___, 1997.
Registration No.
333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
Registration Statement
Under
THE SECURITIES ACT OF 1933
SIMS Communications, Inc.
(Exact name of registrant as specified in charter)
Delaware 3661 65-0287558
(State or other (Primary Standard Classi- (IRS Employer
jurisdiction of fication Code Number) I.D. Number)
incorporation)
3333 S. Congress Ave.
Suite 40l
Delray Beach, FL 33445
(56l) 265-3601
(Address and telephone number
of principal executive offices)
3333 S. Congress Ave.
Suite 401
Delray Beach, FL 33445
(Address of principal place of business or
intended principal place of business)
Melvin Leiner
Suite 401
3333 S. Congress Ave.
Delray Beach, FL 33445
(561) 265-3601
(Name, address and telephone number of agent for service)
Copies of all communications, including all communications sent
to the agent for service, should be sent to:
William T. Hart, Esq.
Hart & Trinen
1624 Washington Street
Denver, Colorado 80203
(303) 839-0061
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date
of this Registration Statement
Page 1 of Pages
Exhibit Index Begins on Page
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statemnet for
the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed
Class of Maximum Maximum
Securities Securities Offering Aggregate Amount of
to be to be Price Per Offering Registration
Registered Registered Unit(1) Price Fee
Common Stock 850,000 (2) $1.50 $1,275,000 $440
Common Stock 200,000 (3) $1.50 $ 300,000 $104
Common Stock 100,000 (4) $1.50 $ 150,000 $ 52
Total l,l50,000 $1,725,000 $596
(1) Offering price computed in accordance with Rule 457(c).
(2) Shares are offered by certain Selling Shareholders.
(3) Up to 200,000 shares of Common Stock are offered by the holders of
certain Sales Agent Warrants. The Sales Agent's Warrants were issued
in connection with the Company's September 1996 and December 1996
private offerings of Common Stock.
(4) Shares are offered by the holders of common stock issued to a
financial consultant.
The registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date
until the registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of l933 or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
SIMS COMMUNICATIONS, INC.
CROSS REFERENCE SHEET
Item in Form SB-2 Location in Prospectus
Item 1 Front of Registration Statement
and Outside Front Cover Page of
Prospectus .............................. Facing Page; Outside Front
Cover Page
Item 2 Inside Front and Outside Back Cover
Pages of Prospectus ..................... Inside Front Cover Page;
Outside Back Cover Page
Item 3 Summary Information and Risk Factors .... Prospectus Summary;
Risk Factors
Item 4 Use of Proceeds ......................... Not Applicable.
Item 5 Determination of Offering Price ......... Selling
Shareholders
Item 6 Dilution ................................ Dilution
Item 7 Selling Security Holders ............. Selling Shareholders
Item 8 Plan of Distribution ................. SellingShareholders
Item 9 Legal Proceedings ....................... Litigation
Item 10 Directors, Executive Officers,
Promoters and Control Persons ........... Management
Item 11 Security Ownership of Certain
Beneficial Owners and Management ........ Principal Shareholders
Item 12 Description of Securities .............. Description of Securities
Item l3 Interest of Named Experts and Counsel ... Experts
Item l4 Disclosure of Commission Position
on Indemnification for Securities Act
Liabilities ............................. Indemnification
Item 15 Organization within last five years .... Business
Item 16 Description of Business ................. Business
Item 17 Management's Discussion and Analysis
or Plan of Operation .................... Management's Discussion
and Analysis
Item 18 Description of Property ................. Business
Item 19 Certain Relationships and Related
Transactions ............................ Management
Item 20 Market for Common Equity and
Related Stockholder Matters ............. Market Information,
Description of Securities
Item 21 Executive Compensation .................. Management
Item 22 Financial Statements ............ Financial
Statements
Item 23 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure..................... Not applicable
PROSPECTUS SIMS COMMUNICATIONS, INC.
Common Stock
This Prospectus relates to:
1. The sale of 850,000 shares of the Common Stock of Sims
Communications, Inc. (the "Company") by owners of shares of the
Company's Common Stock. The 850,000 shares were sold by the Company
during October 1996 in a private offering at a price of $0.50 per
share.
2. The sale of up to l00,000 shares of common stock issuable
upon the exercise of certain Sales Agent's Warrants. The sales
agent's Warrants were issued in connection with the Company's October
1996 private offering. Each Warrant entitles the holder to purchase
one share of the Company's common Stock at a price of $0.50 per share
at any time prior to November 30, 2001.
3. The sale of up to l00,000 shares of common stock issuable
upon the exercise of certain Sales Agent's Warrants. The Sales
Agent's Warrants were issued in connection with the Company's December
1996 private offering. Each Warrant entitles the holder to purchase
one share of the Company's Common Stock at a price of $0.70 per share
at any time prior to March 31, 2002.
4. The sale of up to 100,000 shares of Common Stock which were
issued by the Company in September 1996 to a financial consultant.
The owners of the Common Stock sold in the Company's September
l996 Private Offering, the owners of the stock issued to the financial
consultant, and the holders of the Sales Agent's Warrants, to the
extent they exercise the Warrants and receive shares of the Company's
Common Stock, are referred to in this Prospectus as the "Selling
Shareholders".
The Company will not receive any proceeds from the resale of
the shares by the Selling Shareholders. The Selling Shareholders may
resell the shares they acquire by means of this Prospectus from time
to time in the public market. The Selling Shareholders have advised
the Company that they will offer the shares through broker/dealers at
market prices with customary commissions being paid by the Selling
Shareholders. The costs of registering the shares offered by the
Selling Shareholders are being paid by the Company. The Selling
Shareholders will pay all other costs of the sale of the shares
offered by them. See "Dilution and Comparative Share Data" and
"Selling Shareholders".
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE
THEIR ENTIRE INVESTMENT. FOR A DESCRIPTION OF CERTAIN IMPORTANT
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK
FACTORS" BEGINNING ON PAGE OF THIS PROSPECTUS AND "DILUTION".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
On ________, 1997 the closing prices of the Company's Common
Stock and Warrants on the NASDAQ SmallCap Market were $ ____ and $_____
________, respectively. See "Market Information".
The Date of this Prospectus is _____, 1997
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of l934 and in accordance therewith is
required to file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Copies of
any such reports, proxy statements and other information filed by the
Company can be inspected and copied at the public reference facility
maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. and at the Commission's Regional offices in New York
(7 World Trade Center, Suite 1300, New York, New York 10048) and
Chicago (Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511). Copies of such material can be
obtained from the Public Reference Section of the Commission at its
office in Washington, D.C. 20549 at prescribed rates. Certain
information concerning the Company is also available at the Internet
Web Site maintained by the Securities and Exchange Commission at
www.sec.gov. The Company has filed with the Commission a Registration
Statement on Form SB-2 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Act"), with respect to the Units offered
hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the
Registration Statement.
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY ..................................................
RISK FACTORS ........................................................
DILUTION AND COMPARATIVE SHARE DATA .................................
MARKET FOR THE COMPANY'S COMMON STOCK ...............................
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS ..........
BUSINESS ............................................................
MANAGEMENT ..........................................................
PRINCIPAL SHAREHOLDERS ..............................................
SELLING SHAREHOLDERS ................................................
DESCRIPTION OF SECURITIES ...........................................
EXPERTS .............................................................
LITIGATION ..........................................................
INDEMNIFICATION .....................................................
ADDITIONAL INFORMATION ..............................................
FINANCIAL STATEMENTS ................................................
OFFERING SUMMARY
The following information is qualified in its entirety by the
detailed information appearing elsewhere in this Prospectus.
THE COMPANY
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 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 May 15, 1997 only one Company franchisee
was operating ACDC units.
At June 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 (nine units) and certain AAA Club offices (nine 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. See
"Business".
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. See "Business - Link
International Technologies, Inc."
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 Private Offering Memorandum have been adjusted to reflect these
two stock splits.
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.
THE OFFERING
This Prospectus relates to:
1. The sale of 850,000 shares of the Common Stock of Sims
Communications, Inc. (the "Company") by owners of shares of the
Company's Common Stock. The 850,000 shares were sold by the Company
during October 1996 in a private offering at a price of $0.50 per
share.
2. The sale of up to l00,000 shares of common stock issuable
upon the exercise of certain Sales Agent's Warrants. The sales
agent's Warrants were issued in connection with the Company's October
1996 private offering. Each Warrant entitles the holder to purchase
one share of the Company's common Stock at a price of $0.50 per share
at any time prior to November 30, 2002.
3. The sale of up to l00,000 shares of common stock issuable
upon the exercise of certain Sales Agent's Warrants. The Sales
Agent's Warrants were issued in connection with the Company's December
1996 private offering. Each Warrant entitles the holder to purchase
one share of the Company's Common Stock at a price of $0.70 per share
at any time prior to March 31, 2002.
4. The sale of up to 100,000 shares of Common Stock which
were issued by the Company in September 1996 to a financial consultant.
The owners of the Common Stock sold in the Company's September
l996 Private Offering, the owners of the stock issued to the financial
consultant, and the holders of the Sales Agent's Warrants, to the
extent they exercise the Warrants and receive shares of the Company's
Common Stock, are referred to in this Prospectus as the "Selling
Shareholders". The Selling Shareholders may sell their shares of
Common Stock from time to time in the public market. The Company will
not receive any proceeds from the sale of the shares offered by the
Selling Shareholders. See "Selling Shareholders".
Common Stock Out-
standing Prior To
and After Offering: As of the date of this Prospectus, the Company had
8,316,995 shares of Common Stock issued and outstanding. Assuming all of the
Sales Agent's Warrants are exercised, there will be 8,516,995 shares of
Common Stock issued and outstanding. The number of outstanding shares
before and after this Offering does not give effect to shares which may be
issued upon the exercise and/or conversion of options, warrants or
other convertible securities previously issued by the Company. See
"Dilution and Comparative Share Data", "Selling Shareholders" and
"Description of Securities".
NASDAQ Symbols: Common Stock: SIMS
Warrants: SIMSW
RISK FACTORS
The purchase of the Securities offered involves a high degree
of risk and immediate substantial dilution to investors. See "Risk
Factors" and "Dilution".
SUMMARY FINANCIAL INFORMATION
The following sets forth certain financial data with respect to
the Company and is qualified in its entirety by reference to the more
detailed financial statements and notes thereto included elsewhere in
this Prospectus.
Statement of Operations Data:
Nine Months Ended
March 3l, Years Ended June 30,
1997 1995 1996
Revenues $3,401,078 $ 696,909 $ 2,607,879
Cost of Sales (1,922,511) (607,509) (1,686,188)
Operating Expenses (2,430,212) (2,540,512) (4,645,197)
Net (Loss) $(951,645) $(2,451,112) $(3,723,506)
Balance Sheet Data:
March 3l, June 30,
1997 1995 1996
Current Assets $2,639,195 $2,657,070 $ 1,983,252
Total Assets $5,075,439 $3,616,793 $ 3,312,372
Current Liabilities $2,600,833 $1,438,645 $ 2,343,308
Total Liabilities $2,677,132 $1,608,819 $ 2,404,534
Working Capital (Deficit)$ 38,362 $1,218,425 $( 360,056)
Shareholders' Equity $2,398,307 $2,007,974 $ 907,838
RISK FACTORS
The securities offered hereby are speculative and involve a
high degree of risk and should be purchased only by persons who can
afford to lose their entire investment. Therefore, prospective
investors should read this entire Prospectus and carefully consider,
among others, the following risk factors in addition to the other
information set forth in this Prospectus prior to making an investment.
History of Losses. The Company has incurred losses since it
was formed in 1991. From the date of its formation through March 31,
1997, the Company incurred net losses of approximately $(11,470,000).
During the nine months ended March 3l, l997 the Company had losses of
$(951,645). The Company expects to continue to incur losses until
such time, if ever, as it generates substantial revenues directly or
from franchisees and earns net income. There can be no assurance that
the Company will be able to generate sufficient revenues and become
profitable in the future.
The Company is vulnerable to a variety of business risks
generally associated with development stage companies, any one of
which could have a material adverse effect on its business, financial
condition and results of operations. Potential investors should be
aware of the difficulties encountered by a development stage company
and the other risk factors set forth in this section. The Company's
future operating results will depend on a number of factors, including
the demand for its products and services, the level of competition,
government regulation, general economic conditions and other factors
beyond the control of the Company. Accordingly, there can be no
assurance that the Company will be able to earn a profit from its
operations.
Need for Capital. This offering is being made in behalf of
certain Selling Shareholders. The Company will not receive any
proceeds from the sale of the shares offered by the Selling
Shareholders. The Company's continued operations will depend upon the
availability of additional funding. There can be no assurance that
the Company will be able to obtain additional funding, if needed, or
if available on terms satisfactory to the Company.
Expansion of Business. The Company has introduced several new
programs in an effort to diversify and broaden the Company's mix of
products and services. See "Business." However, there can be no
assurance that the Company will be able to expand its operations
successfully and ultimately on a profitable basis. The successful
expansion of the Company's business depends on, among other things,
the continued growth of the cellular telephone industry, the Company's
ability to compete with much larger companies, its ability to
successfully market its products and services, retain qualified sales
and other personnel, successfully manage growth (including monitoring
an expanded level of operations and controlling costs) and the
availability of additional financing.
The Company's operations have placed, and are expected to
continue to place, significant strain on the Company's management,
staff, working capital, and financial control systems. The failure to
maintain or upgrade financial control systems, to recruit additional
staff or to respond effectively to difficulties encountered during
expansion could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be
no assurance that the Company's systems and controls or staff will be
adequate.
Competition. The Company competes with numerous companies
involved in the rental of cellular telephones. Many of these
companies have significantly greater financial, distribution,
advertising, marketing, management and personnel resources than the
Company. The Company's future success will depend to a significant
degree upon its ability to remain competitive in the areas of price,
convenience, equipment quality, and marketing, while operating within
the constraints imposed by its financial resources. No assurance can
be given that other companies with substantially greater resources
will not enter this market.
During the past several years, the number of persons who either
own or lease cellular telephones on a long-term basis has increased
significantly and, in some markets, there has been a general decline
in the cost of using cellular telephones. For persons owning or
leasing a cellular telephone on a
long-term basis, the cost of operating a cellular telephone includes
the cost of the cellular telephone, batteries, charging units and
other accessories (in the case of direct ownership), monthly lease
payments (in the case of leased equipment), fixed monthly charges,
airtime charges for calls made or received within the area serviced by
the person's cellular carrier, and higher "roaming" charges for calls
made or received outside the area serviced by the person's cellular
carrier. Although the cost of operating a cellular telephone will
vary depending upon various factors, certain persons who own or lease
cellular telephones on a long-term basis may find that the cost of
using their cellular telephone, when traveling, is less expensive than
renting a cellular telephone from the Company, and may therefore elect
to use their own cellular telephone instead of renting a cellular
telephone from the Company.
Risks Involving Franchisees. The Company may be exposed to
potential significant liability claims resulting from its
franchisees. Other aspects of the franchisor/franchisee relationship,
such as termination and non-renewal, are not expected to have a
material impact on the Company's operations. The Company's franchise
agreement requires the franchisee to maintain at least $1,000,000 of
general liability insurance and such other insurance as is reasonably
requested by the Company, with the Company listed as an additional
named insured on each policy, which it believes is adequate coverage
(until the Company is able to expand its operations at which point the
Company will use its best efforts to obtain coverage for claims that
may be made against it based upon the acts of its franchisees and will
also use its best efforts to obtain an umbrella liability insurance
policy, although there can be no assurance that it will be able to
obtain such additional insurance coverage). Even if the Company is
able to obtain such coverage, there can be no assurance that the
Company will not need to increase such coverage or that the present or
future levels of coverage will be available at a reasonable cost. A
partially insured or an entirely uninsured claim against the Company
could have a material adverse effect on the Company.
Patent, Trade and Service Marks. The Company has been granted
a design patent on its ACDC system which will expire in 2010. Since
the design patent covers only the external design of the ACDC, most of
the other features of the ACDC are not protected by the patent. The
Company has also filed two patent applications relating to other
aspects of the ACDC. In addition, the Company has a trademark and a
service mark for the name ACDC registered with the U.S. Patent and
Trademark Office.
There is no assurance that the Company's pending patent
applications will result in the issuance of any patents. Furthermore,
there is no assurance as to the breadth and degree of protection any
issued patents, trademarks or service marks might afford the Company.
Disputes may arise between the Company and others as to the scope and
validity of the Company's patent, trademark and service mark or the
patents and trade/service marks held by others. Any defense of the
Company's patents, trademark or service mark could prove costly and
time consuming and there can be no assurance that the Company will be
in a position, or will deem it advisable, to carry on such a defense.
Also, to the extent the Company relies upon unpatented proprietary
technology, there is no assurance that others may not acquire or
independently develop the same or similar technology.
Dependence on Third Party Suppliers. The Company relies on
software provided by Telemac Cellular for certain features of its
real-time billing system. At present, the Company does not have any
alternative sources for the software used with the ACDC units. Since
the Company does not own any proprietary software, if the software
license between the Company and Telemac was terminated, the Company,
until replacement software could be obtained, would be unable to
provide customers with an itemized billing at the time the cellular
telephone was returned. Any termination of the agreement between the
Company and Telemac (prior to the Company obtaining an alternative
billing system) may have an adverse effect on the Company.
Agreements with Credit Card Companies. The Company's ACDC
units are capable of operating on an automatic basis as the result of
a nationwide credit card system. By means of telephone lines and
computers, this system links credit card companies, issuing banks and
credit card processing firms throughout the United States and allows
the Company's customers to obtain cellular telephones by merely
inserting a credit card into the appropriate space in the ACDC unit.
The Company also relies upon credit cards for payment of other
services provided by the Company. The Company presently has
agreements with credit card processors which authorize the use of
various major credit cards in the Company's ACDC units and as payment
for other services provided by the Company. In order for the Company
to continue to have the services of these credit card processors
available, the Company is required to meet certain conditions as
provided in the agreements between the credit card processors and the
Company. In the event the Company fails to meet these conditions, the
credit card processors may automatically refuse to accept credit
cards, in which case the Company would be unable to rent cellular
telephones.
Dependence on Personnel. The future success of the Company
will be highly dependent upon the personal efforts of its executive
officers and the loss of the services of any of the Company's
executive officers could have a material adverse effect on the
Company. The Company believes that its future success will also
depend upon its ability to attract and retain qualified marketing and
programming personnel. There can be no assurance that the Company
will be able to hire and retain such necessary personnel in the future.
Market for Company's Securities; Volatility of Securities
Prices. Prices for the Company's Common Stock have been highly
volatile and will be influenced by a number of factors, including the
depth and liquidity of the market for the Company's Common Stock, the
Company's financial results, investor perceptions of the Company,
various factors affecting the cellular telephone industry, and general
economic and other conditions. Additionally, in the last several
years, the stock market has experienced a high level of price and
volume volatility and market prices of many companies, particularly
small and emerging growth companies, the common stock of which trade
in the over-the-counter market, have experienced wide price
fluctuations which have not necessarily been related to the operating
performance of such companies.
No Assurance of Continued NASDAQ Listing. Although the
Company's Common Stock and Warrants are currently listed on the NASDAQ
SmallCap Market, the National Association of Securities Dealers, Inc.
("NASD") requires, for continued inclusion on the NASDAQ SmallCap
Market, that the Company must maintain $2,000,000 in assets, $200,000
market value of the public float,
1,000,000 in net worth and that the bid price of the Company's Common
Stock, must be at least $1.00, or in the alternative, that the Company
have (i) a net worth of at least $2,000,000 and (ii) that the value of
the public float be at least $1,000,000. As the Company does not have
any control over the market price of its Common Stock, the Company
cannot assure it will be able to comply with the requirements
concerning the market value of the Company's publicly traded
securities.
There can be no assurance however that the Company's securities
will remain listed on the NASDAQ SmallCap Market. If the Company's
securities were delisted from the NASDAQ SmallCap Market, the
Company's securities would trade in the unorganized interdealer
over-the-counter market through the OTC Bulletin Board which provides
significantly less liquidity than the NASDAQ SmallCap Market.
Securities which are not traded on the NASDAQ SmallCap Market may be
more difficult to sell and may be subject to more price volatility
than NASDAQ listed securities.
If the Company's Common Stock and/or Warrants were delisted
from NASDAQ, trades in such securities may then be subject to Rule
15g-9 under the Securities Exchange Act of 1934, which rule imposes
certain requirements on broker/dealers who sell securities subject to
the rule to persons other than established customers and accredited
investors. For transactions covered by the rule, brokers/dealers must
make a special suitability determination for purchasers of the
securities and receive the purchaser's written agreement to the
transaction prior to sale. Rule 15g-9, if applicable to sales of the
Company's securities, may affect the ability of broker/dealers to sell
the Company's securities and may also affect the ability of investors
in this offering to sell such securities in the secondary market and
otherwise affect the trading market in the Company's securities.
The Securities and Exchange Commission has rules that regulate
broker/dealer practices in connection with transactions in "penny
stocks". Penny stocks generally are equity securities with a price of
less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ system, provided that
current price and volume information with respect to transactions in
that security is provided by the exchange or system). The penny stock
rules, which generally became effective January 1, 1993, require a
broker/dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure
document prepared by the Commission that provides information about
penny stocks and the nature and level of risks in the penny stock
market. The broker/dealer also must provide the customer with current
bid and offer quotations for the penny stock, the compensation of the
broker/dealer and its salesperson in the transaction, and monthly
account statements showing the market value of each penny stock held
in the customer's account. The bid and offer quotations, and the
broker/dealer and salesperson compensation information, must be given
to the customer orally or in writing prior to effecting the
transaction and must be given to the customer in writing before or
with the customer's confirmation. These disclosure requirements may
have the effect of reducing the level of trading activity in the
secondary market for a stock that becomes subject to the penny stock
rules.
Control by Principal Shareholders. The Company's officers and
directors own approximately 36% of the outstanding shares of the
Company's Common Stock, assuming all options held by such officers and
directors are exercised. As a result, the Company's officers and
directors control the Company through their ability (from a practical
standpoint) to determine the outcome of elections of the Company's
directors, adopt, amend or repeal the Bylaws and take certain other
actions requiring the vote or consent of the stockholders of the
Company.
Transactions with Affiliates. The Company has in the past
entered into transactions and agreements with the Company's management
and certain affiliated parties and the Company may in the future enter
into other transactions and agreements incident to its business with
certain of its affiliates. Although the Company intends that the
terms of any such future transactions and agreements will be no less
favorable than those which could be obtained from unaffiliated third
parties, no assurances can be given that this will be the case. See
"Management - Transactions with Related Parties."
Dilution. As of March 31, 1997 the Company had a net tangible
book value of approximately $0.22 per share. Net tangible book value
per share represents the amount of the Company's tangible net worth
(i.e., tangible assets less liabilities) divided by the total number
of shares outstanding immediately prior to the completion of this
offering. Investors in this offering will experience an immediate
dilution in their investment.
Options. The Company may grant options for the purchase of
additional shares of Common Stock pursuant to its two stock option
plans. For the term of such options, the holders thereof will have an
opportunity to profit from any increase in the market price of the
Company's Common Stock without assuming the risks of ownership.
Holders of such options may exercise them at a time when the Company
could obtain additional capital on terms more favorable than those
provided by the options which may adversely affect the ability of the
Company to obtain additional capital in the future. The exercise of
the options and the sale of the underlying shares of Common Stock
could adversely affect the market price of the Company's stock. See
"Management - Stock Option and Bonus Plans."
Shares Available for Resale. As of June 30, 1997, there were
8,316,995 shares of the Company's Common Stock issued and
outstanding. Of this amount, approximately 5,800,000 shares have not
been registered under the Securities Act of 1933, as amended (the
"Act"), and are "restricted securities" as defined by Rule 144 of the
Act.
Rule 144 provides, in essence, that shareholders, after holding
restricted securities for a period of one year may, every three
months, sell in ordinary brokerage transactions an amount equal to the
greater of l% of the Company's then outstanding Common Stock or the
average weekly trading volume, if any, of the stock during the four
calendar weeks preceding the sale. Non-affiliates of the Company who
hold restricted securities for a period of two years may, under
certain prescribed conditions, sell their securities without regard to
any of the requirements of the Rule.
Approximately 2,650,000 shares of restricted stock have
satisfied the one year holding period required by Rule 144. The
remaining shares of restricted stock will become available for resale
pursuant to Rule 144 beginning in September 1997.
No prediction can be made as to the effect, if any, that the
sale of Common Stock (or the availability of such Common Stock for
sale) by the holders of the Company's restricted stock will have on
the market price of the Company's securities. Nevertheless, the
possibility of a substantial number of shares of Common Stock being
offered for sale in the public market may adversely affect prevailing
market prices for the Common Stock and could impair investors' ability
to sell the Company's Common Stock or the Company's ability to raise
capital through the sale of its equity securities.
Lack of Dividends. There can be no assurance that the
operations of the Company will result in any revenues or will be
profitable. At the present time, the Company intends to use available
funds to finance any possible growth of the Company's business.
Accordingly, while payment of dividends rests within the discretion of
the Board of Directors, no common stock dividends have been declared
or paid by the Company. The Company does not presently intend to pay
dividends and there can be no assurance that dividends will ever be
paid.
Preferred Stock. The Company's Articles of Incorporation
authorize the Company's Board of Directors to issue up to 300,000
shares of Preferred Stock. The provisions in the Company's Articles
of Incorporation relating to the Preferred Stock would allow the
Company's directors to issue Preferred Stock with 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 the removal of
management difficult 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.
DILUTION AND COMPARATIVE SHARE DATA
As of June 30, 1997, the present shareholders of the Company
owned 8,316,995 shares of the Company's Common Stock, which (as of
March 31, 1997) had a net tangible book value of approximately $0.22
per share. Upon completion of this Offering, and assuming all Sales
Agents Warrants are exercised, purchasers of the common stock offered
by this Prospectus will own 1,150,000 shares or approximately 14% of
the Company's Common Stock and the present shareholders of the Company
will own 86% of the Company's Common Stock.
Shares presently outstanding (1) 8,316,995
Shares to be outstanding upon
completion of offering 8,516,995
Shares offered by this prospectus
See "Selling Shareholders" 1,150,000
Net tangible book value per share $0.22
Equity ownership by present shareholders
after this offering 86%
Equity ownership by investors in this Offering 14%
The purchasers of the securities offered by this Prospectus
will suffer an immediate dilution if the price paid for the securities
offered is greater than the net tangible book value of the Company's
Common Stock.
"Net tangible book value" is the amount that results from
subtracting the total liabilities and intangible assets of the Company
from its total assets. "Dilution" is the difference between the
offering price per share paid by investors in this offering and the
net tangible book value of the Company's common stock.
(1) As of June 30,1997 the Company had 8,316,995 shares of Common
Stock issued and outstanding. The following table reflects the shares
of Common Stock which may be issued by the Company as the result of
the sale of additional securities by the Company, the exercise of
options and warrants issued, or to be issued, by the Company and the
conversion of convertible securities issued by the Company.
Number of Note
Shares Reference
Shares Outstanding 8,316,995
Shares issuable upon exercise
of Warrants issued to Sales Agent 100,000 A
Shares issuable upon exercise
of Warrants issued to Sales Agent 100,000 B
Shares to be issued to consultant in
consideration for services rendered
to Company 200,000 C
Shares issuable upon conversion of
promissory notes and exercise of
Warrants sold in private offering 503,000 D
Shares issuable upon exercise of options
previously granted by Company 2,939,000 E
Shares issuable upon exercise of Series
A and Series B warrants issued in
connection with the Company's February
1995 public offering 724,500 F
Shares issuable upon conversion of
Series A and Series B Preferred Stock 119,400 F
TOTAL 13,002,895
A. In connection with the Company's September 1996 Private Offering,
the Sales
Agent for such offering received a commission as well as warrants
to purchase 100,000 shares of the Company's Common Stock at any time
prior to November 30, 2001 at a price of $0.50 per share. The shares
issuable upon the exercise of the Sales Agent's Warrants are being
registered by means of this prospectus. See "Selling Shareholders."
B. In connection with the Company's December 1996 Private Offering,
the Sales
Agent for such offering received a commission as well as Warrants
to purchase 100,000 shares of the Company's Common Stock at any time
prior to March 31, 2002, at $0.70 per share. The shares issuable upon
the exercise of the Sales Agent's Warrants are being registered by
means of this prospectus. See "Selling Shareholders."
C. In December 1996 the Company entered into a Financial Consulting
agreement with Marketing Barametrics, Inc. Pursuant to the terms of
this Agreement the Company agreed to issue to Marketing Barametrics
50,000 shares of common stock, warrants to purchase 100,000 shares of
common stock at $1.25 per share and warrants to purchase 50,000 shares
of common stock at $1.75 per share. The warrants expire on December
31, 2001. The Company has agreed to register the shares of common
stock to be issued to Marketing Barametrics, as well as the shares
issuable upon the exercise of the warrants in certain circumstances.
D. Between February and May l997 the Company sold $672,500 of
convertible notes (the "Notes"), together with warrants for the
purchase of 234,250 shares of the Company's common stock. The Notes
bear interest at 8% per annum and are due nine months from the date of
their issuance. The Notes are collectively convertible into 503,000
shares of the Company's Common Stock at prices of either $1.25 or
$2.50 per share. The Warrants are exercisable at any time prior to
May 31, 2000 at prices ranging between $1.25 and $2.50 per share.
E. See "Management - Stock Option and Bonus Plans".
F. See "Description of Securities".
MARKET FOR THE COMPANY'S COMMON STOCK
As of June 30, 1997, there were approximately 1,000 beneficial
owners of the Company's Common Stock, Series A Warrants and Series B
Warrants. The Company's Common Stock and Warrants are 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 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 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.
Series A Series B
Quarter Common Stock Warrants Warrants
Ending 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 $ 0.81 $0.03 * $0.03 *
* 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 and the Company does
not have any current plans to pay any 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following selected financial data should be read in
conjunction with the more detailed financial statements, related notes
and other financial information included herein.
Statement of Operations Data:
Nine Months Ended Years Ended June 30,
March 3l, 1997 1996 1995
Revenues $3,401,078 $ 2,607,879 $ 696,909
Cost of Sales (1,922,511) (1,686,188) (607,509)
Operating Expenses (2,430,212) (4,645,197 (2,540,512)
Net (Loss) $(951,645) $(3,723,506) $(2,451,112)
Net (Loss) per Share $(0.19) $(1.56) $(1.43)
Weighted Average Number
of Shares Outstanding 5,097,239 2,384,055 1,716,580
alance Sheet Data:
March 3l, June 30,
1997 1996 1995
Current Assets $2,639,195 $1,983,252 $2,657,070
Total Assets $5,075,439 $3,312,372 $3,616,793
Current Liabilities $2,600,833 $2,343,308 $1,438,645
Total Liabilities $2,677,132 $2,404,534 $1,608,819
Working Capital $ 38,362 $ (360,056) $1,218,425
Shareholders' Equity $2,398,307 $ 907,838 $2,007,974
No 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.
Percent of Gross Revenues
Year Ending
Nine Months June 30,
Years Ending Ending March 1998
June 30, 3l, l997 (Projected)(1)
1995 1996
A.1 Income from Company
owned and operated
ACDC units. 17% 30% 18% 3%
A.2 Rental of cellular
telephones directly
from Company. 12% 3% 4% 3%
B. Initial franchise fees. 7% -- -- --
C. Royalties from fran-
chisees. 14% 1% -- --
D. Sale of ACDC units,
retail kiosks and
related equipment. 48% 29% 14% 2%
E. Fees paid by cellular
telephone companies for
activation of cellular
telephones 1% 32% 40% 19%
F. Sale of prepaid calling
cards. -- -- 6% 8%
G. Sale of long distance
telephone service. -- -- 1% 12%
Percent of Gross Revenues
Year Ending
Nine Months June 30,
Years Ending Ending March 1998
June 30, 3l, l997 (Projected)(1)
1995 1996
H. Revenues from Link
International -- -- 14% 52%
I. Miscellaneous Income 1% 5% 3% 1%
(l) There can be no assurance that such 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 those set forth in the "Risk Factors" section of
this Prospectus. 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
prospectus or to reflect the occurrence of unanticipated events.
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 June 30, 1997 only one Company franchisee was
operating ACDC units. At June 30, 1997, the Company had 18 ACDC units
in operation and the Company's only remaining franchisee had five
ACDC's in operation.
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. See
"Business".
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 "Business-Link
International Technologies, Inc." and the discussion below of the
Company's results of operations for the nine months ending March 31,
1997.
Nine Months Ending March 3l, l997
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 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 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, 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. (See "Management - Transactions with
Related Parties"). 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 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
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 2, 1997 the closing bid and asked price of
Cancall's common stock (in U.S. dollars) were $0.25 and $0.30
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.
Research and Development expenses decreased due to the
completion of revisions to the Company's ACDC units.
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 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 year were due to the Company's new programs and additional
personnel needed for these programs.
Fiscal 1996 operating expenses includes a charge of $1,765,000
which pertains to the issuance of common stock for past services.
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.
Liquidity and Sources of Capital
During the nine month period ending March 31, 1997 the
Company's operations used $1,032,226 of cash. The licensing fee from
Cancall Cellular, Inc. ($500,000) did not generate cash since Cancall
has the option of paying this fee 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.
BUSINESS
Company History
SIMS Communications, Inc. (the "Company") was formed in 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.
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.
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 Private Offering Memorandum have been adjusted to reflect these
stock splits.
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.
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 nine months
ending March 3l, l997. In January 1996 the Company began renting
cellular telephones from ACDC units installed at certain AAA Club
offices in Florida and Louisianna.
At June 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
(nine units) and certain AAA Club offices (nine 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, as of June 30, l997 approximately $793,000 was still owed
to the Company for these equipment sales. See "Management -
Transactions with Related Parties".
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, l996 and the nine months ending March 3l,
l997 the Company activated over 2,600 and 4,200 cellular telephones,
respectively. 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.
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
f a cellular telephone. The Company ships the cellular telephone via
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 $172,000 in revenue during the nine
months ending March 3l, l997. The Company believes that revenues from
this program will increase as more potential customers become aware of
this service.
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.
If the Company can raise additional capital of approximately
$1,500,000, the Company plans to become a reseller of telephone long
distance service in all markets in which the Company currently
operates. As a reseller of long distance telephone services, the
Company will be able to earn additional revenue from prepurchasing
airtime and blocks of cellular numbers.
Retail Kiosks
The cellular telephone industry is currently undergoing
significant changes in marketing techniques. Traditional distribution
methods are proving too costly. The high cost of acquiring new
customers coupled by increased competition from new Personal
Communication Services Carriers ("PCS") are forcing many wireless
carriers to explore new methods of distribution.
In response to this need, the Company is developing an
automated retail kiosk which dispenses activated cellular telephones
or PCS devices. The Company's kiosk is designed to replace manned
kiosks and act as a satellite office for cellular telephone carriers,
PCS carriers, cellular resellers and cellular telephone retailers.
The kiosk is equipped with live video conferencing capabilities
enabling a service representative to assist a customer with the credit
approval process, answer any questions the customer may have and close
the sale. The Company plans to test market its kiosk in late l997.
Debit Cellular Telephones
The cellular industry has experienced problems in the
collection of debts (bad debt) and the fraudulent use of cellular
telephones. In response to these problems cellular telephone carriers
have imposed higher credit standards to open accounts for cellular
service. These higher requirements result in a 30%-40% decline in
applications for cellular service.
The Company plans on implementing a debit cellular telephone
that will enable the Company to offer high risk and declined
applicants with a prepaid cellular service. The users are required to
prepay for future usage when establishing an account. To purchase
additional minutes the user simply calls an 800 service number,
provides credit card information to a customer service representative,
and upon approval receives a special code to restock the cellular
telephone with additional cellular airtime.
The Company has had preliminary discussions with its major
cellular accounts and one car rental company concerning the
introduction of cellular debit telephones. The Company is also
exploring additional applications for the debit telephones, such as
retail distribution of debit telephones and offering debit telephones
to companies which provide cellular telephones to their employees as a
means of controlling costs.
Link International Technologies, Inc.
Effective December 3l, l996, the Company acquired Link
International Technologies, Inc. ("Link") in consideration for the
issuance of 674,l57 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 "valuestored" 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 received or a customer's credit or
debit card has been accepted by the machine and successfully
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, LINK's machines are the only
vending devices that accept cash, credit cards and bank debit cards.
The bank debit card feature which requires the customer to use a
personal identification number, serves to eliminate the fraud to which
credit cards are most prone.
Link has designed three 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 such locations. 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.
The third version of Link's prepaid telephone card machine
(scheduled to be introduced in 1997) is a desktop dispenser that has
been designed specifically for small business owners that currently
are not able to make sales using bank debit cards and very few of
which offer customers pre-paid phone cards. The desktop processor
will be rented to the merchant and will have the capability of
processing all credit and debit card sales made by the merchant,
whether or not a phone card is dispensed.
Link's phone card machines can also be used to dispense other items
such as:
- pre-paid gasoline cards
- smart chip cards
- coupons
- stamps
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 accepts, 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. Link plans to distribute POS terminals to
smaller stores, most of which do not have point-of-sale debit card
capability.
See "Management's Discussion and Analysis" for information
concerning Link's revenues for the three months ending March 3l, l997.
Research and Development
During the years ending June 30, 1995 and 1996 the Company
spent approximately $89,000 and $134,000 respectively, on research and
development. Research and development expenditures pertained to the
design, development and testing of enhancements to the ACDC units and
the software used to operate the units.
Third Party Suppliers
Cellular telephone equipment is presently procured by the
Company on a purchase order basis from Panasonic, Inc. and Muratech
Corp. Equivalent equipment is generally available in the open market
from a number of other suppliers. The Company does not have any
agreements with respect to cellular telephone equipment with any
supplier and does not currently foresee the need to seek any supply
agreement.
Prior to April 1995 the Company contracted with Keyosk
Corporation ("Keyosk") of Lakeland, Florida in April, 1992, for the
manufacture, assembly and testing of the ACDC units. In April 1995
the Company acquired certain of Keyosk's assets and technology
relating to the ACDC units.
The software used by the Company to provide a customer with an
itemized billing for calls made with the cellular telephone has been
licensed to the Company by Telemac Cellular Corporation ("Telemac").
The Company has a world-wide, exclusive license (expiring in
September, 2003) to use the Telemac software for automated rentals of
cellular telephones. As consideration for this license, the Company
pays Telemac, on a monthly basis, 7% of the gross pre-tax revenues
derived from the operation of the ACDC units owned by the Company or
the Company's franchisees. The agreement requires the Company to take
certain precautions to prevent the unauthorized disclosure of the
licensed software to persons other than the Company's employees,
agents and franchisees. Telemac may terminate the license in the
event the Company transfers the software subject to the license to any
third party without the consent of Telemac, fails to take adequate
measures to protect the unauthorized disclosure or use of the
software, fails to make any payment required by the agreement, becomes
insolvent or otherwise discontinues its business. Telemac provides a
90 day limited warranty that the medium of the software is free from
defects in workmanship and materials.
At the present time, the Company does not have any alternative
sources for the software provided by Telemac Cellular.
The Company has agreements with various cellular telephone
companies concerning the use of the particular cellular telephone
company's network by the Company's rental customers. For each
cellular telephone in service, the Company is usually charged a
monthly fee (regardless of whether the cellular telephone is rented)
plus air time charges for each minute the cellular telephone is used
to place or receive calls. The Company earns a profit to the extent
amounts received from customers for the rental and use of the
Company's cellular telephones exceed the amounts paid by the Company
to the cellular telephone company for monthly access fees and airtime
charges.
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
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 June 30, 1997 only one Company
franchisee was operating ACDC units.
Instafone of California, one of the Company's former
franchisees, had previously paid the Company $1,000,000 for deposits
on 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 received by the
Company for equipment and franchise deposits as of March 3l, l997
represented 90% of the total amounts recorded by the Company as a
liability for franchise and customer deposits on such date. See
"Litigation".
Proprietary Rights; Patents, Trademark and Service Mark
The United States Patent and Trademark Office has approved the
Company's patent for the design of the cabinet which houses the
Company's ACDC. The Company has two other patent applications
pending, one for a patent concerning the operation of the ACDC and one
for the design of the cellular telephone kit which is dispensed by the
ACDC. There is no assurance that the pending patent applications will
be granted. 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 registered the "ACDC" trademark and the "INSTA
FONE" service mark with the United States Patent and Trademark
Office. The Company regards its trade and service marks as having
substantial value and as being important factors in the marketing of
its systems, although the marks are not as important as the ACDC
concept and the product itself. The Company is not aware of any
infringing uses or claim to its trademark or service mark. In any
event, there can be no assurance that the Company will have the
financial resources to enforce or defend its patent, trademark and
service mark in the event these are challenged.
Competition
The Company competes with numerous other companies engaged in
the rental of cellular telephones and the sale of prepaid calling
cards and point-of-sale terminals. The Company's competitors include
regional cellular telephone companies as well as numerous other
companies. The cellular telephone rental business is relatively easy
to enter, since a company only needs cellular telephones and an
agreement with a cellular telephone company to provide airtime to
customers renting the cellular telephones.
During the past several years, the number of persons who either
own or lease cellular telephones on a long-term basis has increased
significantly and, in some markets, there has been a general decline
in the cost of using cellular telephones. For persons owning or
leasing a cellular telephone on a long-term basis, the cost of
operating a cellular telephone includes the cost of the cellular
telephone, batteries, charging units and other accessories (in the
case of direct ownership), monthly lease payments (in the case of
leased
equipment), fixed monthly charges, airtime charges for calls made or
received within the area serviced by the person's cellular carrier,
and higher "roaming" charges for calls made or received outside the
area serviced by the person's cellular carrier. Although the cost of
operating a cellular telephone will vary depending upon various
factors, certain persons who own or lease cellular telephones on a
long-term basis may find that the cost of using their cellular
telephone, when traveling, is less expensive than renting a cellular
telephone from the Company, and may therefore elect to use their own
cellular telephone instead of renting a cellular telephone from the
Company.
Employees and Offices
As of June 30, l997, the Company employed thirty-nine persons
on a fulltime 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.
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.
MANAGEMENT
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
Donald M. Marks and Darren M. Marks are not related.
Each director holds office for a period of one (1) year and
will serve until his successor is duly elected by the stockholders.
Executive officers serve at the pleasure of the Board of Directors.
The members of the Board of Directors are not compensated in
such capacity; however, the Board of Directors may, by resolution, pay
Director's fees and reimburse Directors for expenses related to the
Company's business.
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.
Donald M. Marks was a Director of the Company between August
1991 and April 1997. Mr Marks has been a Vice President of the
Company since August 1991.
James J. Caprio was a Director and the Company's Chief
Financial Officer between August l99l 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.
Darren M. Marks joined the Company in August, 1991 as its Vice
President and a director.
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.
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.
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, 1996
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, 1996 $21,038 -- -- 250,000 -- -- --
President and 1995 $92,063 -- $8,400 -- 40,000 -- --
Chief Executive 1994 $89,919 -- $8,400 -- -- -- --
Officer
Donald M. Marks, 1996 $21,038 -- -- 250,000 -- -- --
Vice President 1995 $77,189 -- $8,400 -- 40,000 -- --
1994 $85,858 -- $8,400 -- -- -- --
Darren M. Marks, 1996 $21,038 -- -- 250,000 -- -- --
Vice President 1995 $86,594 -- $8,400 -- 40,000 -- --
1994 $87,900 -- $8,400 -- -- -- --
James Caprio, 1996 $21,038 -- -- 250,000 -- -- --
Chief Financial 1995 $95,419 -- $8,400 -- 40,000 -- --
Officer 1994 $92,515 -- $8,400 -- -- -- --
(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 365,610 $639,817
Donald M. Marks 494,425 $865,244
Darren M. Marks 288,527 $504,922
James Caprio 372,678 $652,186
(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:
Cumulative 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 April l997 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.
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 changein-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, 1996, and
except as disclosed elsewhere in this Private Offering Memorandum, no
director of the Company received any form of compensation from the
Company.
Compensation Committee Interlocks and Insider Participation
Prior to November 30, 1996 the Company did not have a
compensation committee. During the year ended June 30, 1996, all of
the Company's present officers participated in deliberations of the
Company's Board of Directors concerning executive officer compensation.
During the year ended June 30, 1996, 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
The Company plans to establish an Audit Committee. 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 anticipates that directors who
are not officers or principal shareholders will constitute a majority
of the members of the audit Committee.
The Company plans to establish a Compensation Committee. 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. In
this regard, the Compensation Committee will have the exclusive
authority to authorize the issuance of stock options or stock bonuses
to the Company's officers, directors and employees. All decisions of
the Compensation Committee will be decided by a unanimous vote of the
Committee members.
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.
Options granted pursuant to the Plan not previously exercised
terminate upon the first to occur of the following dates:
(a) The expiration of thirty (30) days after the date on which
an option holder's employment by the Company is terminated (whether
such termination is by the Company or due to disability or death); or
(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.
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.
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.
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.
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:
(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.
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 Non-Qualified 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
June 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.
<TABLE>
Total Shares Remaining
Shares Reserved for Shares Options/Bonus
Reserved Outstanding Issued as Shares
Name of Plan Under Plan Options Stock Bonus Under Plan
<S> <C> <C> <C> <C>
Incentive Stock Option Plan 5,000,000 2,734,000 N/A 2,266,000
Non-Qualified Stock Option
Plan 3,000,000 40,000 N/A 2,964,000
Stock Bonus Plan 3,000,000 N/A 1,982,000 3,000,000
</TABLE>
As of June 30, l997, the Company has issued stock options and
granted stock bonuses to the following officers, directors, employees and
consultants.
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 500,000 $1.00 12/31/06
Darren M. Marks 20,000 $3.25 9/30/99
Darren M. Marks 500,000 $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 third parties 654,000 $l.00 to $3.25 9/30/99-12/31/01
2,734,000
Other Options
The following options were not granted pursuant to any of the
Company's Stock Option Plans.
Shares Expiration
Subject to Exercise Date of
Option Holder Option Price Option
Melvin Leiner 20,000 $2.75 9/30/99
Darren M. Marks 20,000 $2.75 9/30/99
James J. Caprio 20,000 $2.75 9/30/99
Donald M. Marks 20,000 $2.75 9/30/99
Other Company employees
and third parties 85,000 $l.00 to $3.25 9/30/99-5/31/00
Stock Bonuses
In May and November 1996 and in May l997 the Company, in
accordance with the terms of its Stock Bonus Plan, issued 1,982,000
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(2) May, l997
Melvin Leiner 250,000 -- --
Darren Marks 250,000 -- --
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
(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.
(2) Shares were issued in consideration of services rendered to Company.
Transactions with Related Parties
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 repurchased 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.
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 dirdctors 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.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information, as of June
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:
Amount and Nature of
Beneficial Ownership Percent of
Name Number of Shares (1) Class (2)
Melvin Leiner 365,610 4.4%
3333 S. Congress Ave.
Suite 401
Delray Beach, FL 33445
Darren M. Marks 288,527 3.5%
3333 S. Congress Ave.
Suite 401
Delray Beach, FL 33445
Amount and Nature of
Beneficial Ownership Percent of
Name Number of Shares (1) Class (2)
Donald M. Marks 494,425 5.9%
3333 S. Congress Ave.
Suite 401
Delray Beach, FL 33445
James J. Caprio 372,678 4.5%
3333 S. Congress Ave.
Suite 401
Delray Beach, FL 33445
Bruce S. Schames 11,399 0.1%
3333 S. Congress Ave.
Suite 401
Delray Beach, FL 33445
Officers and Directors as a
Group (5 persons) 1,596,240 l8.4%
(1) Does not include shares of Common Stock issuable upon exercise of
any options or the Series B Preferred Stock.
(2) Excludes any shares issuable upon the exercise of any options or
warrants or the conversion of any promissory notes or other
convertible securities. See "Dilution and Comparative Share Data".
SELLING SHAREHOLDERS
This Prospectus relates to:
1. The sale of 850,000 shares of the Common Stock of Sims
Communications, Inc. (the "Company") by owners of shares of the
Company's Common Stock. The 850,000 shares were sold by the Company
during October 1996 in a private offering at a price of $0.50 per
share.
2. The sale of up to l00,000 shares of common stock issuable
upon the exercise of certain Sales Agent's Warrants. The sales
agent's Warrants were issued to Texas Capital Securities, Inc. in
connection with the Company's October 1996 private offering. Each
Warrant entitles the holder to purchase one share of the Company's
common Stock at a price of $0.50 per share at any time prior to
November 30, 2001.
3. The sale of up to l00,000 shares of common stock issuable
upon the exercise of certain Sales Agent's Warrants. The Sales
Agent's Warrants were issued to lst Discount Brokerage, Inc. in
connection with the Company's
December 1996 private offering. Each Warrant entitles the holder to
purchase one share of the Company's Common Stock at a price of $0.70
per share at any time prior to March 31, 2002.
4. The sale of up to 100,000 shares of Common Stock which were
issued by the Company to Texas Capital Securities, Inc. in September
1996 in consideration for financial consulting services.
The owners of the Common Stock sold in the Company's September
l996 Private Offering, the owners of the stock issued to the financial
consultant, and the holders of the Sales Agent's Warrants, to the
extent they exercise the Warrants and receive shares of the Company's
Common Stock, are referred to as the "Selling Shareholders".
The names of the Selling Shareholders are:
Shares
Issuable Shares to Share
Shares Upon Exer- be Sold Ownership
Presently cise of in This After
Name Owned Warrants (1) Offering (1) Offering
Kenneth Hiniker 50,000 50,000 --
William M. Goatley 50,000 50,000 --
Philip S. Mumford 50,000 50,000 --
H. George Levy 50,000 50,000 --
P.L. Anderson Jr. Trust 50,000 50,000 --
Stacey Vaneck l2,500 l2,500 --
Pamela Campadonico l2,500 l2,500 --
Michael Associates l25,000 l25,000 --
James D. Sink 200,000 200,000 --
Joseph D. McKeown 50,000 50,000 --
Dr. Lennart Belok l00,000 l00,000 --
Barry Bendett 50,000 50,000 --
Joel Perez 50,000 50,000 --
Texas Capital
Securities, Inc. 20,000 25,000 45,000 --
Harbor Financial, Inc. 80,000(2) 42,000 (4) 122,000 --
Thomas Renna -- 33,000 (3) 33,000 --
lst Discount Brokerage, Inc .-- l00,000 l00,000 --
Unless otherwise indicated, the shares to be sold by the
Selling Shareholders were acquired in connection with the Company's
October l996 Private Offering.
(1) Represents shares issuable upon the exercise of the Sales Agent's
Warrants. Amounts in table assume all shares which may be acquired
upon the exercise of the Sales Agent's Warrants are sold to the public
by means of this Prospectus.
2) Texas Capital Securities, Inc. assigned 80,000 shares it received
pursuant to its financial consulting agreement to this person.
(3) Texas Capital Securities, Inc. assigned 33,000 of its Sales Agents
Warrants to this person.
(4) Texas Capital Securities, Inc. assigned 42,000 of its Sales Agents
Warrants to this person.
Manner of Sale. The shares of Common Stock owned, or which may
be acquired, by the Selling Shareholders may be offered and sold by
means of this Prospectus from time to time as market conditions permit
in the over-the-counter market, or otherwise, at prices and terms then
prevailing or at prices related to the then-current market price, or
in negotiated transactions. These shares may be sold by one or more
of the following methods, without limitation: (a) a block trade in
which a broker or dealer so engaged will attempt to sell the shares as
agent but may position and resell a portion of the block as principal
to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant
to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (d)
face-to-face transactions between sellers and purchasers without a
broker/dealer. In effecting sales, brokers or dealers engaged by the
Selling Shareholders may arrange for other brokers or dealers to
participate. Such brokers or dealers may receive commissions or
discounts from Selling Shareholders in amounts to be negotiated.
The Selling Shareholders and any broker/dealers who act in
connection with the sale of the Shares hereunder may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Acts
of 1933, and any commissions received by them and profit on any resale of
the Shares as principal might be deemed to be underwriting discounts
and commissions under the Securities Act. The Company has agreed to
indemnify the Selling Shareholders and any securities broker/dealers
who may be deemed to be underwriters against certain liabilities,
including liabilities under the Securities Act as underwriters or
otherwise.
The Company has advised the Selling Shareholders that they and
any securities broker/dealers or others who may be deemed to be
statutory underwriters will be subject to the Prospectus delivery
requirements under the Securities Act of 1933. The Company has also
advised each Selling Shareholder that in the event of a "distribution"
of the shares owned by the Selling Shareholder, such Selling
Shareholder, any "affiliated purchasers", and any broker/dealer or
other person who participates in such distribution may be subject to
Rule 10b-6 under the Securities Exchange Act of 1934 ("1934 Act")
until their participation in that distribution is completed. A
"distribution" is defined in Rule 10b-6 as an offering of securities
"that is distinguished from ordinary trading transactions by the
magnitude of the offering and the presence of special selling efforts
and selling methods". The Company has also advised the Selling
Shareholders that Rule 10b-7 under the 1934 Act prohibits any
"stabilizing bid" or "stabilizing purchase" for the purpose of
pegging, fixing or stabilizing the price of the Common Stock in
connection with this offering.
Rule 10b-6 makes it unlawful for any person who is
participating in a distribution to bid for or purchase stock of the
same class as is the subject of the distribution. If Rule 10b-6
applies to the offer and sale of any of the Shares, then participating
broker/dealers will be obligated to cease market-making activities
nine business days prior to their participation in the offer and sale
of such Shares and may not recommence market-making activities until
their participation in the distribution has been completed. If Rule
10b-6 applies to one or more of the principal market-makers in the
Company's Common Stock, the market price of such stock could be
adversely affected.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 40,000,000 shares of Common
Stock, (the "Common Stock"). Holders of Common Stock are each
entitled to cast one vote for each share held of record on all matters
presented to shareholders. Cumulative voting is not allowed; hence,
the holders of a majority of the outstanding Common Stock can elect
all directors.
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 is not obligated to declare a dividend. It is
not anticipated that dividends will be paid in the foreseeable future.
Holders of Common Stock do not have preemptive rights to
subscribe to additional shares if issued by the Company. There are no
conversion, redemption, sinking fund or similar provisions regarding
the Common Stock. All of the outstanding shares of Common Stock are
fully paid and nonassessable and all of the shares of Common Stock
offered as a component of the Units will be, upon issuance, fully paid
and non-assessable.
Preferred Stock
The Company is authorized to issue up to 300,000 shares of
Preferred Stock. The Company's Articles of Incorporation provide that
the Board of Directors has the authority to divide the Preferred Stock
into series and, within the limitations provided by Colorado statute,
to fix by resolution the voting power, designations, preferences, and
relative participation, special rights, and the qualifications,
limitations or restrictions of the shares of any series so
established. As the Board of Directors has authority to establish the
terms of, and to issue, the Preferred Stock without shareholder
approval, the Preferred Stock could be issued to defend against any
attempted takeover of the Company.
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 of Series A Preferred Stock as part of this series.
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 out of funds legally available
or the payment of dividends. Dividends not declared by the Board of
Directors do not cumulate. 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. Each share of Series A
Preferred Stock is entitled to one vote per share and at any time
after July 1, 1999 is convertible into 0.8 of a share of the Company's
Common Stock. Subsequent to the establishment of the Series A
Preferred Stock, the Company issued 25,250 shares of Series A
Preferred Stock to eight persons in consideration for the termination
of their franchises with the Company.
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 of Series B Preferred Stock as part of this series.
Each share of Series B Preferred Stock is entitled to a dividend at
the rate of $0.15 per share when, as and if declared by the Board of
Directors out of funds legally available for the payment of
dividends. Dividends not declared by the Board of Directors do not
cumulate. 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. Each share of Series B
Preferred Stock is entitled to one vote per share and is convertible
into one share of the Company's Common Stock. 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.
Publicly Traded Warrants
In connection with the Company's February, 1995 public
offering, the Company issued 1,811,250 Series A Warrants and 1,811,250
Series B Warrants. Every five Series A Warrants entitles the holder
to purchase one additional share of the Company's Common Stock at a
price of $35.00 until February 10, 1998. Every five Series B Warrants
entitles the holder to purchase one additional share of the Company's
Common Stock at a price of $45.00 until February 10, 1998. The
Company, upon 60-days notice, may redeem the Series A or Series B
Warrants at a price of $0.05 per Warrant, provided, however, that at
the time the Company gives such notice of redemption (1) the Company
has in effect a current registration statement covering the shares of
Common Stock issuable upon the exercise of the Warrants, (2) in the
case of the Series A Warrants, the closing sales price of the Common
Stock exceeds $50.00 per share for the twenty (20) consecutive day
trading period ending within three days prior to the notice of
redemption, and (3) in the case of the Series B Warrants, the closing
sale price of the Common Stock exceeds $60.00 per share for the twenty
(20) consecutive day trading period ending within three days prior to
the notice of redemption. If the Warrants are called for redemption,
all Warrants not exercised within the 60-day period will expire.
Other provisions of the Warrants are set forth below. This
information is subject to the provisions of the Warrant Certificate
representing the Warrants.
1. Holders of the Warrants may sell the Warrants rather than
exercise them. However, there can be no assurance that a market will
develop or continue as to the Warrants.
2. Unless exercised within the time provided for exercise,
the Warrants will automatically expire.
3. The exercise price of the Warrants may not be increased
during the term of the Warrants, but the exercise price may be
decreased at the discretion of the Company's Board of Directors by
giving each Warrant holder notice of such decrease. The exercise
period for the Warrants may be extended by the Company's Board of
Directors giving notice of such extension to each Warrant holder of
record.
4. There is no minimum number of shares which must be
purchased upon exercise of the Warrants.
5. The holders of the Warrants in certain instances are
protected against dilution of their interests represented by the
underlying shares of Common Stock upon the occurrence of stock
dividends, stock splits, reclassifications, and mergers.
6. The holders of the Warrants have no voting power and are
not entitled to dividends. In the event of a liquidation,
dissolution, or winding up of the Company, holders of the Warrants
will not be entitled to participate in the distribution of the
Company's assets.
Transfer Agent
Corporate Stock Transfer, Inc., of Denver, Colorado, is the
transfer agent for the Company's Common Stock.
EXPERTS
The consolidated balance sheet of the Company as of June 30,
l996 and the Statements of Operations, Shareholders' Equity and Cash
Flows for the two years then ended have been included herein in
reliance on the report of Ehrhardt Keefe Steiner & Hottman P.C.,
independent accountants, given on the authority of that firm as
experts in accounting and auditing. With respect to the unaudited
interim consolidated financial information for the nine months ended
March 31, 1996 and 1997, the independent certified public accountants
have not audited or reviewed such consolidated financial information
and have not expressed an opinion or any other form of assurance with
respect to such consolidated financial information.
LITIGATION
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, 1996 the Company had a liability of
$724,000 for franchise and equipment deposits paid by this franchisee
to the Company.
In 1996 InstaCall Beheer B.B. and Robert Herbold (the
"Plaintiffs") filed a lawsuit against the Company alleging that the
Company breached its agreement to provide cellular telephones for use
by the Plaintiffs in Europe, and as a result, the Plaintiffs suffered
damages of approximately $3,800,000. The Company has denied the
allegations of the Plaintiffs.
INDEMNIFICATION
The Company's Bylaws authorize indemnification of a director,
officer, employee or agent of the Company against expenses incurred by
him in connection with any action, suit, or proceeding to which he is
named a party by reason of his having acted or served in such
capacity, except for liabilities arising from his own misconduct or
negligence in performance of his duty. In addition, even a director,
officer, employee, or agent of the Company who was found liable for
misconduct or negligence in the performance of his duty may obtain
such indemnification if, in view of all the circumstances in the case,
a court of competent jurisdiction determines such person is fairly and
reasonably entitled to indemnification. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers, or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and
is therefore unenforceable.
2531D:1-49
Table of Contents
Page
Independent Auditors' Report......................................F - 1
Financial Statements
Consolidated Balance Sheet.....................................F - 2
Consolidated Statements of Operations..........................F - 3
Consolidated Statement of Stockholders' Equity.................F - 4
Consolidated Statements of Cash Flows..........................F - 5
Notes to Consolidated Financial Statements........................F - 6
F - 1
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, 1996 and the
related consolidated statements of operations, stockholders' equity,
and cash flows for the years ended June 30, 1996 and 1995. 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,
1996 and the results of their operations and cash flows for the years
ended June 30, 1996 and 1995 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
September 27, 1996
Denver, Colorado
SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES
See notes to consolidated financial statements.
F - 4
Consolidated Balance Sheet
June 30, 1996
Assets
Current assets
Cash and cash equivalents ($250,000 $322,542
restricted) (Note 5)
Accounts receivables 150,950
Franchise and other receivables, less
allowance for doubtful accounts of 208,582
$10,000
Inventories 1,059,637
Prepaid expenses (Note 4) 58,904
Notes receivable, current portion (Note 3) 182,637
Total current assets 1,983,252
Property and equipment, net of accumulated 1,071,851
depreciation of $321,245
Other assets
Notes receivable (Note 3) 201,363
Deferred location costs 38,100
Deposits 13,761
Organization costs, net of accumulated
amortization 4,045
of $15,435
Total other assets 257,269
Total assets $3,312,372
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $462,498
Accrued expenses 341,733
Bank line of credit (Note 5) 250,000
Current obligations under capital lease 6,148
(Note 4)
Current maturities of long-term debt 407,666
(Note 6)
Franchise deposits and customer deposits 875,263
(Note 12)
Total current liabilities 2,343,308
Long-term liabilities
Long-term debt (Note 6) 59,048
Obligations under capital lease (Note 4) 2,178
Total liabilities 2,404,534
Commitments and contingencies (Notes 4 and
14)
Stockholders' equity (Note 10)
Preferred stock, Series A, $.001 par
value, 300,000 shares authorized, no -
shares issued and outstanding
Preferred stock, Series B, $.001 par
value, 100,000 shares authorized, no -
shares issued or outstanding
Preferred stock subscribed 125,250 shares 365,000
Common stock $.0001 par value 40,000,000
shares authorized, 4,029,908 issued and 403
outstanding
Additional paid-in capital 11,060,735
Accumulated deficit (10,518,300)
Total stockholders' equity 907,838
Total liabilities and stockholders' equity $3,312,372
Consolidated Statements of Operations
<TABLE>
Year Ended June 30,
1996 1995
<S> <C> <C>
Revenue
Rental $ 849,877 $ 197,419
Activations 846,524 -
Equipment and other 831,171 353,204
Franchise and royalty 80,307 146,286
Total revenue 2,607,879 696,909
Cost of sales 1,686,188 607,509
Gross profit 921,691 89,400
Operating expenses
General and administrative 1,518,950 1,604,451
Depreciation and amortization 206,581 74,747
Selling expenses 982,130 537,698
Stock based compensation 1,765,000 20,000
Research and development 134,470 89,398
Total expenses 4,607,131 2,326,294
Operating loss (3,685,440) (2,236,894)
Other income (expense)
Interest expense (65,221) (253,057)
Interest income 27,155 38,839
(38,066) (214,218)
Loss before income taxes (3,723,506) (2,451,112)
Income tax expense (Note 7) - -
Net loss $(3,723,506) $(2,451,112)
Net loss per common share $ (1.56) $ (1.43)
Weighted average common shares outstanding 2,384,055 1,716,581
(Note 11)
</TABLE>
<TABLE>
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 1996 and 1995
Subscribed Preferred Stock Common Stock
Subscribed Number of
Number of Number of Shares
Shares Amount Shares Subscribed
(Note 11)
<S> <C> <C> <C> <C>
Balance June 30, 1994 - $ - 4,334,512 96,591
Issuance of stock upon stock split
of 3 for 2 and 2 for 1 (Note 11) - - 8,669,024 193,182
Issuance of common stock as a - - - 54,330
valuation guarantee (Note 10)
Issuance of common stock for cash
(ranging from $.27 to $.83 per - - 2,852,741 -
share)
Stock issued as inducement to
noteholders ranging from ($.67 to - - 91,170 -
$1 per share) (Note 10)
Issuance of common stock upon
conversion of debt and interest - - 274,660 -
($.67 per share) (Note 10)
Issuance of common stock in
conjunction with Initial Public
Offering ($1.75 per share) less - - 3,622,500 -
offering costs of $1,099,938
(Note 10)
Issuance of subscribed common stock - - 344,103 (344,103)
Amortization of noteholder stock - - - -
inducements
Preferred stock - subscribed 24,250 245,000 - -
(Note 10)
Net loss for the year - - - -
Balance June 30, 1995 24,250 245,000 20,188,710 -
Adjustment of stock upon reserve
stock split of 1 for 10(Note 11) - - (18,169,780) -
Issuance of common stock for cash
(ranging from $.75 to $1.88 per - - 50,928 -
share)
Issuance of common stock upon
conversion of officer notes - - 175,110 -
payable ($2.07 per share) (Note 10)
Issuance of common stock for
services ($1.00 per share) - - 1,365,000 -
(Note 10)
Issuance of common stock upon
conversion of officer notes - - 419,940 -
payable ($.50 per share) (Note 10)
Officer notes payable forgiven - - - -
(Note 10)
Accrued officer salaries forgiven - - - -
(Note 10)
Preferred stock - subscribed
(Note 10) 101,000 120,000 - -
Dividends paid on preferred stock - - - -
Net loss for the year - - - -
Balance - June 30, 1996 125,250 $365,000 4,029,908 -
Additional Stock Issued
Paid-in for Future Accumulated
Amount Capital Interest Deficit Total
$ 433 $2,168,916 $(84,366) $(4,335,482 $(2,250,499)
867 (867) - - -
- - - - -
285 895,820 - - 896,105
9 62,017 - - 62,026
28 182,623 - - 182,651
362 5,239,075 - - 5,239,437
34 (34) - - -
- - 84,366 - 84,366
- - - - 245,000
- - - (2,451,112) (2,451,112)
2,018 8,547,550 - (6,786,594) 2,007,974
(1,816) 1,816 - - -
5 50,301 - - 50,306
18 361,982 - - 362,000
136 1,364,864 - - 1,365,000
42 209,928 - - 209,970
- 124,294 - - 124,294
- 400,000 - - 400,000
- - - - 120,000
- - - (8,200) (8,200)
- - - (3,723,506) (3,723,506)
$ 403 $11,060,73$ - (10,518,300) $907,838
</TABLE>
SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES
See notes to consolidated financial statements.
F - 5
Consolidated Statements of Cash Flows
<TABLE>
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net (loss) $(3,723,506) $(2,451,112)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 205,021 73,187
Amortization 1,560 3,912
Gross profit on sales of equipment to
officers in settlement of advances (284,060) -
payable (Note 8)
Stock issued for services 1,765,000 -
Changes in assets and liabilities
Inventories (80,724) (780,031)
Accounts and other receivables (304,171) (3,153)
Prepaid expenses 4,149 96,828
Accounts payable 350,330 (445,703)
Accrued expenses 303,383 (204,018)
Franchise deposits and customer (96,186) (225,089)
deposits
1,864,302 (1,484,067)
Net cash used in operating activities (1,859,204) (3,935,179)
Cash flows from investing activities
Note receivable (234,000) (150,000)
Capital expenditures (52,000) (8,247)
Change in other assets 24,292 56,540
Net cash used in investing activities (261,708) (101,707)
Cash flows from financing activities
Proceeds from issuance of long-term debt 160,348 715,000
Proceeds (payments to) from officer 1,146,264 (64,841)
advances
Payments under capital lease obligation (7,440) (4,776)
Proceeds from issuance of common stock 50,306 6,197,568
Payments on long-term debt (57,909) (1,940,000)
Dividends paid (8,200) -
Net cash provided by financing 1,283,369 4,902,951
activities
Net (decrease) increase in cash (837,543) 866,065
Cash at beginning of year 1,160,085 294,020
Cash at end of year $322,542 $1,160,085
</TABLE>
Supplemental disclosure of cash flows information
Cash paid during the year for interest was $57,311 (1996) and $315,674
(1995).
Non-cash investing and financing activities
During the fiscal year ended June 30, 1996 and 1995, the Company
transferred $517,017 and $569,100 of ACDC units, respectively, from
inventory to property, plant, and equipment as these units represented
company owned locations.
During the fiscal year ended June 30, 1996 and 1995, the Company bought
back franchisees upon the issuance of preferred stock (Note 10).
During the fiscal year ended June 30, 1996 and 1995, 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, 1996, the Company bought back
franchisees by entering into debt obligations totaling $147,000.
$147,000 of inventory and other assets were received by the Company.
During the fiscal year ended June 30, 1996, the Company had a 1 for 10
reverse stock split.
SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
F - 17
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
communication equipment company.
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. 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 and other communications equipment and are
recorded at the lower of cost or market determined by the first-in,
first-out method.
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.
Note 1 - Organization and Significant Accounting Policies (continued)
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 (Note 11).
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.
Deferred Location Costs
Deferred location costs relate to costs associated with the buy back of
certain franchisees (Note 10). 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 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. The Company does, however, on occasion exceed the Federal
Deposit Insurance Corporation federally insured limits and at June 30, 1996
exceeded that amount by approximately $209,000.
Note 1 - Organization and Significant Accounting Policies (continued)
Reclassifications
Certain accounts in the June 30, 1995 financial statements have been
reclassified to conform to the June 30, 1996 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. In prior years, the
Company had been in the development stage and did not begin earning
significant revenues until the middle of fiscal year end 1994. During the
year ended June 30, 1996, the Company continued to suffer recurring losses
from operations in excess of $3,700,000, resulting in an accumulated
deficit of approximately $10,518,000. During the fiscal year ended June
30, 1995, the Company did complete an initial public offering. However,
cash flows from operations may not be sufficient to meet the future
obligations of the Company. Management is in the process of effecting a
private placement of the Company's common stock (Note 15).
Note 3 - Note Receivable
The Company made advances to and entered into a joint venture agreement
with Commonwealth Group International, Inc. and Frederick C. Sayle. The
note receivable bears interest at a rate of 10% per annum, with principal
and interest payable by September 1, 1996. 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.
The Company sold equipment to a customer for a total sales price of $
384,000. $ 150,000 of the sales price was payable at the time of the sale
or no later than six months from the date of the sale. The remaining $
234,000 is payable under the terms of a note receivable which bears
interest at 8.5%. Principal and interest is payable in monthly
installments of approximately $ 4,773 through August, 2001.
Note 4 - Commitments and Contingencies
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, 1996.
Year Ending June 30,
1997 $7,438
1998 2,526
Total 9,964
Less interest (1,638)
$8,326
The assets recorded under capital leases are as follows:
Furniture and fixtures $57,740
Less accumulated amortization (28,152)
$29,588
Amortization expense for equipment under capital lease was $7,780 and
$8,248 for the years ended June 30, 1996 and 1995, respectively.
Operating Leases
The Company leases its facilities under a noncancelable operating lease
with a term of 5 years. 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. 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, 1996 and 1995 was
$106,705 and $89,185, respectively.
Future minimum lease commitments at June 30, 1996 are as follows:
Year Ending June 30,
1997 $93,762
1998 60,487
1999 2,227
Total minimum lease payments $156,476
required
Note 4 - Commitments and Contingencies (continued)
Employment Agreements
The Company has entered into three year employment agreements with their
four officers commencing November 1, 1994. Each officer is entitled to a
first year salary of $105,000, increasing to $120,000 in the second year
and $150,000 during the third year. Each officer is granted options to
purchase 10,000 shares of the Company's common stock pursuant to the
Incentive Stock Option Plan and additional options to purchase 10,000
shares not pursuant to any plans. Additionally, 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. Effective October 1995, the officers salaries and bonuses
pursuant to the terms of the employment agreements have been waived
indefinitely.
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, 1996,
Cellex has not posted a net profit to date, however, advances on future
payments have been made. These advances amount to $ 8,200 and are included
in prepaid assets.
Note 5 - Bank Line of Credit
The Company maintains a secured revolving line-of-credit with a bank with a
limit of $250,000. The balance at June 30, 1996 was $250,000. The
line-of-credit is secured by a restricted certificate of deposit with a
balance at June 30, 1996 of $252,988. The line-of-credit bears interest at
5.65% payable monthly. The line-of-credit expires June 7, 1997.
Note 6 - Notes Payable
June 30,
1996
Promissory note payable at 10% interest
payable monthly commencing September 15,
1995. Balance of principal is payable in
full by March 26, 1997. As additional
consideration, the Company agrees to pay
the note holder 7.5% of all profits
received through the Company's agreements $310,348
with Commonwealth Group International, Inc.
(Note 3).
9.0% Note payable - bank, principal and
interest payable in monthly installments of
$3,157 through January 1997. 21,484
Collateralized by equipment.
8.5% Note payable - individual, principal
and interest payable in monthly
installments of $5,500 through April 1997. 52,341
Non interest bearing note payable -
individual, principal payable in monthly 70,500
installments of $1,500 through June 2000.
11% Note payable - bank, principal and
interest payable in monthly installments of
$541 through June 14, 1998. Collateralized 12,041
by equipment.
466,714
Less current maturities (407,666)
Total $ 59,048
Principal payment on notes payable subsequent to June 30, 1996 are as
follows:
Year Ending June 30,
1997 $407,666
1998 18,000
1999 16,500
2000 24,548
$466,714
Note 7 - 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, 1996 was approximately $3,136,817.
Accordingly, there is no net deferred tax asset reflected in the
accompanying consolidated financial statements.
The components of the provision for income tax (benefit) expense for the
years ended June 30, 1996 and 1995 are as follows:
Years Ended
June 30,
1996 1995
Current $ - $ -
Deferred - -
$ - $ -
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,
1996 1995
Statutory federal income tax rate (benefit) (34.0)% (34.0)%
Valuation allowance for net operating loss 34.0 34.0
Effective tax rate (benefit) -% -%
Note 7 - Income Taxes (continued)
The deferred tax asset consists of the following:
June 30,
1996
Total long-term deferred tax asset $3,576,222
Valuation allowance (3,576,222)
$ -
At June 30, 1996, the Company has approximately $10,540,000 of net
operating loss carryforwards for income tax reporting purposes which expire
in 2007 through 2011. 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 8 - Related Party
Sales
During the year ended June 30, 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 $350,000 and was used to satisfy $350,000
of officer advances payable
Note 9 - 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 1,500,000
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.
Note 9 - Stock Option and Bonus Plans (continued)
Incentive Stock Option Plan (continued)
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.
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.
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).
Non-Qualified Stock Option Plan
The Non-Qualified stock Option Plan authorizes the issuance of up to
1,500,000 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 Company has the following stock options outstanding at June 30, 1996.
Options Exercise Expiration Currently
Outstanding Price Date Exercisable
90,000 $5.50 1999 90,000
90,000 6.50 1999 90,000
180,000 180,000
Note 9 - Stock Option and Bonus Plans (continued)
Non-Qualified Stock Option Plan (continued)
Number of Price Per
Shares Shares
Options outstanding June 30, 1995 180,000 $5.50-6.50
Granted - -
Options outstanding June 30, 1996 180,000 $5.50-6.50
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.
Note 10 - Stockholders' Equity
During the fiscal year ended June 30, 1995, the Company had a successful
public offering for 1,811,250 units, with each unit consisting of one share
of common stock, one Series A Warrant and one Series B Warrant. The Series
A Warrants entitle the holder to purchase one share of Common Stock at
$70.00 per share for three years. The Series B Warrants entitle the holder
to purchase one share of Common Stock for $90.00 for three years. Proceeds
to the Company amounted to $5,239,437, net of offering costs of $1,099,938.
In addition, in 1995 the Company converted $145,000 of debt and $37,651 of
accrued interest into 274,660 shares of common stock at $.67 per share.
In 1995, the Company issued 91,170 shares of the Company's common stock for
$.67 to $1.00 per share for a total of $62,026 as inducements to various
individuals to provide loans to the Company. As the underlying notes
matured or were paid off prior to June 30, 1995, the $62,026 was recorded
as interest expense.
In 1995, the Company determined that an additional 54,330 shares of the
Company's common stock would need to be to be issued to three individuals
pursuant to valuation guarantees relating to the initial public offering.
Note 10 - Stockholders' Equity (continued)
In 1995, the Company agreed to issue 24,250 shares of Series A, $.001 par
value convertible, 8% preferred stock in conjunction with the repurchase of
certain franchises valued at $245,000. At any time after July 1, 1999,
each share of the Series A preferred stock can be converted into .8 shares
of the Company's common stock.
In 1996, 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.
In 1996, the Company converted $ 362,000 of officer advances payable into
175,110 shares of the Company's common stock at $ 2.07 per share.
In 1996, 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.
In 1996, 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.
In 1996, the Company issued 419,940 shares of its common stock in repayment
of loans of $209,970 from certain officers.
In 1996, 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.
Note 11 - Stock Splits
The Company in October 1994 declared a 3 for 2 stock split, in June 1995
declared a 2 for 1 stock split, and in March 1996 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 splits.
Note 12 - Significant Customers
As of June 30, 1996, One individual accounted for $ 50,000 (62%) of
franchise and royalty revenue. One Corporation accounted for $ 384,000
(46%) of equipment and other revenue. Another franchisee and stockholder
accounts for $ 724,264 (83%) of the franchise and customer deposits.
Note 12 - Significant Customers (continued)
As of June 30, 1995, one franchisee accounted for $24,500 (54%) of
franchise revenue and $125,800 (46%) of equipment and other revenue.
Another franchisee and stockholder accounts for $727,750 (71%) of the
franchise and customer deposits.
Note 13 - Business Segments
The Company's principal operations are in the cellular technology
industry. In prior years, the Company also generated significant revenues
from the franchising of cellular related technology. However, the Company
changed their business 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.
Note 14 - 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 negotiating a
settlement and has approximately $770,000 accrued relating to this
obligation.
Note 15 - Subsequent Events
Private Placement
In September 1996, the Company offered, in a private placement, 800,000
shares of Company stock at $.50 per share. The placement is limited to
accredited individual investors with a minimum investment of $25,000.
SIMS COMMUNICATIONS INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, JUNE 30,
1997 1996
ASSETS (Unaudited) (Audited)
CURRENT ASSETS
Cash and cash $273,469 $322,542
equivalents
Accounts & Other Receivables, net of $10,000 940,859 359,532
allowance
1,170,133 1,059,637
Inventories
Prepaid expenses 34,529 58,904
Notes Receivable, current 220,205 182,637
portion
------------ -----------
Total Current 2,639,195 1,983,252
Assets
PROPERTY AND EQUIPMENT,
Property & Equipment 1,602,648 1,393,096
Less Accumulated 479,051 321,245
Depreciation
------------ -----------
Net Property & 1,123,597 1,071,851
Equipment
OTHER ASSETS
Notes receivables 577,199 201,363
Minority Investment 200,000
(Note 4) ----
Deferred location 48,204 38,100
costs
Deposits 14,016 13,761
Patents-net (Note 5) 472,117
----
Organization Costs -net and Other 1,111 4,045
Assets
------------ -----------
Total Other Assets 1,312,647 257,269
------------ -----------
Total $5,075,439 $3,312,372
Assets
========== =========
MARCH 31, JUNE 30,
1997 1996
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts payable and $868,436 $804,231
accrued expenses
Bank line of credit 250,000 250,000
Current obligations under 2,308 6,148
capital lease
Current maturities of long term 581,340 407,666
debt (Note 2)
Loans from 60,569
stockholders/officers ----
Franchise deposits and customer 838,180 875,263
deposits
------------------------
Total Current 2,600,833 2,343,308
Liabilities
LONG TERM LIABILITIES
Long term debt (Note 76,299 59,048
2)
Obligations under 2,178
capital leases ----
------------ -----------
Total Long Term 76,299 61,226
Liabilities
------------------------
Total 2,677,132 2,404,534
Liabilities
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, 124,250 365,000 365,000
shares
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 13,502,443 11,060,735
Capital
Accumulated Deficit (11,469,945) (10,518,300)
------------------------
Total Stockholders Equity 2,398,307 907,838
-----------------------
Total Liabilities and Stockholders' $5,075,439 $3,312,372
Equity
========== =========
See notes to consolidated financial
statements
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 3l, March 3l,
1997 1996 1997 1996
Revenues
Equipment & Other $42,979 $394,600 $531,886 $462,269
374,010 321,765 1,388,257 358,299
Activations
Rental 187,175 344,901 755,875 550,669
Calling Card & Long 65,349 --- 225,060 ---
Distance
License Fee Income 500,000 --- 500,000 ---
--------- ---------- --------- ---------
Total Revenues 1,169,513 1,061,266 3,401,078 1,371,237
Cost of 414,180 438,286 1,922,511 664,546
Sales
-------- --------- ---------- ----------
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 62,008 53,857 170,000 144,110
Amortization
Interest-net 4,690 6,157 29,613 25,278
Selling & Marketing 266,961 326,283 812,724 622,141
Stock Based ----- ----- 381,393 -----
Compensation/Services
Research & Development 1,294 13,777 28,362 113,458
--------------------- --------------------
Total Operating 729,692 744,099 2,430,212 2,172,351
Expenses
--------------------- --------------------
Income /(Loss) Before $25,641 ($121,119) ($951,645) ($1,465,660)
Income Taxes
-------------------- ---------------------
Income Tax Expense - - - -
--------------------- ---------------------
Net Income/(Loss) $25,641 ($121,119) ($951,645) ($1,465,660)
======== ========= ======== =========
Preferred Stock $0 $0 $0 $8,200
Dividends
Net Income/(Loss) Per Common $0.00 ($0.05) ($0.19) ($0.71)
Share
========= ========== ======== ========
Weighted Average Common
Shares Outstanding 7,710,210 2,205,451 5,097,239 2,069,154
======== ========= ======= ========
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDING MARCH 31, 1997 AND
1996
(Unaudited)
March 3l,
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 & 170,000 144,110
Amortization
Stock issued for 381,393 ---
services
Changes in assets and
liabilities:
Inventories 197,930 1,453
Accounts and other (547,519) (118,202)
receivables
Prepaid (625) (70,292)
Expenses
Accounts payable and accrued (234,318) 388,833
expenses
Franchise and customer (37,083) (46,187)
deposits
Deposits (255) (2,469)
Deferred location (10,104) (3,200)
costs
-------- --------------
NET CASH FROM (USED IN) OPERATING (1,032,226 (1,171,614)
ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Capital (44,120) (451,785)
expenditures
Net cash received from acquisition 2,737 ---
(Note 5)
Net cash used for (48,660) ---
acquisition
Notes (413,404) ---
receivable
Change in other assets (812) ---
-------- ----------
NET CASH (USED IN) INVESTING (504,259) (451,785)
ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from 422,500 286,137
issuance of debt
Payments on (264,020) (31,375)
debts
Loans from 60,569 45,462
officers
Proceeds from issuance of 1,274,381 383,500
common stock
Proceeds from issuance of 100,000
preferred stock
Payment of preferred stock --- (8,200)
dividends
Payments of obligation under (6,018) (5,331)
capital lease
------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,487,412 770,193
------- --------------
NET INCREASE (DECREASE) IN (49,073) (853,206)
CASH
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 $49,670 $35,913
interest
Cash paid during the 9 months for $0 $0
income taxes
Acquisitions were made for common stock-
(Notes 4 & 5)
See notes to consolidated
financial statements
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE 9 MONTHS ENDING MARCH
31, 1997
(UNAUDITED)
<TABLE>
PREFERRED STOCK SUBSCRIBED COMMON STOCK
NUMBER OF NUMBER OF NUMBER OF PAID IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -
June 30, 25,250 $265,000 100,000 $100,000 4,029,908 $403 $11,060,735
1996
Net loss -
9 months ended
March 31, 1997
Common stock
issued for 400,000 40 199,960
investment
Smartphone (Note
4)
Common stock issued for 674,157 67 586,273
investment
Link Technologies
(Note 5)
Issuance of Common 200,000 20 155,873
Stock
for
Services
Issuance of Common 2,785,430 279 1,499,602
Stock
for Cash (Ranging
from $.50
to $.70 per share, net of
$165,439 expenses
--------------- ----------------
------------- ------------- ------------------------
Balance -
March 31, 25,250 $265,000 100,000 $100,000 8,089,495 $809 $13,502,443
1997
======= ====== ====== ======= ===== ===
ACCUMULATED
DEFICIT TOTAL
($10,518,300) $907,838
(951,645) (951,645)
200,000
586,340
155,893
1,499,881
- ------------- -----------
($11,469,945) $2,398,307
========= ======
</TABLE>
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
June 30, 1996 financial statements which are included elsewhere in this
prospectus.
Principles of Consolidation
The consolidated financial statements includes the accounts of Sims Communica-
tions Inc. and its wholly owned subsidiaries Sims Franchise Group, Inc., Cellex
Communications, Inc., Sims Communications International, Inc. and Link Techno-
logies 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 issu-
able upon exercise of the convertible preferred stock and common stock equiva-
lents 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 concep-
tional 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 March 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 liabili-
ties 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.
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 Subsi-
diaries for 674,157 shares of common stock, with a value of $600,000. The trans-
action was treated under purchase accounting. Link is in the business of manu-
facturing 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 Compensa-
tion" (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.
PART II
Information Not Required in Prospectus
Item 24. Indemnification of Officers and Directors.
The Delaware Business Corporation Act and the Company's Bylaws
provide that the Company may indemnify any and all of its officers, directors,
employees or agents or former officers, directors, employees or agents,
against expenses actually and necessarily incurred by them, in connection
with the defense of any legal proceeding or threatened legal
proceeding, except as to matters in which such persons shall be determined to
not have acted in good faith and in the best interest of the Company.
Item 25. Other Expenses of Issuance and Distribution.
SEC Filing Fee $ 596
NASD Filing Fee 798
Blue Sky Fees and Expenses 3,000
Printing and Engraving Expenses 500
Legal Fees and Expenses 30,000
Accounting Fees and Expenses 5,000
Transfer Agent Fees -
Miscellaneous Expenses 106
TOTAL $40,000
All expenses other than the S.E.C. and NASD filing fees are estimated.
Item 26. Recent Sales of Unregistered Securities.
The following information sets forth all securities of the Company
which have been sold during the past three years and which securities
were not registered under the Securities Act of 1933, as amended. Unless
otherwise indicated, the consideration paid for the shares was cash.
Shares of Common
Name Stock Sold Consideration Date of Sale
Joel Pashcow Trust 112,500 $300,000 8/01/94
Cellu/Vend, Inc. 3,600 $30,000 8/03/94
John Laboe 1,500 $12,500 8/11/94
Don Watkins 1,500 $12,500 8/13/94
Bashar Masri 3,000 $25,000 8/23/94
William McNary 9,132 $76,000 8/28/94
Ken Zubay 3,000 Assets Valued
at $20,000 8/23/94
Dr. Joseph Ament 4,800 $40,000 8/25/94
Shares of Common
Name Stock Sold Consideration Date of Sale
Alan Adler 17,190 $45,842 9/12/94
Bruce Adler 17,190 $45,842 9/12/94
Alan Adler 37,500 $100,000 10/21/94
Bruce Adler 37,500 $100,000 10/21/94
C. Olsen 3,000 $25,000 10/21/94
William McNary 600 $5,000 10/21/94
Barbara Sachs 5,264 $5,000 8/3l/95
James Sterns 5,333 $9,600 12/3l/95
David L. Brown 6,133 $11,040 12/31/95
Melvin Leiner 43,778 Repayment of loan
in the amount
of $90,500 12/3l/95
Donald Marks 43,778 Repayment of loan
in the amount
of $90,500 12/31/95
James Caprio 43,778 Repayment of loan
in the amount
of $90,500 12/31/95
Darren Marks 43,778 Repayment of loan
in the amount
of $90,500 12/31/95
Jeffrey S. Leiner 2,200 $1,650 6/30/96
Bruce S. Schames 2,875 $2,156 6/30/96
Albert A. Matani 33,333 $25,000 6/30/96
Melvin Leiner 103,686 Repayment of loan
in the amount
of $51,843 6/30/96
Donald Marks 114,350 Repayment of loan
in the amount
of $57,175 6/30/96
James Caprio 114,464 Repayment of loan
in the amount
of $57,232
Darren Marks 87,440 Repayment of loan
in the amount
of 43,720 6/30/96
Melvin Leiner 100,000 Undivided 2.5%
equity interest
in Smart Phone, Inc. 9/30/96
Donald Marks 114,350 Undivided 2.5%
equity interest
in Smart Phone, Inc. 9/30/96
James Caprio 114,464 Undivided 2.5%
equity interest
in Smart Phone, Inc. 9/30/96
Darren Marks 87,440 Undivided 2.5%
equity interest
in Smart Phone, Inc. 9/30/96
Kenneth Hiniker 50,000 $25,000 10/10/96
William M. Goatley 50,000 $25,000 10/09/96
Philip S. Mumford 50,000 $25,000 10/09/96
H.George Levy 50,000 $25,000 10/25/96
P.L. Anderson Jr.Trust 50,000 $25,000 10/08/96
Stacey Vanec l2,500 $6,250 10/25/96
Pamela Campadonico l2,500 $6,250 10/24/96
Michael Associates l25,000 $62,500 10/25/96
James D. Sink 200,000 $100,000 10/10/96
Joseph D. McKeown 50,000 $50,000 10/ll/96
Dr. Lennart Belok l00,000 $50,000 10/3l/96
Barry Bendett 50,000 $25,000 10/3l/96
Joel Perez 50,000 $25,000 10/3l/96
Shareholders of Link
International
Technologies, Inc. 674,157 All issued and
outstanding shares of
Link International
Technologies, Inc. 12/3l/96
Belok, Dr.Lennart C. 140,000 $98,000 3/30/97
Berg, Bruce 40,000 $28,000 3/30/97
Carroll, Douglas C. 15,000 $10,500 3/30/97
Cooper, Keith H. 10,000 $7,000 3/30/97
Dehne, John S. 20,000 $14,000 3/30/97
Friedman, Dr.Michael H. 40,000 $28,000 3/30/97
Joseph, Peter J. 20,000 $14,000 3/30/97
Kaitz, Steven M. 20,000 $14,000 3/30/97
Leifer, Barry H. 40,000 $28,000 3/30/97
Lewis, Harold B. 40,000 $28,000 3/30/97
Liebmann, Joseph 44,000 $30,800 3/30/97
Liebmann, Mona 80,000 $56,000 3/30/97
Shares of Common
Name Stock Sold Consideration Date of Sale
Liebmann, Ronald 71,430 $50,000 3/30/97
Retirement Plan 40,000 $28,000 3/30/97
Milstein, Albert 20,000 $14,000 3/30/97
Perlmutter, Nathan M. 40,000 $28,000 3/30/97
Simonetti, Eugene 15,000 $10,500 3/30/97
Skiadas, Socrates 71,430 $50,000 3/30/97
Skiadas, Socrates 48,570 $34,000 3/30/97
Slass, Jonathan 40,000 $28,000 3/30/97
Solfisburg, William F. 280,000 $196,000 3/30/97
Teiffenbum, Jonathan 60,000 $42,000 3/30/97
Bohrs, Sidney 80,000 $56,000 3/30/97
Olsen, Jon T. 35,000 $35,000 3/30/97
Slack, Jack L. 35,000 $35,000 3/30/97
Michael Associates 80,000 $56,000 3/30/97
Solfisburg, William F. 80,000 $56,000 4/23/97
Texas Capital Securi-
ties, Inc. 100,000 Services Rendered 9/25/97
Euromarket Advisory,
Inc. 100,000 Services Rendered 9/25/97
The sales of the Company's Common Stock described above were exempt
transactions under Section 4(2) of the Act as transactions by an issuer not
involving a public offering. All of the shares of Common Stock were issued
for investment purposes only and without a view to distribution. All of
the persons who acquired the foregoing securities were fully
informed and advised about matters concerning the Company, including its
business, financial affairs and other matters. The purchasers of the
Company's Common Stock acquired the securities for their own accounts. The
certificates evidencing the securities bear legends
stating that they may not be offered, sold or transferred other than
pursuant to an effective registration statement under the Securities Act
of 1933, or pursuant to an applicable exemption from registration. All
such shares are "restricted" shares as defined in Rule 144 of the Rules and
Regulations of the Securities and Exchange Commission.
Convertible Notes. Between February 1997 and May 1997 the Company
borrowed $672,500 from certain third parties. The amounts borrowed were
evidenced by Notes which are due and payable on various dates between August
28, 1997 and February 12, 1998. The notes bear
interest at % per annum. Notes in the principal amount of $585,000 are
convertible into shares of the Company's Common Stock on the basis of one
share of Common Stock for each $2.50 of unpaid principal and interest.
Notes in the principal amount of $87,500 are convertible into shares of
the Company's common stock on the basis of one share of common
stock for each $1.25 of unpaid principal and interest.
The sales of the Company's Convertible Notes were exempt transactions
under Section 4(2) of the Act as transactions by an issuer not involving
a public offering. All of the Convertible Notes were issued for invest-
ment purposes only and without a view to distribution. The purchasers
of the Company's Convertible Notes acquired the securities for their own
accounts. All of the persons who acquired the Convertible Notes were fully
informed and advised about matters concerning the Company, including its
business, financial affairs and other matters. No
underwriters were involved with the sale of the Convertible Notes and no
commissions or other forms of remuneration were paid to any person in
connection with such sales. All of the Convertible Notes sold by the Company
are "restricted" securities as defined in Rule 144 of the Rules and Regula-
tions of the Securities and Exchange Commission.
Item 27. Exhibits
Exhibits Page Number
1 Underwriting Agreement N/A
3.1 Certificate of Incorporation, (1)
as amended
3.1.1 Amendment to Articles of Incorporation (1)
3.2 Bylaws (l)
5 Opinion of Counsel
10.14 Employment Agreements with Donald (1)
Marks, Melvin Leiner, James Caprio
and Darren Marks
23.1 Consent of Hart and Trinen
23.2 Consent of Ehrhardt Keefe Steiner & Hottman PC
24. Power of Attorney Included as part of the
Signature Page
(1) Incorporated by reference to the same exhibit filed as part of
the Company's Registration Statement on Form SB-2 (Commission File No.
33-70546-A).
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement.
(i) To include any Prospectus required by Section l0(a)(3) of
the Securities Act of l933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement, including (but not limited to) any addition or deletion of a
managing underwriter.
(2) That, for the purpose of determining any liability under the
Securities Act of l933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amend-
ment any of the securities being registered which remain unsold at the termina-
tion of the offering.
(4) To provide to the Underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of l933 may be permitted to directors, officers and controlling
persons of the Registrant, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
POWER OF ATTORNEY
The registrant and each person whose signature appears below hereby
authorizes the agent for service named in this Registration Statement,
with full power to act alone, to file one or more amendments (including
post-effective amendments) to this Registration Statement, which
amendments may make such changes in this Registration Statement as such
agent for service deems appropriate, and the Registrant and each such person
hereby appoints such agent for service as attorney-in-fact, with full power to
act alone, to execute in the name and in behalf of the Registrant and any
such person, individually and in each capacity stated below, any such
amendments to this Registration Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of l933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Delray
Beach, Florida, on the 18th day of July, 1997.
SIMS COMMUNICATIONS, INC.
By:/s/ Melvin Leiner
MELVIN LEINER, President, Chief
Executive Officer and Principal
Financial Officer
By:/s/ Bruce Schames
BRUCE SCHAMES, Chief Financial Officer
Pursuant to the requirements of the Securities Act of l933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Melvin Leiner Director July 18, l997
MELVIN LEINER
/s/ Darren Marks Director July 18, l997
DARREN MARKS
2531D:1-53
July l8, 1997
SIMS Communications, Inc.
3333 S. Congress Ave.
Suite 401
Delray Beach, FL 33445
This letter will constitute an opinion upon the legality of the sale by
certain Selling Shareholders of SIMS Communications, Inc. (the "Company")
of up to 1,150,000 shares of Common Stock, all as referred to in the
Registration Statement on Form SB-2 filed by the Company with the Securities
and Exchange Commission.
We have examined the Articles of Incorporation, the Bylaws and the minutes
of the Board of Directors of the Company and the applicable laws of the State
of Delaware, and a copy of the Registration Statement. In our opinion, the
shares of Common Stock to be sold by the Selling Shareholders have
been lawfully issued and such shares are fully paid and
non-assessable shares of the Company's Common Stock.
Very truly yours,
HART & TRINEN
William T. Hart
2531D:55
CONSENT OF ATTORNEYS
Reference is made to the Registration Statement of SIMS Communica-
tions, Inc. (the "Company"), whereby certain Selling Shareholders propose
to sell up to 1,150,000 shares of the Company's Common Stock. Reference
is also made to Exhibit 5 included in the Registration Statement
relating to the validity of the securities proposed to be sold.
We hereby consent to the use of our opinion concerning the validity of
the securities proposed to be sold.
Very truly yours,
HART & TRINEN
William T. Hart
Denver, Colorado
July l8, 1997
2531D:57
INDEPENDANT AUDITORS' CONSENT
We consent to the inclusion, in this Registration Statement on Form SB-2,
of our report dated September 27, l996, of our audit of the consolidated
financial statements of SIMS Communications, Inc. and subsidiary. We also
consent to the reference to our firm under the caption "Experts".
July __, 1997 Ehrhardt Keefe Steiner & Hottman PC
Denver, Colorado
2531D:56-62
