As filed with the Securities and Exchange Commission on , 1998.
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)
17821 Skypark Circle
Suite G
Irvine, CA 92614
(714) 724-9094
(Address and telephone number
of principal executive offices)
17821 Skypark Circle
Suite G
Irvine, CA 92614
(714) 724-9094
(Address of principal place of business or
intended principal place of business)
Mark Bennett
17821 Skypark Circle
Suite G
Irvine, CA 92614
(714) 724-9094
(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
<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 statement 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 (1) Unit (2) Price Fee
- ---------- -------------- -------- ------ ------
Common Stock
- -------------------------------------------------------------------------------
Total 4,105,938 $2.68 $11,003,913 $3,247
(1) Shares are offered by certain Selling Shareholders.
(2) Offering price computed in accordance with Rule 457(c).
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.
<PAGE>
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 and Comparative
Share Data
Item 7 Selling Security Holders ....................Selling Shareholders
Item 8 Plan of Distribution ........................Selling Shareholders
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
<PAGE>
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
<PAGE>
PROSPECTUS SIMS COMMUNICATIONS, INC.
Common Stock
This Prospectus relates to:
1. The sale of 3,415,250 shares of the Common Stock of Sims
Communications, Inc. (the "Company") by the owners of such shares. The shares
were sold by the Company in various private offerings for cash, services
rendered, and in settlement of claims against the Company.
2. The sale of up to 116,937 shares of the Company's common stock
issuable upon the exercise of options and warrants. The options and warrants
were issued by the Company to certain investors in connection with the Company's
private offerings.
3. The sale of up to 125,000 shares of common stock issuable upon the
exercise of certain Sales Agent's Warrants. The Sales Agent's Warrants were
issued in connection with certain private offerings of the Company's securities.
4. The sale of up to 262,500 shares of common stock issued to financial
consultants.
5. The sale of up to 150,000 shares of Common Stock issuable upon the
exercise of warrants issued to financial consultants.
The owners of the Common Stock referred to above, and the holders of
the options and warrants, to the extent they exercise the options and 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 AND COMPARATIVE SHARE DATA".
<PAGE>
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 , 1998 the closing prices of the Company's Common Stock and Warrants on
the NASDAQ Small-Cap Market were $____ and $___, respectively. See "Market
Information".
The Date of this Prospectus is ___________, 1998.
<PAGE>
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.
<PAGE>
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 ...........................................
<PAGE>
PROSPECTUS 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. At
April l5, l998, the Company was not operating any ACDC units and the Company's
only remaining franchisee had four ACDC units in operation.
During 1996 the Company 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. With the exception of the sale of pre-paid calling
cards, these four programs were discontinued in December 1997.
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."
Effective January 30, 1998 the Company issued 550,000 shares of its
common stock to the shareholders of Moviebar, Incorporated and Vectorvision,
Incorporated in consideration for the acquisition of a business known as "Movie
Vision." Movie Vision rents videocassettes, primarily containing motion
pictures, through automated dispensing units in hotels. Movie Vision currently
has videocassette dispensing machines in approximately 140 hotels in the United
States.
<PAGE>
Effective May 30, 1998 the Company acquired One Medical Service Inc.
in consideration for 142,349 shares of common stock and 187,500 warrants. Each
warrant allows the holder to purchase one additional share of common stock at
any time prior to May 30, 2003 at a price of $2.00 per share. One Medical
service uses Link's Point-of-Sale transaction terminals to permit retail
pharmacies and their customers to purchase home medical equipment. Additional
services offered through the terminal include check guarantee and verification,
point of sale activation of prepaid phone card and cellular time, frequent buyer
programs and verification of Medi-Cal benefits in California.
All historical share data in this Prospectus has been adjusted to
reflect the following stock splits relating to the Company's common stock: June
1995: 2-for-1 forward split, February 1996: 1-for-10 reverse split, February
l998:1-for-4 reverse split.
Unless otherwise indicated, all references to the Company include the
operations of Link, Movie Vision and One-Medical
The Company's executive offices are located at 17821 Skypark Circle,
Suite G, Irvine, CA 92614. The Company's telephone number is (714) 724-9094.
Common Stock
Outstanding: As of July 31, 1998, the Company had 9,417,957 shares of
Common Stock issued and outstanding. The number of
outstanding shares 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 Symbol: Common Stock: SIMS
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".
<PAGE>
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
Years Ended June 30, March 3l,
1996 1997 1998
Revenues $ 2,607,879 $4,730,112 654,885
Cost of Sales (1,686,188) (2,861,421) (394,913)
Operating Expenses (4,645,197) (4,657,587) (5,051,406)
----------- ----------- -----------
Net (Loss) $(3,723,506) $(2,788,896) $(4,791,434)
============ ============ ============
Balance Sheet Data:
June 30,
March 3l,
1996 1997 1998
------------ ---------- --------
Current Assets $ 1,983,252 $2,006,289 $2,282,224
Total Assets 3,312,372 5,544,173 5,192,486
Current Liabilities 2,343,308 3,630,430 2,952,684
Total Liabilities 2,404,534 3,716,349 3,020,369
Working Capital (Deficit) ( 360,056) (1,624,141) (670,460)
Shareholders' Equity 907,838 1,827,824 2,172,117
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, 1998, the Company
incurred net losses of approximately $(18,000,000). During the nine months ended
March 3l, l998 the Company had losses of $(4,791,434). The Company expects to
continue to incur losses until such time, if ever, as it generates substantial
revenues and earns net income. There can be no assurance that the Company will
be able to generate sufficient revenues and become profitable.
<PAGE>
The Company is vulnerable to a variety of business risks generally
associated with small 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 small companies 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, government regulation, 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. 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.
Competition There can be no assurance that the Company will be able to
compete with the numerous other companies which are engaged in the Company's
lines of business. Many of these competitors have greater financial and
marketing resources than those of the Company.
Agreements with Credit Card Companies. The Company's point-of-sale
terminals and video dispensing machines 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 products
and services to be purchased through credit cards. The Company presently has
agreements with credit card processors which authorize the use of various major
credit cards in the Company's machines. 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's machines would be unable to process
transactions.
<PAGE>
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, operating 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, 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 Small-Cap Market, the
National Association of Securities Dealers, Inc. ("NASD") requires, for
continued inclusion on the NASDAQ Small-Cap Market, that the Company must
maintain $2,000,000 in net worth and that the bid price of the Company's Common
Stock must be at least $1.00.
There can be no assurance however that the Company's securities will
remain listed on the NASDAQ Small-Cap Market. If the Company's securities were
delisted from the NASDAQ Small-Cap 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 Small-Cap
Market. Securities which are not traded on the NASDAQ Small-Cap 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 was 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
<PAGE>
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 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.
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 Former Management" and "Management -
Transactions With Present Management".
Options, Warrants and Convertible Securities. The Company has issued
options, warrants and other convertible securities ("Derivative Securities")
which allow the holders to acquire additional shares of the Company's Common
Stock. In some cases the Company has agreed that, at its expense, it will make
appropriate filings with the Securities and Exchange Commission so that the
securities underlying certain Derivative Securities will be available for public
sale. Such filings could result in substantial expense to the Company and could
hinder future financings by the Company.
For the terms of these Derivative Securities, 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
Derivative Securities may exercise and/or convert them at a time when the
Company could obtain additional capital on terms more favorable than those
provided by the Derivative Securities. The exercise or conversion of the
Derivative Securities will dilute the voting interest of the owners of presently
outstanding shares of the Company's Common Stock and may adversely affect the
ability of the Company to obtain additional capital in the future. The sale of
the shares of Common Stock issuable upon the exercise or conversion of the
Derivative Securities could adversely affect the market price of the Company's
stock. See "Dilution and Comparative Share Data".
Shares Available for Resale. As of July 31, 1998, there were 9,417,957
shares of the Company's Common Stock issued and outstanding. Of this amount,
approximately 4,200,000 shares (exclusive of the shares offered by this
<PAGE>
Prospectus) are "restricted securities" as defined by Rule 144 of the Securities
Act of 1933, as amended (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 3,500,000 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 January
1999.
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 1,000,000 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 July 31, 1998, the present shareholders of the Company owned
9,417,957 shares of the Company's Common Stock, which had a net tangible book
value of approximately $0.18 per share. Upon completion of this Offering, and
<PAGE>
assuming all options and warrants are exercised, purchasers of the common stock
offered by this Prospectus will own 4,105,938 shares or approximately 43% of the
Company's Common Stock and the present shareholders of the Company will own 57%
of the Company's Common Stock.
Shares presently outstanding (1) 9,417,957
Shares offered by this prospectus
See "Selling Shareholders" 4,105,938
Net tangible book value per share $0.18
Equity ownership by present shareholders
after this offering 57%
Equity ownership by investors in this Offering 43%
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 July 31, 1998 the Company had 9,417,957 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 9,417,957
Shares issuable upon exercise
of warrants issued to sales agents
and financial consultants 225,000 A
Shares issuable upon conversion of notes
and exercise of warrants sold in
private offering 256,937 B
<PAGE>
Shares issuable upon exercise of options
previously granted by Company 2,164,000 C
Shares issuable upon conversion
of Series A and Series B Preferred
Stock 35,000 D
Additional shares issuable in connection
with the acquisition of One Medical
Services, Inc.: E
Warrant Shares 187,500
Incentive Shares 1,485,000
TOTAL
A. In connection with prior private offerings of the Company's common stock, the
Company paid Commissions to the sales agents for such offerings in the form of
cash and warrants. The Company has also entered into a number of agreements with
various financial consultants. Pursuant to the terms of these agreements, the
Company has issued to the financial consultants shares of common stock, plus
warrants to purchase additional shares of common stock. The warrants referred to
above are exercisable at prices ranging between $2.00 and $7.00 per share and
expire between 2001 and 2003.
B. Between February and December l997 the Company sold $1,017,500 of convertible
notes (the "Notes"), together with warrants for the purchase of 97,562 shares of
the Company's common stock. The Notes bear interest at 8% per annum and are
presently due and payable. As of July 31, 1998 Notes in the principal amount of
$762,500 (plus accrued interest) have been converted into 534,285 shares of the
Company's common stock. The remaining Notes are collectively convertible into
159,375 shares of the Company's Common Stock at a conversion price of $1.60 per
share. The Warrants are exercisable at any time prior to May 31, 2000 at prices
ranging between $5.00 and $10.00 per share.
C. See "Management - Stock Option and Bonus Plans".
D. See "Description of Securities".
E. Effective May 30, 1998 the Company acquired One Medical Services, Inc. in
consideration for 142,349 shares of common stock and 187,500 warrants
exercisable at $2.00 per share at any time prior to May 30, 2003. The Company
has also agreed to issue to the former owners of One Medical up to 1,485,000
additional shares of common stock depending on the future operating of One
Medical. The number of shares to be issued will be determined by dividing the
quarterly net income of One Medical (for each fiscal quarterly beginning June
30, 1998 and ending June 30, 2001, by the average closing price of the Company's
common stock for the five day trading period prior to the end of each quarter.
The shares referred to in Notes A, and B, above are being offered for
public sale by means of this propectus. See "Selling Shareholders". The shares
issuable upon the exercise of options, and which are referred to in Note C, have
been registered for public sale by means of a registration statement on Form S-8
<PAGE>
which has been filed with the Securities and Exchange Commission
MARKET FOR THE COMPANY'S COMMON STOCK
As of July 31, 1998, there were approximately 600 beneficial owners of
the Company's Common Stock. The Company's Common Stock is 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 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, a one-for ten reverse
stock split which was effective in March 1996, and a one-for-four reverse stock
split which was effective in February 1998.
Quarter
Ending Common Stock
High Low
9/30/95 $95.00 $20.00
12/31/95 $31.24 $ 7.48
3/31/96 $18.72 $ 3.72
6/30/96 $ 7.12 $ 4.00
9/30/96 $ 5.36 $ 2.00
12/3l/96 $ 4.48 $ 2.64
3/31/97 $ 7.76 $ 3.44
6/30/97 $11.24 $4.12
9/30/97 $2.31 $1.25
12/31/97 $5.00 $1.50
3/31/98 $2.87 $1.09
6/30/98 $2.75 $1.56
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 on it's
Common Stock and the Company does not have any current plans to pay any Common
Stock dividends.
<PAGE>
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 OR PLAN OF OPERATIONS
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,
1996 1997 1998
----------------- --------------- ----------
Revenues $ 2,607,879 $4,730,112 654,885
Cost of Sales (1,686,188) (2,861,421) (394,913)
Operating Expenses (4,645,197) (4,657,587) (5,051,406)
----------- ----------- -----------
Net (Loss) $(3,723,506) $(2,788,896) $(4,791,434)
============ ============ ============
Weighted Average
Number of Shares
Outstanding 2,384,055 6,667,291 2,808,899
Balance Sheet Data:
June 30, March 3l,
1996 1997 1998
------------ ---------- --------
Current Assets $ 1,983,252 $2,006,289 $2,282,224
Total Assets 3,312,372 5,544,173 5,192,486
Current Liabilities 2,343,308 3,630,430 2,952,684
Total Liabilities 2,404,534 3,716,349 3,020,369
Working Capital (Deficit) ( 360,056) (1,624,141) (670,460)
Shareholders' Equity 907,838 1,827,824 2,172,117
No Common Stock dividends have been declared by the Company since its inception.
<PAGE>
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
Years Ending Nine Months June 30,
June 30, Ending 1999
1996 l997 March 31, 1998 (Projected)(1)
---- ---- -------------- -------------
Rental of cellular
telephones directly
from Company and
from ACDC Units. 33% 19% 17% --
Sale of ACDC units,
and related
equipment. 29% 25% -- --
Fees paid by cellular
telephone companies for
activation of cellular
telephones 32% 38% 46% --
Sale of prepaid calling
cards. -- 5% 14% 4%
Sale of long distance
telephone service. -- 1% 4% --
Revenues from Link
International -- 12% 8% 50%
Revenues from Moviebar -- -- 10% 14%
Revenues from One Medical
Service -- -- -- 32%
Miscellaneous Income 5% -- 1% --
(l) There can be no assurance that these 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, l999 constitute a
forward-looking statement which is subject to risks and uncertainties which
<PAGE>
could cause actual results to differ materially from those projected. Factors
that could cause or contribute to such differences include lack of adequate
funding, loss of major customers and inability to meet sales projections. 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 report 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. At
April 15, 1998, the Company was not operating any ACDC units and the Company's
only remaining franchisee had four ACDC units in operation.
In 1996 the Company introduced four 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. With the exception of the sale of pre-paid calling cards, these
programs were discontinued in December 1997.
Effective December 31, 1996, the Company acquired Link International
Technologies, Inc. in consideration for the issuance of 168,539 shares of the
Company's Common Stock. See Item 1 of this report and the discussion below of
the Company's results of operations for the year ending June 30, 1997.
Effective January 30, 1998 the Company issued 550,000 shares of its
common stock to the shareholders of Moviebar, Incorporated and Vectorvision,
Incorporated in consideration for the acquisition of a business known as "Movie
Vision." Movie Vision rents videocassettes, primarily containing motion
pictures, through automated dispensing units in hotels. Movie Vision currently
has video cassette dispensing machines in approximately 140 hotels in the United
States. For financial statement purposes, the acquisition of Movie Vision was
valued at $1,100,000.
Effective May 30, 1998 the Company acquired One Medical Services, Inc.
in consideration for 142,349 shares of common stock and 187,500 warrants
exercisable at $2.00 per share at any time prior to May 30, 2003. Point-of-sale
terminals developed by One Medical Service allow pharmacies and their customers
to communicate with medical vendors and suppliers and directly order home
medical equipment. Additional services offered through the terminal include
check guarantee and verification, activation of prepaid phone cards and cellular
time, frequent buyer programs and verification of Medi-Cal benefits for
California residents. The Company has also agreed to issue to the former owners
of One Medical up to 1,485,000 additional shares of common stock depending on
the future operating results of One Medical. The number of shares to be issued
will be determined by dividing the quarterly net income of One Medical (for each
fiscal quarterly beginning June 30, 1998 and ending June 30, 2001, by the
average closing price of the Company's common stock for the five day trading
period prior to the end of each quarter.
<PAGE>
Nine Months Ending March 31, 1998
- ----------------------------------
During the nine months ending March 31, 1998 the Company's revenues
declined as a result of the suspension of the Company's ACDC program and the
termination of the following programs which were first introduced in 1996: (i)
cellular telephone activations, (ii) sale of long distance telephone service and
(iii) rental of cellular telephones using overnight courier service.
General and Administrative expenses as well as Selling and Marketing
expanses increased due to the acquisition of Link and Movie Vision, the lease of
the Company's production facility in Tampa and changes in the management of the
Company.
The following factors also contributed to the Company's loss during the
nine months ending March 31, 1998:
A. An expense of $1,007,874 as the result of issuing shares of stock,
options and warrants for services rendered.
B. In February 1998, the Company settled a lawsuit filed by a former
Master Licensee of ACDC units resulting in a special charge of $424,300. The
terms of the settlement require the Company to pay $115,000 over 21 months and
issue 300,000 shares of common stock to the former master licensee.
C. In March 1997, the Company entered into a License Agreement with
Cancall Cellular Communications, Inc. ("Cancall") whereby the Company provided
Cancall with a license to operate and/or distribute the Company's ACDC units,
prepaid calling card machines and point-of-sale terminals. The Licensing
Agreement also required Cancall to purchase a certain number of ACDC units and
point-of-sale terminals from the Company. Between March and September 1997, the
Company sold 30 ACDC units to Cancall for $705,000. In payment of the $500,000
licensing fee and the 30 ACDC units, Cancall issued 1,807,800 shares of it's
Class B Preferred Stock to the Company. As of September 30,1997 the Company had
valued the Cancall Preferred Stock at $1,310,000. Subsequent to September 30,
1997 the Company and Cancall ( i ) agreed to rescind the licensing agreement and
the sale of the ACDC units (ii) the equipment previously sold to Cancall were
returned to the Company and (iii) the profit previously recognized by the
Company on these transactions ($764,000) was reversed.
D. Between June through September 1996 the Company sold 30 ACDC units to a
master licensee in California resulting in gross revenues of $664,000. The
Company has not received payment for the units and a loss provision of $169,000
(the profit for the units sold) was recorded for uncollected receivables.
<PAGE>
Year Ending June 30, l997
- --------------------------
Revenues during the year ending June 30, 1997 increased from the
comparable period in 1996 due to the expansion of four programs which were
introduced in 1996 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.
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 year ending June 30,1997 as the Company closed certain ACDC
locations that were not profitable.
As an alternative to selling ACDC units to franchisees the Company
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. 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. The
Company has not received payment for the units and subsequent to June 30, 1997 a
loss provision of $169,000 (the profit for the units sold) was recorded for
uncollected receivables.
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 six months ending June 30,
1997. During this six month period, Link's revenues from sales of equipment,
prepaid calling cards and technical service were approximately $60,000, which
amount excludes revenues attributable to the Licensing Agreement between the
Company and Cancall. During the six month period ending June 30, 1997 Link's
cost of sales accounted for 0.4% of the Company's consolidated cost of sales and
Link's other expenses accounted for approximately 9% of the Company's
Consolidated Operating Expenses.
<PAGE>
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"). In consideration for the rights
granted pursuant to the Licensing Agreement, Cancall agreed to pay the Company
$500,000 in shares of Cancall's Class B Preferred stock. The Licensing Agreement
also required Cancall to purchase a certain number of ACDC units and POS
terminals from the Company. During the year ending June 30, 1997 the Company
sold thirty ACDC units to Cancall for $705,000. In payment of the $500,000
licensing fee and the thirty ACDC units, Cancall issued 1,807,800 shares of it's
Class B Preferred Stock to the Company. Subsequent to June 30, 1997 the Company
and Cancall (i) agreed to rescind the licensing agreement and the sale of the
ACDC units (ii) the equipment previously sold to Cancall were returned to the
Company and (iii) the profit previously recognized by the Company on these
transactions ($764,000) was reversed.
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 year period ending June 30,
1997 reflects the acquisition of Link, the expansion of the Company's cellular
telephone rental, cellular telephone activation, prepaid calling cards and long
distance telephone programs.
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 Alamo 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.
<PAGE>
The higher selling and general and administrative expenses for fiscal
1996 were due to the Company's new programs and additional personnel needed for
these programs.
Interest expense declined as funds provided by the Company's public
offering in February 1995 were used to repay outstanding debt.
Liquidity and Sources of Capital
- --------------------------------
During the year ending June 30, 1997 the Company's operations used
approximately $1,853,000 of cash. The licensing fee from Cancall. ($500,000) and
the sale of thirty ACDC units to Cancall ($705,000) did not generate cash since
Cancall paid the licensing fee and the cost of the ACDC units 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.
During the nine months ending March 31, 1998 the Company's operations
used approximately $3,500,000 of cash.
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's scrip terminals are either sold directly to merchants or
to a leasing Company which leases the terminals back to the Company. The leased
scrip terminals are placed with a merchant free of charge. The Company receives
a fee for each transaction processed by the scrip terminal. The Company uses a
portion of these fees to pay the monthly charges for the leased terminals. The
funds received from the sale of the terminals to merchants or the leasing
company are a source of cash to the Company. Other than the foregoing, 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 may need 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.
Although there can be no assurance in this regard, the Company expects
that by February 1999 cash generated by operations and the sale of the Company's
point-of-sale and scrip terminals will satisfy the Company's cash requirements.
During the twelve months ending June 30, 1999 the Company's anticipated capital
requirements are $700,000 for inventory, and $150,000 for equipment and fixed
assests.
<PAGE>
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
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. An ACDC unit is capable of dispensing from 1 to
12 cellular phones on an 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.
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 ions.
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. At April 15, 1998, the Company was not
operating any ACDC units and the Company's only remaining franchisee had four
ACDC units in operation.
In 1996 the Company introduced four 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. With the exception of the sale of pre-paid calling cards, these four
programs were discontinued in December 1997.
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. Unless otherwise indicted, all references to the Company's business
and operations included the business and operations of Link.
Effective January 30, 1998 the Company issued 550,000 shares of its
common stock to the shareholders of Moviebar, Incorporated and Vectorvision,
Incorporated in consideration for the acquisition of a business known as "Movie
Vision." Movie Vision rents videocassettes, primarily containing motion
pictures, through automated dispensing units in hotels. Movie Vision currently
has video cassette dispensing machines in approximately 140 hotels in the United
States.
<PAGE>
Effective May 30, 1998 the Company acquired One Medical Service Inc.
The One Medical Service technology is used in the pharmaceutical market and
allows the pharmacy and its customers to communicate with medical vendors and
suppliers and directly order home medical equipment through a proprietary
point-of-sale terminal.
All historical share data in this prospectus have been adjusted to reflect
the following stock splits relating to the Company's common stock: June 1995:
2-for-1 forward split, February 1996: 1-for-10 reverse split, February 1998:
1-for-4 reverse split.
The Company's executive offices are located at 17821 Skypark Circle,
Suite G, Irvine, California 92614. The Company's telephone number is (714)
724-9094.
Link International Technologies, Inc.
Effective December 31, 1996, the Company acquired Link International
Technologies, Inc. ("Link") in consideration for the issuance of 168,539 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 "value
stored" 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, although LINK's machines
accept cash and credit cards, Link's machines are the only vending devices that
requires the customer to use personal identification number when purchasing
prepaid phones cards with a bank debit card. This particular feature serves to
eliminate the expense (ie. "charge backs") to the merchant for mistakenly
accepting fraudulent or stolen credit cards.
Link has designed two 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
<PAGE>
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
install this machine at large regional accounts and chains.
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.
Link's phone card machines can also be used to dispense other items
such as:
- pre-paid gasoline cards
- smart chip cards
- coupons
- stamps
- sporting, theatrical and other event tickets
Link has also developed a counter top 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 cards 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. The Company markets its POS terminals to smaller
stores, most of which do not have point-of-sale debit card capability. The
Company began marketing Link's POS transaction terminals in August 1997.
Link also markets its proprietary scrip terminals which provide the
same benefits as cash dispensing ATM machines without the prohibitive costs to
the merchant. A customer using a bank debit card inserts the card into the
terminal and selects a dollar denomination ($5, $10, $20, etc.). The scrip
terminal dispenses a receipt to the customer which can be used to pay for
merchandise and/or services. The customer receives cash for any difference
between the dollar denomination of the scrip and the amount of the purchase.
Once the transaction is processed, funds are electronically transferred to the
merchant's bank account from the customer's bank account within 48 hours.
Scrip terminals appeal to fast food restaurants, convenience stores,
bars, pharmacies, arcades and other outlets where cash is needed for products or
services. While occupying little store space, scrip terminals increase sales by
giving customers purchasing power, thereby, generating impulse buying and larger
purchases. Similarly, consumers find scrip terminals beneficial due the their
convenience and the fact that they provide a safe alternative to isolated ATM's.
The Company receives a transaction fee (charged to the customer rather than the
retailer) for each transaction processed by the scrip terminal. Movie Vision
<PAGE>
Effective January 30, 1998 the Company issued 550,000 shares of its
common stock to the shareholders of Moviebar, Incorporated and Vectorvision,
Incorporated in consideration for the acquisition of a business known as "Movie
Vision." Movie Vision rents video cassettes, primarily containing motion
pictures, through automated dispensing units in hotels. Movie Vision currently
has video cassette dispensing machines in approximately 140 hotels in the United
States.
One-Medical
One Medical Service, Inc. was acquired by the Company effective May 30,
1998. The One Medical Service technology is used in the pharmaceutical market
and allows the pharmacy and its customers to communicate with medical vendors
and suppliers and directly order medical products through a proprietary
terminal. Additional services offered through the terminal include check
guarantee and verification, point of sale activation of prepaid phone card and
cellular time, frequent buyer programs and Medi-Cal verification in California.
Research and Development
During the years ending June 30, 1995, 1996 and l997, the Company spent
approximately $89,000, $134,000 and $35,000, respectively, on research and
development. Research and development expenditures pertained to the design,
development and testing of enhancements to Link's Point-Of-Sale transaction
terminals as well as other on-line transaction terminals as well as other
on-line transaction terminals.
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.
During 1995 the Company discontinued the sale of new franchises. As of
April 15, 1998 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 of 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 June 30, 1997 represented 90% of the total amounts
recorded by the Company as a liability for franchise and customer deposits on
such date. See "Litigation"
<PAGE>
Competition
The Company competes with numerous other companies which are engaged in
the Company's lines of business. Many of these competitors have greater
financial and marketing resources than those of the Company.
Employees and Offices
As of July 15, 1998, the Company employed 33 persons on a full-time
basis. Fifteen 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 leases a 7,000 square foot production and office facility
in Tampa, Florida at an annual rent of $35,000. The lease on this facility
expires in June 2002. The Company's executive offices are located in Irvine,
California and consist of 1600 square feet of space which are leased at an
annual rent of $18,000. This lease on the space expires in June 1999. The
Company's offices in Florida consist of 1,400 square feet of space and are
leased for $15,000 per year pursuant to a lease which expires in December 2001.
MANAGEMENT
The Company's present officers and directors are as follows:
Name Age Position
- ---- --- --------
Mark Bennett 39 President and a Director
Michael Malet 50 Vice President and a Director
Bruce S. Schames 51 Chief Financial and Accounting
Officer
David Markowski 37 Vice President of Finance
Marvin Berger 54 Executive Vice President of Sales
and Marketing
Chet Howard 54 Director
George Pursglove 46 Director
Each director holds office until his successor is duly elected by the
stockholders. Executive officers serve at the pleasure of the Board of
Directors.
The following sets forth certain information concerning the past and
present principal occupations of the Company's officers and directors.
Mark Bennett has been the Company's President since November 1997 and
has been a Director of the Company since September 1997. Mr. Bennett has been
<PAGE>
the President, Chief Executive Officer and a Director of Link International
Technologies, Inc., a subsidiary of the Company, since January 1996. Since April
1995 Mr. Bennett has also been the President of New View Technologies, a wholly
owned subsidiary of Link. From 1985 to 1987 Mr. Bennett was the General Manager
for MovieBar, a video vending company servicing the hotel and hospitality
industry, with installations in over 35,000 hotel rooms worldwide. In 1987 Mr.
Bennett became Vice President of International Operations and General Manager of
MovieBar and was subsequently named as President of MovieBar Company USA. In
December 1995 Mr. Bennett resigned his position with MovieBar to co-found Link.
Michael Malet has been the Company's Vice President since November 1997
and has been a director of the Company since September 1997. Mr. Malet has been
the President of New View Technologies, Inc., a wholly owned subsidiary of Link
International Technologies, Inc., since July 1995. From 1986 to 1987 Mr. Malet
was the President of Vending Control Systems, a manufacturer of video vending
machines. Mr. Malet was a Sales Manager (1987-1990) and later President
(1991-1995) of Keyosk Corporation, a Company involved on the development and
sale of intelligent on-line vending machines, including the Company's ACDC
Units.
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.
David Markowski joined the Company as Vice President of Finance in
January 1998. Since 1991 he has served as a business consultant to various small
private and public companies seeking assistance in all aspects of growth.
Marvin S. Berger joined the Company as Vice President of Sales and
Marketing in April 1998. Prior to his joining the Company Mr. Berger was Vice
President of Sales and Special Accounts with SmarTalk Telecommunications, Inc. a
company at which his involvement began during the founding stages. Mr. Berger
has held marketing and management positions at IBM, Data General Corporation and
Visage Corporation.
Chet Howard has been a director of the Company since September 1997.
Since 1992 Mr. Howard has been a principal of Consolidated Business Group, a
company providing financial consulting services for development stage business.
From 1988 to 1992 Mr. Howard was Executive Vice President and Chief Financial
Officer of HQ Office Supplies, Inc.
George Pursglove has been a Director of the Company since September
1997. Since November 1995 Mr. Pursglove has been a principal of Consolidated
Business Group, a company providing financial consulting services to development
stage businesses. Between March 1993 and November 1995 Mr. Pursglove was a
Senior Divisional Merchandise Manager, and later Director of Merchandising for
Office Depot. Between April 1992 and March 1993 Mr. Pursglove was Divisional
Merchandise Manager for the Price Company, a retailer of home improvement goods.
<PAGE>
All of the Company's officers devote substantially all of their time on the
Company's business. Mr., Howard, Mr. Pursglove and Ms. Eldridge, as directors,
devote only a minimal amount of time to the Company.
Change in Management
In November 1997 Melvin Leiner, Darren Marks, James Caprio and Donald
Marks resigned as officers and directors of the Company. David Barnhill also
resigned as a director in November 1997. In November 1997 Mark Bennett was
appointed President and Michael Malet was appointed Executive Vice President of
the Company. Bruce Schames continued as an officer of the Company. Mark Bennett,
Michael Malet, Chet Howard and George Pursglove remained directors of the
Company.
Executive Compensation
The following table sets forth in summary form the compensation
received by (i) the Chief Executive Officer of the Company and (ii) by each
other executive officer of the Company who received in excess of $100,000 during
the fiscal year ended June 30, 1998.
Other Re-
Annual stricted
Compen- Stock Options
Name and Fiscal Salary Bonus sation Awards Granted
Principal
Position Year (1) (2) (3) (4) (5)
Mark Bennett 1998 $111,350 -- $8,400 93,750 560,500
President and
Chief Executive
Officer
Michael Malet 1998 $100,923 -- $8,400 81,250 457,000
Vice President
(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.
Amounts in the table represents automobile allowances.
(4) During the year ending June 30, 1998, the shares of the Company's common
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, 1998.
<PAGE>
Name Shares Value
---- ------ -----
Mark Bennett 224,900 $393,575
Michael Malet 157,802 $276,154
(5) The shares of Common Stock to be received upon the exercise of all stock
options granted during the. year ending June 30, 1998.
Options Granted During Fiscal Year Ending June 30, l998
- -------------------------------------------------------
The following tables set forth information concerning the options granted,
during the fiscal year ended June 30, 1998, to the persons named below, and the
fiscal year-end value of all unexercised options (regardless of when granted)
held by these persons.
Potential
Realizable Value at
% of Total Assumed Annual Rates
Options of Stock Price
Granted to Exercise Appreciation for
Options Employees in Price Per Expiration Option Term (1)
Name Granted (#) Fiscal Year Share Date 5% 10%
- ------ ----------- ----------- --------- ---------- -------- ------
Mark Bennett 560,500 38.5% $1.50 5/29/03 $233,168 $513,978
Michael Malet 457,000 31.4% $1.50 5/29/03 $190,112 $419,069
David Markowski 439,000 30.2% $1.50 5/29/03 $182,624 $402,563
(1) The potential realizable value of the options shown in the table assuming
the market price of the Company's Common Stock appreciates in value from the
date of the grant to the end of the option term at 5% or 10%.
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.
<PAGE>
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 ending June 30, 1998 the Company
issued shares of common stock and options to the following directors in
consideration of services rendered to the Company:
Shares
Issuable upon Option Option
Shares exercise of Exercise Expiration
Name Issued Options Price Date
Chet Howard 25,000 $50,000 $1.50 5/29/03
George Pursglove 37,500 $50,000 $1.50 5/29/03
Except as disclosed elsewhere in this prospectust no director of the
Company received any form of compensation from the Company during the year ended
June 30, 1998.
See " Stock Option and Bonus Plans" below for information concerning
stock options and stock bonuses granted to the Company's former and present
officers.
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 1,250,000 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.
In order to qualify for incentive stock option treatment under the
Internal Revenue Code, the following requirements must be complied with:
1. Options granted pursuant to the Plan must be exercised no later
than:
<PAGE>
(a) The expiration of thirty (30) days after the date on which an
option holder's employment by the Company is terminated.
(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.
2. 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.
3. 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.
4. 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.
5. 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 3,00,000 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
<PAGE>
(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 750,000 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.
<PAGE>
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 July 31, 1998,
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.
Total Shares Remaining
Shares Reserved for Shares Options/
Reserved Outstanding Issued As Shares
Name of Plan Under Plan Options Stock Bonus Under Plan
Incentive Stock Option Plan 1,250,000 297,500 N/A 952,500
Non-Qualified Stock Option
Plan 3,000,000 1,866,500 N/A 1,113,500
Stock Bonus Plan 750,000 N/A 749,625 375
Stock Bonuses
- -------------
Between May 1996 and June l998 the Company, in accordance with the
terms of its Stock Bonus Plan, issued shares of Common Stock to certain Company
officers, employees and consultants. The following persons (including former
officers and directors) received shares of the Company's common stock as stock
bonuses:
<PAGE>
Shares Issued as Stock Bonus
Name 1996 1997 1998
---- ---- ---- ----
Melvin Leiner * 62,500 12,500
Darren Marks * 62,500 12,500
James J. Caprio * 62,500
Donald Marks * 62,500
Bruce Schames 18,750
Mark Bennett 18,750
Michael Malet 5,000 16,250
Chet Howard 6,250
George Pursglove 12,500
Other employees and
consultants as a group 192,500 86,875 117,500
------- ------ -------
461,250 116,875 171,500
======= ======= =======
* Former Officer and Director
Transactions with Former Management.
Melvin Leiner, Donald Marks, James Caprio and Darren Marks were officers
and directors of the Company between August 1991 and November 1997. See "Change
in Management" above.
In December 1995 the Company issued 10,945 shares of its Common Stock
to Melvin Leiner, Donald Marks, James Caprio and Darren Marks (43,778 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 6,250 shares of its Series B Preferred
Stock to Melvin Leiner, Donald Marks, James Caprio and Darren Marks (25,000
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 62,500 shares of its Common Stock to
Melvin Leiner, Donald Marks, James Caprio and Darren Marks (250,000 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
former officers and directors in repayment of loans made by such persons to the
Company: Melvin Leiner: 25,922 shares in repayment of loan of $51,843; Donald
Marks: 28,588 shares in repayment of loan of $57,175; James Caprio: 28,616
shares in repayment of loan of $57,232; and Darren Marks: 21,860 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 Melvin Leiner,
Donald Marks, James Caprio and Darren Marks in consideration for 100,000 shares
<PAGE>
of the Company's common stock. The Company's investment in Smartphone was
recorded at $200,000, which was the original cost of the former 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 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 $15,000 for these ACDC units and has a balance of $123, 859 owing to the
Company.
Transactions with Present Management
Effective January 30, 1998 the Company issued 550,000 shares of its common
stock to the shareholders of Moviebar, Incorporated and Vectorvision,
Incorporated in consideration for the acquisition of a business known as "Movie
Vision." Movie Vision rents video cassettes, primarily containing motion
pictures, through automated dispensing units in hotels. Movie Vision currently
has video cassette dispensing machines in approximately 140 hotels in the United
States. For financial statement purposes, the acquisition of Movie Vision was
valued at $1,100,000. Mark Bennett, the President and a director of the Company,
was shareholder of both Moviebar, Incorporated and Vectorvision, Incorporated
and received 55,000 shares of the Company's common stock in connection with this
transaction.
See "Stock Option and Bonus Plans" above for information concerning
stock options and stock bonuses granted to the Company's present officers and
directors.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of July 31, 1998, information with
respect to the only persons owning beneficially 5% or more of the outstanding
Common Stock and the number and percentage of outstanding shares owned by each
director and officer and by the officers and directors as a group. Unless
otherwise indicated, each owner has sole voting and investment powers over his
shares of Common Stock.
Number of Percent of
Name and Address Shares (1) Class (2)
- ---------------- --------- -----------
Mark Bennett
17821 Skypark Circle, Unit G-H
Irvine, CA 92614 224,900 3%
Michael Malet
17821 Skypark Circle, Unit G-H
Irvine, CA 92614 157,802
<PAGE>
Bruce S. Schames 1,000 2%
4551 North Dixie Highway
Boca Raton, FL 33431
David Markowski
17821 Skypark Circle, Unit G-H
Irvine, CA 92614 25,000 *
Marvin Berger
17821 Skypark Circle, Unit G-H
Irvine, CA 92614 80,000 1%
Chet Howard
1805 Apricot Glen Drive
Austin, TX 78746 25,000 *
George Pursglove
9380 N.W. 39 Court
Coral Springs, FL 33065 27,500 *
Officers and Directors as a
Group (7 persons) 541,202 7.2%
* Less than 1%
(2) Excludes shares issuable prior to September 30, 1998 upon the exercise of
options or warrants granted to the following persons:
Name Options exercisable prior to September 30, 1998
- ---- -----------------------------------------------
Mark Bennett 560,500
Michael Malet 457,000
Bruce Schames --
David Markowski 439,000
Chet Howard 50,000
George Pursglove 50,000
(2) Includes shares referenced in footnote (1) above but excludes any other
shares issuable upon the exercise of any warrants or options or upon the
conversion of any promissory notes or other convertible securities. See
"Dilution and Comparative share data."
SELLING SHAREHOLDERS
This Prospectus relates to:
<PAGE>
1. The sale of 3,415,250 shares of the Common Stock by the owners of
such shares. The shares were issued by the Company in various private offerings
for cash, services rendered, and in settlement of claims against the Company.
2. The sale of up to 116,937 shares of the Company's common stock
issuable upon the exercise of options and warrants. The options and warrants
were issued by the Company to certain investors in connection with the Company's
private offerings.
3. The sale of up to 125,000 shares of common stock issuable upon the
exercise of certain Sales Agent's Warrants. The Sales Agent's Warrants were
issued in connection with certain private offerings of the Company's securities.
4. The sale of up to 262,500 shares of common stock issued to financial
consultants.
5. The sale of up to 150,000 shares of Common Stock issuable upon the
exercise of warrants issued to financial consultants.
The owners of the Common Stock referred to above, and the holders of
the options and warrants, to the extent they exercise the options and warrants
and receive shares of the Company's Common Stock, are referred to as the
"Selling Shareholders".
<PAGE>
The names of the Selling Shareholders are:
Name Shares Issuable Shares to be Share Ownership
Shares Upon Exercise of Sold in This After Offering
Presently Owned Options or Offering
Warrants
Jack Levit 100,000 100,000 --
Maxwell B. Schuer 37,500 37,500 --
James Gilloon 12,500 12,500 --
Carl Schafer 37,500 37,500 --
Michael Pickens 125,000 125,000 --
Robert Herdina 1,250 1,250 --
Ann Lou Last 25,000 25,000 --
Fred Matulka 8,750 8,750 --
Anthony A. Cappola 5,000 5,000 --
Adrienne Cappola 5,000 5,000 --
Madeline A Esposito 5,000 5,000 --
William M.Goatley --
Revocable Trust 35,000 35,000 --
Scott Lyng 5,000 5,000 --
Michael & Associates 110,000 110,000 --
Cary A. Paulis 10,000 10,000 --
James E. and Helen M. 6,000 6,000 --
Picou
Matthew Sakurda 10,000 10,000 --
Maxwell B. Scheurer 5,000 5,000 --
Carl Shaifer 10,000 10,000 --
Kenneth Stilger 20,000 20,000 --
Franklin Stone 10,000 10,000 --
Alberta Tabony 5,000 5,000 --
Marvin S. Berger 50,000 50,000 --
Frank H. Harvey 40,000 40,000 --
Neils Lauersen 150,000 150,000 --
Jack Levit 50,000 50,000 --
Jeff McKay 23,500 23,500 --
Thomas M. Pisula 46,000 46,000 --
Nabih Akkawi 15,000 15,000 --
Warren Becker 10,000 10,000 --
Nancy and Richard Bixby 10,000 10,000 --
Lewis F. Bruce 10,000 10,000 --
Adreenne and Sal Coppola 5,000 5,000 --
Rodney J. Darling 30,000 30,000 --
Fernando DeMarquet 10,000 10,000 --
<PAGE>
Maher Fasheh 10,000 10,000 --
Rodney Fingleson 10,000 10,000 --
Ray C. Felshman Sr., IRA 50,000 50,000 --
Account
Ken Hiniker 25,000 25,000 --
Errol Kaplan 45,000 45,000 --
Leslie Kasar 10,000 10,000 --
Steven D. Kremer, M --
Sterling I.G.A. 30,000 30,000
Jack Levit 100,000 100,000 --
Mark J. Levy 10,000 10,000 --
Thomas M. Pisula 104,000 104,000 --
Mark A. Raifman 30,000 30,000 --
Larry C. Roark 100,000 100,000 --
Gregory Rubel 2,000 2,000 --
Glen L. Rufenach 20,000 20,000 --
Paul Sciarrino 10,000 10,000 --
Steven W. Seaworth 10,000 10,000 --
Scott Sibella 5,000 5,000 --
James Sink 100,000 100,000 --
Kenneth Stilger 25,000 25,000 --
Marc R. VanNess 25,000 25,000 --
Charles M. Wheet 10,000 10,000 --
Richard Clinton 20,000 20,000 --
Dennis Cohen 5,000 5,000 --
Karolin Dadasahhakimi 50,000 50,000 --
Financial Processing --
Institutions, Inc. 50,000 50,000
Ian Garrun 5,000 5,000 --
Barry Halperin 125,000 125,000 --
Valerie Koff 5,000 5,000 --
Sanford I. Litchman --
Revocable Living Trust 50,000 50,000
Robert H. Mandelbaum 2,500 2,500 --
Randy and Luz Marks 50,000 50,000 --
Martin Marks 100,000 100,000 --
Arnold L. Rosen 464,000 464,000 --
Terence P. Scheckler 5,000 5,000 --
William Solfisburg 50,000 50,000 --
W.R. Smith Profit Trust 50,000 50,000 --
Morteza Yassini 100,000 100,000 --
Jeffrey Zwiebel 235,000 235,000 --
David Schevel 3,000 3,000 --
Mervin Herson 3,000 3,000 --
<PAGE>
Michael Carey 450 450 --
Howard Lefkowitz 1,125 1,125 --
Gerald Mendelovitz 375 375 --
Marcus G. Bebee 3,125 3,125 --
Peter E. Robbins 3,125 3,125 --
Herman and --
Marlena Goldblatt 1562.50 1562.50
Gabriel Herman 1562.50 1562.50 --
Jeff Kontir 1562.50 1562.50 --
Thomas --
Oelschliger 1562.50 1562.50
Max Strauss 1562.50 1562.50 --
David Welch 3,125 3,125 --
Keith Cooper 1,875 1,875 --
Bernard Etra 750 750 --
Allen Franco 750 750 --
George Frost 1,875 1,875 --
Peter Joseph 3,750 3,750 --
Richard Kandel 1,875 1,875 --
Kandal & Son, Inc.P.S.P. --
1,875 1,875
Werteim & Co.Retirement --
Plan,FBO RonaldLeibman
1,875 1,875
Wayne Katz 750 750 --
Ronald Liebmann 6,875 6,875 --
David McCooey 3,750 3,750 --
Albert Milstein 1,875 1,875 --
Robert Rosenberg 1,875 1,875 --
Leonard Schoen 3,750 3,750 --
James Simanton,Revocable 7,500 7,500 --
Trust
Thomas, Thomas,Armstrong & 3,000 3,000 --
Niesen Retirement
Plan, FBO Charles
E. Thomas Jr
SRK Associates 1,875 1,875 --
Dennis Wallach 1,125 1,125 --
Dr. Lennart C. 2,025 2,025 --
Belok
Dr. Lennart C. 1,275 1,275 --
Belok MD PC
Sidney, Bors 1,875 1,875 --
<PAGE>
Jean Cheng 3,750 3,750 --
James Sink 25,000 25,000 --
Euromarket Advisory 25,000 50,000 75,000 --
The Stratia
Group, Inc. 50,000 50,000 --
Marketing Barometrics 37,500 37,500
Investor
RelationsInternational 12,500 12,500 25,000 --
Don McKeown 6,250 6,250 --
Ron Liebmann 6,250 6,250 --
S. Socrates 6,250 6,250 --
Baritex, Inc. 50,000 50,000 --
Small Business 50,000 50,000 --
Brokers, Inc.
Luge Financial 50,000 50,000 --
Corporation
Stonegate Securities 50,000 50,000 --
Instacall -
Robert Herbol 300,000 300,000
Texas Capital Securities 25,000 50,000 75,000 --
Inc.
First Interregional 25,000 25,000
Texas Capital
Securities, Inc. 6,250 6,250
Harbor Financial, Inc. 10,500 (1) 10,500 (1)
Thomas Renna 8,250 (2) 8,250 (2)
1st Discount Brokerage, Inc. 25,000 25,000
_________ __________ _________
3,714,000 391,937.50 4,105,937.50
========= ========== ============
(1) Texas Capital Securities, Inc. assigned 10,500 of its Sales Agents Warrants
to this person.
(2) Texas Capital Securities, Inc. assigned 8,250 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;
<PAGE>
(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 ss.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 102 under the Securities Exchange Act of 1934 ("1934 Act") until
their participation in that distribution is completed. A "distribution" is
defined in Rule 102 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 101 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 102 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 102 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 102
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.
<PAGE>
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 Delaware 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 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 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 0.2 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
<PAGE>
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 0.25 of a 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.
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, l997 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,
1997 and 1998, 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 March 31, 1998 the Company had a liability of
$724,000 for franchise and equipment deposits paid by this franchisee to the
Company.
Other than the foregoing, there are no legal proceedings to which the
Company is a party or to which its properties are subject, other than routine
litigation incident to the Company's business which is covered by insurance or
which would not have a material adverse effect on the Company.
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
<PAGE>
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.
<PAGE>
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 $3,247
NASD Filing Fee 1,588
Blue Sky Fees and Expenses 2,000
Printing and Engraving Expenses 2,000
Legal Fees and Expenses 25,000
Accounting Fees and Expenses 5,000
Miscellaneous Expenses 1,165
----------
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. All share amounts
have been adjusted to reflect the Company's forward and reverse stock splits.
Shares of
Name Common Stock Consideration Date of Sale
Barbara Sachs 1,316 $5,000 8/3l/95
James Sterns 1,333.25 $9,600 12/3l/95
David L. Brown 1,533.25 $11,040 12/31/95
Melvin Leiner 10,944.50 Repayment of loan
in the amount
of $90,500 12/3l/95
<PAGE>
Donald Marks 10,944.50 Repayment of loan
in the amount
of $90,500 12/31/95
James Caprio 10,944.50 Repayment of loan
in the amount
of $90,500 12/31/95
Darren Marks 10,944.50 Repayment of loan
in the amount
of $90,500 12/31/95
Jeffrey S. Leiner 550 $1,650 6/30/96
Bruce S. Schames 718.75 $2,156 6/30/96
Albert A. Matani 8333.25 $25,000 6/30/96
Melvin Leiner 25,921.50 Repayment of loan
in the amount
of $51,843 6/30/96
Donald Marks 28,587.50 Repayment of loan
in the amount
of $57,175 6/30/96
James Caprio 28,616 Repayment of loan
in the amount
of $57,232 6/30/96
Darren Marks 21,860 Repayment of loan
in the amount
of $43,720 6/30/96
Melvin Leiner 25,000 Undivided 2.5%
equity interest
in Smart Phone, Inc. 9/30/96
Donald Marks 25,000 Undivided 2.5%
equity interest
in Smart Phone, Inc. 9/30/96
James Caprio 25,000 Undivided 2.5%
equity interest
in Smart Phone, Inc. 9/30/96
Darren Marks 25,000 Undivided 2.5%
equity interest
in Smart Phone, Inc. 9/30/96
Kenneth Hiniker 12,500 $25,000 10/10/96
William M. Goatley 12,500 $25,000 10/09/96
Philip S. Mumford 12,500 $25,000 10/09/96
H. George Levy 12,500 $25,000 10/25/96
P.L. Anderson Jr. Trust 12,500 $25,000 10/08/96
Stacey Vaneck 3,125 $6,250 10/25/96
Pamela Campadonico 3,125 $6,250 10/24/96
Michael Associates 31,250 $62,500 10/25/96
<PAGE>
James D. Sink 50,000 $100,000 10/10/96
Joseph D. McKeown 12,500 $50,000 10/11/96
Dr. Lennart Belok 25,000 $50,000 10/3l/96
Barry Bendett 12,500 $25,000 10/3l/96
Joel Perez 12,500 $25,000 10/3l/96
Shareholders of Link 168,539.25 All issued and 12/3l/96
International outstanding shares of
Technologies, Inc. Link International
Technologies, Inc.
Dr. Lennart C.Belok 35,000 $98,000 3/30/97
Bruce Berg 10,000 $28,000 3/30/97
Douglas C Carroll. 3,750 $10,500 3/30/97
Keith H.Cooper 2,500 $7,000 3/30/97
John S.Dehne 5,000 $14,000 3/30/97
Dr. Michael H.Friedman 10,000 $28,000 3/30/97
Peter J.Joseph 5,000 $14,000 3/30/97
Steven M.Kaitz 5,000 $14,000 3/30/97
Barry H.Leifer 10,000 $28,000 3/30/97
Harold B.Lewis 10,000 $28,000 3/30/97
Joseph Liebmann 11,000 $30,800 3/30/97
Mona Liebmann 20,000 $56,000 3/30/97
Ronald Liebmann 17,857.50 $50,000 3/30/97
Wertheim & Co.
Retirement Plan 10,000 $28,000 3/30/97
Albert Milstein 5,000 $14,000 3/30/97
Nathan M.Perlmutter 10,000 $28,000 3/30/97
Eugene Simonetti 3,750 $10,500 3/30/97
Socrates Skiadas 4,464.38 $50,000 3/30/97
Socrates Skiadas 3,035.63 $34,000 3/30/97
Jonathan Slass 2,500 $28,000 3/30/97
William F Solfisburg 17,500 $196,000 3/30/97
Jonathan Teiffenbum 3,750 $42,000 3/30/97
Sidney Bohrs 5,000 $56,000 3/30/97
Jon T.Olsen 2,187.50 $35,000 3/30/97
Jack L Slack. 2,187.50 $35,000 3/30/97
Michael Associates 5,000 $56,000 3/30/97
William F.Solfisburg 5,000 $56,000 4/23/97
Texas Capital Securi-
ties, Inc. 5,000 Services Rendered 9/25/97
Euromarket Advisory,
Inc. 5,000 Services Rendered 9/25/97
<PAGE>
Bruce Yasmeh 306,250 $245,000 1/30/98
Jack Levit 125,000 $100,000 1/30/98
Bill Solfisburg 20,000 $16,000 1/30/98
Max Schuerer 25,000 $10,000 1/30/98
James Gilloon 12,500 $10,000 1/30/98
Edward Haggerty 6,250 $5,000 1/30/98
Carl Schafer 37,500 $30,000 1/30/98
Michael Pickens 125,000 $100,000 1/30/98
Robert Herdina 1,250 $1,000 2/11/98
Max Schuerer 12,500 $10,000 2/11/98
Ann Lou Last 25,000 $20,000 2/11/98
Fred Matulka 8,750 $7,000 2/11/98
Anthony A. Cappola 5,000 $5,000 3/23/98
Adrienne Cappola 5,000 $5,000 3/23/98
Madeline A Esposito 5,000 $5,000 3/23/98
William M.Goatley
Revocable Trust 35,000 $35,000 3/23/98
Harold E. Hamburg Trust 10,000 $10,000 3/23/98
Scott Lyng 5,000 $5,000 3/23/98
Michael & Associates 110,000 $110,000 3/22/98
Cary A. Paulis 10,000 $10,000 3/20/98
James E. and Helen M. Picou 6,000 $6,000 3/21/98
Matthew Sakurda 10,000 $10,000 3/23/98
Maxwell B. Scheurer 5,000 $5,000 3/20/98
Carl Shaifer 10,000 $10,000 3/17/98
Kenneth Stilger 20,000 $20,000 3/22/98
Franklin Stone 10,000 $10,000 3/21/98
Alberta Tabony 5,000 $5,000 3/24/98
Marvin S. Berger 50,000 $50,000 3/28/98
Frank H. Harvey 40,000 $40,000 5/27/98
Niels Lauersen 150,000 $150,000 4/23/98
Jack Levit 50,000 $50,000 3/18/98
Jeff McKay 23,500 $23,500 5/14/98
Thomas M. Pisula 46,000 $46,000 3/28/98
Nabih Akkawi 15,000 $15,000 6/08/98
Warren Becker 10,000 $10,000 6/08/98
Nancy and Richard Bixby 10,000 $10,000 6/08/98
Lewis F. Bruce 10,000 $10,000 6/15/98
Adreene and Sal Coppola 5,000 $5,000 6/22/98
Rodney J. Darling 30,000 $30,000 6/11/98
Fernando DeMarquet 10,000 $10,000 6/09/98
Maher Fasheh 10,000 $10,000 6/08/98
Rodney Fingleson 10,000 $10,000 5/29/98
<PAGE>
Ray C.Fleshman Sr. 50,000 $50,000 6/10/98
Ken Hiniker 25,000 $25,000 6/16/98
Errol Kaplan 45,000 $45,000 6/13/98
Leslie Kasar 10,000 $10,000 6/25/98
Steven D. Kremer 30,000 $30,000 6/9/98
Jack Levit 100,000 $100,000 5/14/98
Mark J. Levy 10,000 $10,000 6/16/98
William McBeath 50,000 $50,000 6/5/98
Marvin T. Oishi 10,000 $10,000 6/7/98
Thomas M. Pisula 104,000 $104,000
Mark A. Raifman 30,000 $30,000 6/8/ 6/1798
Larry C. Roark 100,000 $100,000 6/09/98
Gregory Rubel 2,000 $2,000 6/19/98
Glen L. Rufenach 20,000 $20,000 6/08/98
Paul Sciarrino 10,000 $10,000 6/08/98
Steven W. Seaworth 10,000 $10,000 6/09/98
Scott Sibella 5,000 $5,000 6/09/98
James Sink 100,000 $100,000 6/06/98
Kenneth Stilger 25,000 $25,000 6/08/98
Marc R. VanNess 25,000 $25,000 6/08/98
Charles M. Wheet 10,000 $10,000 6/15/98
Richard Clinton 20,000 $20,000
7/22/98
Dennis Cohen 5,000 $5,000 7/22/98
Karolin Dadashhakimi 50,000 $50,000 7/22/98
Financial Processing
Institutions, Inc. 50,000 $50,000 7/22/98
Ian Garrun 5,000 $5,000 7/22/98
Barry Harperin 125,000 $125,000 7/22/98
Valerie Koff 5,000 $5,000 7/22/98
Sanford Lichman
Revocable
Living Trust 50,000 $50,000 7/22/98
Robert H. Mandelbaum 2,500 $2,500 7/22/98
Randy and Liz Marks 50,000 $50,000 7/22/98
Martin Marks 100,000 $100,000 7/22/98
Arnold L. Rosen 464,000 $464,000 7/22/98
Terence P. Scheckler 5,000 $5,000 7/22/98
William Solfisburg 50,000 $50,000 7/22/98
W.R. Smith Profit Trust 50,000 $50,000 7/22/98
Mortexa Yassini 100,000 $100,000 7/22/98
Jeffrey Zwiebel 235,000 $235,000 7/22/98
David Schevel 3,000 $3,000 7/22/98
David Schevel 3,000 $3,000 7/22/98
<PAGE>
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 are convertible into shares of the
Company's Common Stock on the basis of 0.625 shares of Common Stock for each
$1.00 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 investment
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
Regulations of the Securities and Exchange Commission.
<PAGE>
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)
--------------
4.1 Form of 1993 Incentive Stock Option Plan
and 1993 Non-Statutory Stock Option Plan (2)
--------------
4.2 Form of Stock Bonus Plan (3)
--------------
5 Opinion of Counsel
--------------
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).
(2) Incorporated by reference, and as same exihibit number, from Registration
Statement on Form SB-2 (Commission File Number 33-70546-A).
(3) Incorporated by reference, and as same exhibit number, from Amendment No. 1
to Registration Statement on Form SB-2 (Commission File Number 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.
<PAGE>
(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 amendment
any of the securities being registered which remain unsold at the termination 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.
<PAGE>
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
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
<PAGE>
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, 1997 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended June 30, 1997 and 1996. 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, 1997 and the results of their operations
and cash flows for the years ended June 30, 1997 and 1996 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
October 8, 1997
Denver, Colorado
<PAGE>
SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
June 30, 1997
Assets
Current assets
Cash and cash equivalents ($250,000 restricted) (Note 6) $ 295,900
Accounts receivables, less allowance for doubtful
accounts of $27,584 205,888
Inventories 1,083,199
Prepaid expenses and other current assets, net of
accumulated amortization of $178,185 205,860
Notes receivable, current portion (Note 4) 215,442
----------
Total current assets 2,006,289
----------
Property and equipment, net of accumulated
depreciation of $424,002 737,079
----------
Other assets
Notes receivable (Note 4) 726,448
Patents (Note 17), net of accumulated
amortization of $41,804 474,941
Investments (Note 5) 1,510,000
Other 89,416
----------
Total other assets 2,800,805
---------
Total assets $5,544,173
==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 567,407
Accrued expenses 727,698
Bank line of credit (Note 6) 250,000
Current obligations under capital lease (Note 7) 8,377
Current maturities of long-term debt (Note 7) 1,066,985
Franchise deposits and deferred revenue (Note 5) 944,154
Officer advances payable (Note 9) 65,809
----------
Total current liabilities 3,630,430
Long-term liabilities
Long-term debt (Note 7) 48,000
Obligations under capital lease (Note 7) 37,919
----------
Total long-term liabilities 85,919
----------
Total liablities 3,716,349
---------
Commitments and contingencies (Notes 4 and 15)
Stockholders' equity (Notes 10 and 11)
Preferred stock, Series A, $.001 par value,
50,000 shares authorized, 25,250 shares issued
and outstanding (liquidation preference of 25
$505,000)
Preferred stock, Series B, $.001 par value,
100,000 shares authorized,
100,000 shares issued
or outstanding (liquidation preference of
$100,000) 100
Common stock $.0001 par value 40,000,000 shares
authorized, 8,481,995 issued and outstanding 848
Additional paid in capital 15,134,047
Accumulated deficit (13,307,196)
-----------
Total stockholders' equity 1,827,824
-----------
Total liabilities and stockholders' equity $5,544,173
===========
See notes to consolidated financial statements
<PAGE>
SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Year Ended June 30,
1997 1996
Revenves
Cellular phone rentals $ 904,351 $ 849,877
Cellular phone activations 1,780,019 846,524
Calling cards 244,309 -
Equipment and other 1,298,222 831,171
Licensing 500,000 -
Franchise, royalty and licensing 3,211 80,307
----------- -----------
Total revenue 4,730,112 2,607,879
----------- -----------
Cost of sales 2,861,421 1,686,188
----------- -----------
Gross profit 1,868,691 921,691
----------- -----------
Operating expenses
General and administrative 1,774,288 1,518,950
Depreciation and amortization 247,864 206,581
Selling expenses 1,128,395 982,130
Equity based compensation 1,431,741 1,765,000
Research and development 34,686 134,470
----------- -----------
Total expenses 4,616,974 4,607,131
----------- -----------
Operating loss (2,748,283) (3,685,440)
Other income (expense)
Interest expense (71,537) (65,221)
Interest income 30,924 27,155
----------- -----------
(40,613) (38,066)
Loss before income taxes (2,788,896) (3,723,506)
Income tax benefit (Note 8) - -
----------- ----------
Net loss $(2,788,896) $(3,723,506)
=========== ===========
Net loss per common share $ (.42) $ (1.56)
=========== ===========
Weighted average common shares outstanding (Notes 11
and 12) 6,667,291 2,384,055
=========== ===========
See notes to consolidated financial statements
<PAGE>
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 1997 and 1996
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subscribed Preferred Preferred
Preferred Stock Stock Series A Stock Series B
------------------ --------------- --------------
Subscribed Additional
Number of Number of Number of Number of Paid-in Accumulated
Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Total
-------- ------- ------- ------ ------ ------ -------- ------ --------- ------------ ------
Balance June 30,
1995 24,250 245,000 - $ - - $ - 20,188,710 2,018 8,547,550 (6,786,594) 2,007,974
Adjustment of stock
upon reverse stock
split of 1 for 10 - - - - - - (18,169,780)(1,816) 1,816 - -
(Note 12)
Issuance of common
stock for cash
(ranging from $.75
to $1.88 per share - - - - - - 50,928 5 50,301 - 50,306
Issuance of common
stock upon conversion
of officer notes
payable ($2.07 per
share) (Note 11) - - - - - - 175,110 18 361,982 - 362,000
Issuance of common
stock for services
($1.00 per share)
(Note 11) - - - - - - 1,365,000 136 1,364,864 - 1,365,000
Issuance of common
stock upon conversion
of officer notes
payable ($.50 per
share)(Note 11) - - - - - - 419,940 42 209,928 - 209,970
Officer notes payable
forgiven (Note 11) - - - - - - 124,294 124,294
Accrued officer
salaries forgiven
(Note 11) - - - - - - - - 400,000 - 400,000
Preferred stock
- - subscribed
(Note 11) 101,000 120,000 - - - - - - - - 120,000
Dividends paid on
preferred stock - - - - - - - - (8,200) (8,200)
Net loss for the year - - - - - - - - - (3,723,506) (3,723,506)
------- -------- -------- ----- ------ ----- --------- ----- -------- ---------- ----------
Balance - June 30,
1996 125,250 365,000 - - - - 4,029,908 403 11,060,735 (10,518,300) 907,838
Issuance of common
stock issued for
investments (Note 5) - - - - - - 1,074,157 108 799,892 - 800,000
Issuance of common
stock for services
(Note 11) - - - - - - 892,500 89 927,889 - 927,978
Issuance of common
stock for cash (ranging
from $.50 to $.70 per
share), net of $198,160
in offering costs (Note 11)- - - - - - 2,292,570 229 1,176,411 - 1,176,640
Issuance of common stock
upon conversion of notes
payable (ranging from
$.50 to $.70 per share)
(Note 11) - - - - - - 192,860 19 124,981 - 125,000
Imputed value of stock
options granted for
consulting services
and interest (Note 11) - - - - - - - - 679,264 - 679,264
Subscribed preferred
stock issued (Note
11) (125,250) (365,000) 25,250 25 100,000 100 - - 364,875 - -
Net loss - - - - - - - - (2,788,896) (2,788,896)
------- --------- ------- --- ------ ----- --------- ----- ----------- ------------
Balance
June 30, 1997 - $ - 25,250 $25 100,000 $ 100 8,481,995 $848 $15,134,047 $(13,307,196) $1,827,824
======= ========= ====== === ======= ===== ========= ==== =========== ============= =========
</TABLE>
<PAGE>
SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES
See notes consolidated financial statements.
Consolidated Statements of Cash Flows
Year Ended June 30,
1997 1996
------------- -----------
Cash flows from operating activities
Net (loss) $(2,788,896) $(3,723,506)
----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 206,186 205,021
Amortization 41,804 1,560
Imputed value of options granted for services 503,763 -
and interest
Gross profit on sales of equipment to officers
in settlement of advances payable (Note 9) - (284,060)
Sales settled by receipt of note receivable (280,000) -
Sales settled by receipt of officer notes (150,000) -
receivable
Sales settled by receipt of investments (1,310,000) -
Stock issued for services 927,978 1,765,000
Changes in assets and liabilities
Inventories 662,655 (80,724)
Accounts and other receivables 116,737 (304,171)
Prepaid expenses 28,545 4,149
Accounts payable 104,909 350,330
Accrued expenses (5,002) 303,383
Franchise deposits and customer deposits 88,391 (96,186)
---------- ----------
935,966 1,864,302
Net cash used in operating activities (1,852,930) (1,859,204)
---------- ----------
Cash flows from investing activities
Repayments (advances) on notes receivable 7,110 (234,000)
Capital expenditures (13,522) (52,000)
Change in other assets (24,855) 24,292
---------- ----------
Net cash used in investing activities (31,267) (261,708)
---------- ----------
Cash flows from financing activities
Proceeds from issuance of long-term debt 797,500 160,348
Proceeds (payments to) from officer advances 50,209 1,146,264
Payments under capital lease obligation (7,565) (7,440)
Proceeds from issuance of common stock 1,176,640 50,306
Payments on long-term debt (159,229) (57,909)
Dividends paid - (8,200)
---------- ----------
Net cash provided by financing activities 1,857,555 1,283,369
---------- ----------
Net decrease in cash (26,642) (837,543)
Cash at beginning of year 322,542 1,160,085
---------- ----------
Cash at end of year $ 295,900 $ 322,542
========== ==========
Supplemental disclosure of cash flows information
Cash paid during the year for interest was $70,710 (1997) and $57,311
(1996).
Non-cash investing and financing activities (Note 16)
See notes to consolidated financial statements
<PAGE>
Note 1 - Organization and Significant Accounting Policies
Organization
SIMS COMMUNICATIONS, Inc. and Subsidiaries was incorporated in the state of
Delaware on August 15, 1991. The Company was formed as a communication equipment
company and has expanded its focus to include telecommunication services,
cellular telephone activations and rentals, long distance, prepaid calling
cards, inbound 800 service and international operator services. Its customers
are located throughout the states of Florida, North and South Carolina,
California, Michigan, Wisconsin, Mississippi and Louisiana. Additionally, the
Company has established relationships for future international sales in Europe,
Asia and Canada.
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.,
and Link International Technologies, Inc. and its wholly owned subsidiaries New
View Technologies, Inc., Link Dispensing Systems, Inc., and Southeast Phone
Card, 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, telephone debit card dispensers and other
miscellaneous communications equipment and are recorded at the lower of cost or
market determined by the first-in, first-out method.
<PAGE>
Note 1 - Organization and Significant Accounting Policies (continued)
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.
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. 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.
Patents
Patent costs are those costs related to filing for patents and the value
allocated to the patents based upon the business acquisition (Note 17). These
costs are amortized on a straight-line basis over the estimated useful live of
ten years.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, restricted cash, receivables, accounts payable, and accrued
expenses approximated fair value as of June 30, 1997 because of the relatively
short maturity of these instruments.
The carrying amounts of debt issued approximate fair value because interest
rates on these instruments approximate market interest rates and a significant
portion are classified as current maturities.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
<PAGE>
Note 1 - Organization and Significant Accounting Policies (continued)
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), telephone debit card dispensers 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.
Reclassifications
Certain accounts in the June 30, 1996 financial statements have been
reclassified to conform to the June 30, 1997 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. During the year ended June 30,
1997, the Company continued to suffer recurring losses from operations in excess
of $2,788,000, resulting in an accumulated deficit of approximately $13,307,000.
The Company is looking to raise additional equity capital through private
placements. Additionally, the Company is in the process of negotiating
significant licensing and sales agreements. However, there can be no assurance
that the Company will be successful in obtaining additional licensing or sales
agreements or in raising additional capital. The consolidated financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
<PAGE>
Note 3 - Property and Equipment
Property and equipment consist of the following:
June 30,
1997
Property and equipment
Vehicles $ 20,608
Furniture and fixtures 127,230
Machinery and equipment 961,243
Software 52,000
Less accumulated depreciation (424,002)
----------
$ 737,079
Note 4 - 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 February 1, 1998. 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.
During the years ended June 30, 1997 and 1996, the Company sold equipment to a
customer for a total sales price of $280,000 and $384,000, respectively. No
payments have been received as of June 30, 1997. During the years ended June 30,
1997 and 1996, a Company contracted to provide services necessary to get the
units operational failed to perform. That Company is no longer involved and
operations are to commence by October 1997. As such, all amounts due related to
the sales have been extended. The total amount of $ 664,000 is payable under the
terms of a note receivable which bears interest at 8.5%. Principal and interest
is payable commencing by December 31, 1997 in equal monthly installments of
approximately $ 14,000 through November 30, 2002
Note 5 - Investments
During the year ended June 30, 1997, the Company acquired a 10% minority
interest in Smartphone, Inc. (a company that sells prepaid cellular air time)
from certain officers and directors of the Company at their original cost basis
of $200,000. This was effected by the issuance of 400,000 shares of common stock
which were valued at $.50 a share.
<PAGE>
Note 5 - Investments (continued)
During the year ended June 30, 1997, the Company sold 30 ACDC units and 100
telephone debit card dispensers for $ 810,000 as well as entering into a
licensing agreement for $500,000 with Cancall Cellular Communications, Inc.,
(Cancall) for a total price of $1,310,000. The licensing agreement entitles
Cancall the right to market, distribute and operate the Company's products and
trademarks on an exclusive basis within the territories of Canada and Europe and
on a non-exclusive basis within the territories of the United States and Asia.
The exclusive license within the European territory is subject to certain
minimum purchase commitments the must be met by Cancall over a two year period.
In consideration for the above transaction, the Company received 1,807,800
shares of Cancall's Class A $ 1.00 par value preferred stock. The preferred
stock can be converted into 3,013,000 shares of Cancall's common stock at a rate
of $.60(Canadian) per share after a one year mandatory holding period. Cancall's
common stock is traded on the Vancouver Stock Exchange under the symbol CLE,
however, the preferred stock has no established market or readily determinable
market value. As such, the transaction was valued at the cost of the underlying
goods sold.
As of June 30, 1997, the 100 telephone debit card dispensers had not yet been
delivered. As such, deferred revenue in the amount of $ 105,000 has been
recorded in the financial statements.
Note 6 - 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, 1997 was approximately $250,000. The
line-of-credit is secured by a restricted certificate of deposit with a balance
at June 30, 1997 of approximately $250,000. The line-of-credit bears interest at
5.77% payable monthly. The line-of-credit expires June 7, 1998.
Note 7 - Notes Payable and Capital Leases
June 30,
1997
Promissory note payable at 10% interest payable monthly
commencing September 15, 1995. Balance of principal is
payable in full by September 30, 1997. As additional
consideration, the Company agrees to pay the note holder
8.0% of all profits received through the Company's
agreements with Commonwealth Group International, Inc.
(Note 4). $ 310,348
<PAGE>
Note 7 - Notes Payable and Capital Leases (continued)
June 30, 1997
8.0% convertible notes payable - individuals, interest
payable quarterly, principal due at maturity dates
ranging from August 1997 to April 1998. Debt
includes conversion to common stock feature with
conversion rates ranging from $1.25 to $2.50 per
share. Additionally, each note holder was issued
options to purchase shares of the Company's 672,500
stock (Note 11)
Note payable - individual, bearing interest at
bank prime plus 1% (8.5% at June 30, 1997),
principal payments of $5,000 plus interest
due monthly through September 1998. 75,000
Non interest bearing note payable -
individual, principal payable in monthly
installments of $1,500
through June 2000. 51,000
11% Note payable - bank, principal and
interest payable in monthly installments
of $541 through June 14, 1998.
Collateralized by equipment. 6,137
----------
1,114,985
Less current maturities (1,066,985)
-------------
Total $ 48,000
============
Principal payment on notes payable subsequent to June 30, 1997 are as follows:
Year Ending June 30,
1998 $1,066,985
1999 33,000
2000 15,000
----------
$1,114,985
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, 1997.
<PAGE>
Note 7 - Notes Payable and Capital Leases (continued)
Year Ending June 30,
1998 $ 14,079
1999 12,294
2000 12,294
2001 12,294
2002 11,270
--------
Total 62,231
Less interest (15,935)
--------
$ 46,296
The assets recorded under capital leases are as follows:
Furniture and fixtures $ 45,535
Less accumulated amortization (10,221)
$ 35,314
Amortization expense for equipment under capital lease was $2,271 and $7,780 for
the years ended June 30, 1997 and 1996, respectively.
Note 8 - 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, 1997 was
approximately $4,051,000.
Accordingly, there is no net deferred tax asset reflected in the accompanying
consolidated financial statements.
<PAGE>
SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consoidated Financial Statements
Note 8 - Income Taxes (continued)
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,
1997 1996
Statutory federal income tax rate (benefit) (34.0)% (34.0)%
Valuation allowance for net operating loss 34.0 34.0
------ ------
Effective tax rate (benefit) - % - %
====== ======
The deferred tax asset consists of the following:
June 30,
1997
Total long-term deferred tax asset $4,112,000
Valuation allowance (4,112,000)
$ -
At June 30, 1997, the Company has approximately $12,094,000 of net operating
loss carryforwards for income tax reporting purposes which expire in 2007
through 2012. 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 9 - Related Party
Sales
During the year ended June 30, 1997 and 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 $150,000 and $350,000, respectively, and was
used to satisfy $15,000 of officer advances payable and created $135,000 note
receivable for the year ended June 30, 1997 and was used to satisfy $350,000 of
officer advances payable for the year ended June 30, 1996.
During the fiscal year ended June 30, 1997, the officers sold telephone debit
card dispensers to the Company for a sales price of $30,600 which was recorded
as officer advances payable.
During the fiscal year ended June 30, 1997, the Company purchased a 10% interest
in Smartphone, Inc. from officers of the Company (Note 10).
<PAGE>
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 9 - Related Party (continued)
Officer Advances Payable
During the year ended June 30, 1997, officers advanced amounts to the Company
to help fund operations and meet obligations. At June 30, 1997, $ 65,809
remains outstanding and due on demand to certain officers and directors of the
Company.
Note 10 - 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 5,000,000
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.
In order for the stock options to qualify for Incentive Stock Option treatment:
1. 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.
2. Options may not be exercised until one year following the date of
grant. Options granted to an employee 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.
3. 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).
<PAGE>
Note 10 - Stock Option and Bonus Plans (continued)
Non-Qualified Stock Option Plan
The Non-Qualified stock Option Plan authorizes the issuance of up to 3,000,000
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 following is a summary of options and warrants granted:
Non-Qualified Options
Incentive Stock Issued Not Exercise
Stock Related to a Price Per
Options Options Plan Share
Outstanding June 30, 1995 180,000 - - $ 5.50 - $6.50
Options expired - - - -
Options exercised - - - -
Options granted - - - -
---------- ---------- ---------- ----------
Outstanding June 30, 1996 180,000 - - 5.50 - 6.50
Options expired - - - -
Options exercised - - - -
Options granted 2,769,000 40,000 809,250 1.00 - 3.25
---------- ---------- ---------- -----------
Outstanding June 30, 1997 2,949,000 40,000 809,250 $1.00 - $6.50
========== ========== ========== ==========
<PAGE>
Note 10 - Stock Option and Bonus Plans (continued)
The Company has the following stock options outstanding as of June 30, 1997:
Currently
Options Exercise Exercisable
Outstanding Price Expiration Date Options
90,000 5.50 September 1999 90,000
90,000 6.50 September 1999 90,000
2,000,000 1.00 December 2006 -
644,000 1.00 December 2001 -
90,000 3.25 September 1999 -
35,000 1.25 December 2006 -
20,000 1.25 September 1999 20,000
20,000 2.00 September 1999 20,000
90,000 2.75 September 1999 90,000
160,000 .50 December 2001 160,000
100,000 1.25 December 2001 100,000
100,000 1.25 August 2001 100,000
50,000 1.75 December 2001 50,000
75,000 1.00 May 2000 75,000
37,500 2.50 May 2000 37,500
43,750 1.25 May 2000 43,750
153,000 2.00 May 2000 - July 2002 153,000
---------- ----------
3,798,250 1,029,250
=========== ==========
Effective for the year ended June 30, 1997, the Financial Accounting Standards
Board issued Statement No. 123, "Accounting for Stock Based Compensation," ("FAS
123") which encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options and other equity
instruments to employees. FAS 123 requires the recognition of expense for such
grants, described above, to acquire goods and services from all nonemployees.
Additionally, although expense recognition is not mandatory for issuances to
employees, FAS 123 requires companies that choose not to adopt the new fair
value accounting rules to disclose pro forma net income and earnings per share
information using the new method.
The Company has adopted the disclosure-only provisions of FAS 123. Accordingly,
no compensation cost has been recognized for the issuances of stock options to
employees. For the year ended June 30, 1997, employees of the Company were
issued options to purchase a total of 2,899,000 shares of the Company's common
stock at rates ranging from $1.00 to $3.75 per share expiring from September
1999 to December 2006. Had compensation cost for the Company's issuances of
stock options during the year ended June 30, 1997 been determined based on the
fair value at the date of grant consistent with the provisions of FAS 123, the
Company's 1997 net income and earnings per share would have been decreased to
the pro forma amounts indicated below:
<PAGE>
Note 10 - Stock Option and Bonus Plans (continued)
Net loss - as reported $(2,788,896)
Net loss - pro forma $(6,429,498)
Net loss per share - as reported $ (.42)
Net loss per share - pro forma $ (.96)
The Company utilizes the Black-Scholes options-pricing model to calculate the
fair value of each individual issuance of options or warrants with the following
assumptions used for grants during the year ended June 30, 1997; dividends yield
of 0.0%; expected average annual volatility of 100.10%; average annual risk-free
interest rate of 8%; and expected terms ranging from 1.5 to 4.5 years.
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. For the
years ended June 30, 1997 and 1996, 842,000 and 1,365,000 shares of the
Company's common stock have been issued under the Stock Bonus Plan,
respectively.
Note 11 - Stockholders' Equity
Common Stock
The Company is authorized to issue 40,000,000 shares of $.0001 par value Common
Stock.
Preferred Stock
The Company is authorized to issue up to 300,000 shares of $.001 par value
Preferred Stock. The Board of Directors has the authority to divide the
Preferred Stock into series and, within the certain limitations, to set the
relevant terms of such series created.
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. 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. Dividends not declared
do not cumulate. Additionally, each share of Series A Preferred Stock is
convertible into .80 shares of the Company's Common Stock at any time after July
1, 1999. 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. As of
June 30, 1997, the Company has 25,250 shares of Series A Preferred Stock issued
and outstanding.
<PAGE>
Note 11 - Stockholders' Equity (continued)
Preferred Stock (continued)
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. Each share
of series B Preferred Stock is entitled to a dividend at the rate of $.15 per
share when, as and if declared by the Board of Directors. Dividends not declared
do not cumulate. Additionally, each share of Series B Preferred Stock is
convertible into one share of the Company's Common Stock. 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. As of June 30, 1997, the Company
has 100,000 shares of Series B Preferred Stock issued and outstanding.
During the year ended June 30, 1996, the Company paid a total of $ 8,200 in
dividends to Preferred Stockholders. For the year ended June 30, 1997, the
Company did not declare any dividends payable.
Warrants
In conjunction with the Company's February, 1995 Public Offering, the Company
issued 1,811,250 Series A and Warrants and 1,811,250 Series B Warrants. Every
block of five Series A warrants entitles the holder to purchase one share of the
Company's Common Stock at a price of $ 35.00 per share until February 10, 1998.
Every block of five Series B warrants entitles the holder to purchase one share
of the Company's Common Stock for $ 45.00 per share until February 10, 1998.
Under specific conditions, the Company may redeem both the Series A and Series B
Warrants.
Equity Transactions
During the year ended June 30, 1996, the following equity transactions occurred:
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.
The Company converted $ 362,000 of officer advances payable into 175,110
shares of the Company's common stock at $ 2.07 per share.
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.
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.
<PAGE>
Note 11 - Stockholders' Equity (continued)
Equity Transactions (continued)
The Company issued 419,940 shares of its common stock in repayment of
loans of $209,970 from certain officers.
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.
During the year ended June 30, 1997, the following equity transactions occurred:
The Company acquired a 10% minority interest in Smartphone valued at
$200,000 for 400,000 shares of the Company's common stock (Note 5).
The Company acquired Link Technologies, Inc. and Subsidiaries for 674,157
shares of the Company's common stock with a value of $600,000 (Note 17).
The Company issued 892,500 shares of the Company's common stock for
$927,978 of professional services received.
The Company issued 800,000 shares and 1,392,570 shares at $.50 per share
and $.70 per share in private placements, respectively, raising
$1,176,640 net of $198,160 in offering costs.
The Company converted $125,000 of convertible debt to 192,860 shares of the
Company's stock at rates ranging from $.50 to $.70 per share.
The Company issued options to purchase 250,000 shares of the Company's
Common Stock at rates ranging from $1.25 to $1.75 per share in exchange for
professional consulting services. $325,578 of expense has been recognized
at imputed values ranging from $1.23 to $1.38 per option. These options
expire from August 2001 to December 2001.
The Company issued options to purchase 309,250 shares of the Company's
common stock at rates ranging from $1.00 to $2.50 per share in connection
with the 8% convertible notes payable. These options have an imputed value
of $353,686 based on rates ranging from $1.01 to $1.29. The amount was
recorded as deferred loan costs and is being amortized over the life of the
loans. As of June 30, 1997, $178,185 has been expensed. These options
expire from May 2000 to July 2002.
Both the Series A and B preferred stock were issued.
<PAGE>
Note 12 - Stock Splits
In March 1996, the Company 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 split.
Note 13 - Significant Customers
As of June 30, 1997, one individual accounted for approximately $500,000
(100%) of licensing revenue. One Corporation accounted for $985,000 (79%)
of equipment and other revenue. Another franchisee and stockholder accounts
for $724,264 (85%) of the franchise and customer deposits.
As of June 30, 1996, one franchisee accounted for $50,000 (62%) of
franchise revenue and $384,000 (46%) of equipment and other revenue.
Another franchisee and stockholder accounts for $724,264 (83%) of the
franchise and customer deposits.
Note 14 - 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, trends in the industry
forced the Company to change their 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. No formal plan
has been adopted related to the discontinuance of franchising operations.
Note 15 - Commitments and Contingencies
Operating Leases
The Company leases its administrative offices under a noncancelable operating
lease through February 1998. 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. The Company also leases two other facilities; one in Florida
and one in California, under noncancelable operating leases through February
1998 to June 2002. 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, 1997 and 1996 was $101,039 and $106,705,
respectively.
<PAGE>
Note 15 - Commitments and Contingencies (continued)
Operating Leases (continued)
Future minimum lease commitments at June 30, 1997 are as follows:
Year Ending June 30,
1998 $ 122,656
1999 37,227
2000 35,000
2001 35,000
2002 35,000
---------
$ 264,883
Employment Agreements
The Company has entered into five year employment agreements with four officers
of the Company commencing April 7, 1997. Each officer is entitled to a first
year salary of $90,000, increasing 15% per year until the agreement is expired.
If the Company has not demonstrated its ability to operate profitably within one
year, the increase will only be 5% until such time that profitable operations
have been achieved. Each officer is granted 500,000 options to purchase shares
of the Company's common stock for $.50 per share until December 31, 2002
pursuant to the Non-Qualified Stock Option Plan. Additionally, the officer will
receive 50,000 options to purchase shares of the Company's common stock for $.50
per share until December 31, 2002. These shares are not pursuant to any plan. As
additional compensation, 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. As of June 30, 1997, $
256,000 of accrued officer salaries payable is included in accrued expenses.
The Company has also entered into five year employment agreements with two
officers of a subsidiary of the Company commencing on January 1, 1997. Each
officer is entitled to a salary of $ 72,000 per year. Each officer is granted
302,000 options to purchase shares of the Company's common stock for $1.00 per
share until December 31, 2001 pursuant to the Incentive Stock Option Plan.
Additionally, the officer will receive 20,000 options to purchase shares of the
Company's common stock for $1.00 per share until December 31, 2001. These shares
are not pursuant to any plan. As additional compensation, 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.
<PAGE>
Note 15 - Commitments and Contingencies (continued)
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, 1997, Cellex has remitted $22,818 in profit
participation payments to this individual.
Consulting Agreements
The Company has entered into a one year consulting agreement effective from
August 1996 and a two year consulting agreement effective from October 1996. The
one year agreement provides the consultant with 175,000 shares of the Company's
common stock and options to purchase 150,000 shares of the Company's common
stock in exchange for general business services such as execution of a business
plan, public relations and identification of sales opportunities. The two year
agreement provides the consultants with 100,000 shares of the Company's common
stock and options to purchase an additional 100,000 shares of the Company's
common stock in exchange for the consultant's assistance in introducing the
Company to potential European investors and in setting up relationships with
international business contacts. The options have exercise prices ranging from
$1.25 to $1.75 per share and expire five years from the date of grant (Note 11).
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 attempting to negotiate a
settlement and has approximately $770,000 accrued relating to this obligation.
The Company is also involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations, or liquidity.
<PAGE>
Note 16 - Statements of Cash Flows
During the fiscal year ended June 30, 1996, the Company transferred $517,017 of
ACDC units, from inventory to property, plant, and equipment as these units
represented company owned locations. During the fiscal year ended June 30, 1997,
the Company transferred $419,275 of ACDC units from property, plant and
equipment to inventory.
During the fiscal year ended June 30, 1996, the Company had a 1 for 10 reverse
stock split.
During the fiscal year ended June 30, 1996, the Company bought back franchisees
upon the issuance of preferred stock (Note 11).
During the fiscal year ended June 30, 1996, 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, 1997 and 1996, the Company bought back
franchisees by entering into debt obligations totaling $135,000 and $147,000,
respectively, equal amounts of inventory and other assets were received by the
Company.
During the fiscal year ended June 30, 1997, the Company issued common stock for
a 10% interest in Smartphone which was valued at $200,000.
During the fiscal year ended June 30, 1997, the Company converted an account
receivable to a note receivable in the amount of $150,000.
During the fiscal year ended June 30, 1997, the Company acquired Link
Technologies, Inc., and Subsidiaries for 674,157 shares of common stock, with a
value of $600,000 (Note 17).
During the fiscal year ended June 30, 1997, the Company acquired fixed assets of
$45,535 through a capital lease.
During the fiscal year ended June 30, 1997, the Company converted $125,000 of
convertible notes payable to common stock.
During the fiscal year ended June 30, 1997, the Company purchased $30,600 of
Debit Link machines from officers of the Company and was recorded as a notes
payable to officers.
During the fiscal year ended June 30, 1997, the Company issued stock options to
individuals as an inducement to provide financing pursuant to the 8% convertible
notes payable. The options had an imputed value of $353,686. As of June 30,
1997, $178,185 has been amortized to expense with the remaining $175,501
recorded as deferred loan costs and included in prepaids and other current
assets (Note 11).
<PAGE>
Note 17 - Acquisition
Effective January 1, 1997, the Company acquired Link Technologies, Inc. and
Subsidiaries (Link) for 674,157 shares of the Company's common stock, with a
value of $600,000.
The accompanying consolidated financial statements includes the results of
operations from the effective date of the acquisition, January 1, 1997, of Link.
The acquisitions are accounted for under the purchase method of accounting
applying the provisions of Accounting Principles Board Opinion No. 16 ("APB
16"). Pursuant to the requirements of APB 16, the aggregate purchase price,
based on fair values, will be allocated to the tangible and intangible assets
and liabilities assumed based on their estimated fair value at the date of the
acquisitions.
The aggregate purchase price allocated to the assets acquired and liabilities
assumed which are included in the consolidated financial statements consists of:
Assets acquired
Cash $ 2,737
Accounts Receivable 142,234
Inventory 160,742
Fixed assets 201,032
Patents 484,222
----------
990,967
Liabilities assumed:
Accounts payable and accrued expenses (390,967)
Net assets acquired 600,000
Fair value of common stock issued 600,000
Goodwill $ -
=========
The common stock issued in the acquisition was recorded at the market value of
the stock on the date of the acquisition which was $ .89 per share.
<PAGE>
Note 17 - Acquisition (continued)
Pro Forma Statement of Operations
The unaudited pro forma results of operations had the Company acquired Link as
of July 1, 1996 and 1995 are as follows for the year ended June 30, 1997 and
1996:
June 30,
1997 1996
Revenues $4,792,000 $3,119,000
========== ==========
Net loss $(2,780,000) $(4,206,000)
=========== ===========
Net loss per common share (.42) (1.76)
========== ==========
<PAGE>
Sims Communications, Inc. and Subsidiaries
March 31, 1998 Financial Statements
(Unaudited)
Table of Contents
Consolidated Balance Sheets at March 31, 1998 and June 30, 1997
Consolidated Statements of Operations for the Three and Nine Months Ended
March 31, 1998 and 1997.
Consolidated Statement of Cash Flows for the Nine Months Ended March 31, 1998
and 1997.
Consolidated Statement of Stockholders' Equity for the Nine Months Ended
March 31, 1998.
Notes to Consolidated Financial Statements.
<PAGE>
SIMS COMMUNICATIONS INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<S> <C> <C>
ASSETS
March June
31, 1998 30,
1997
CURRENT ASSETS
Cash and cash equivalents ($250,000 restricted) $280,637 $
295,900
Accounts receivables, less allowance for doubtful 133,896 205,888
accounts of $27,584
Inventories (Note 5) 1,497,979 1,083,199
Prepaid expenses 15,587 205,860
Advances 132,458 ----------
Notes receivable, current portion 221,667 215,442
----------- ------------
Total Current Assets 2,282,224 2,006,289
----------- ------------
PROPERTY AND EQUIPMENT
Property & Equipment 2,324,641 1,161,081
Less Accumulated Depreciation 595,760 424,002
----------- ------------
Net property and 1,728,881 737,079
equipment
OTHER ASSETS
Notes receivables (Less $169,000 allowance Mar. 98 - 551,223 726,448
Note 5)
Patents, net of accumulated amortization 438,626 474,941
Investments (Notes 4,5 and 11) 150,000 1,510,000
Other 41,532 89,416
-----------
------------
Total Other Assets 1,181,381 2,800,805
----------------------
TOTAL ASSETS $ $
5,192,486 5,544,173
=========== ============
</TABLE>
<PAGE>
SIMS COMMUNICATIONS INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, June 30,
1998 1997
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $1,059,600 $1,295,105
Bank line of credit 250,000 250,000
Current obligations under capital lease (Note 8) 8,377 8,377
Current maturity of long term debt (Note 2) 816,688 1,066,985
Franchise deposits and deferred revenue 818,019 944,154
Officer advances payable ----- 65,809
-------------------------
Total Current Liabilities 2,952,684 3,630,430
LONG TERM LIABILITIES
Long term debt (Note 2) 34,500 48,000
Obligations under capital leases (Note 8) 33,185 37,919
-------------------------
Total Long Term Liabilities 67,685 85,919
-------------------------
Total Liabilities 3,020,369 3,716,349
-------------------------
Commitments and contingencies - -
-------------------------
STOCKHOLDERS' EQUITY (Notes 6 and 7)
Preferred stock, Series A, $.001 par value, 50,000 25 25
shares authorized, 25,250
shares issued and outstanding (liquidation preference of
$505,000)
Preferred stock, Series B, $.001 par value, 100,000 100 100
shares authorized, 100,000
shares issued and outstanding (liquidation preference of
$100,000)
Common stock $.0001 par value 40,000,000 shares 575 212
authorized: 5,699,945
shares issued and outstanding March 1998 and 2,120,499
June 1997
Additional Paid In Capital 20,270,047 15,134,683
Accumulated Deficit (18,098,630) (13,307,196)
-------------------------
Total Stockholders' Equity 2,172,117 1,827,824
-------------------------
Total Liabilities and Stockholders' Equity $5,192,486 $5,544,173
======== ========
See notes to consolidated financial statements
<PAGE>
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended March 31, 1998 and
1997
(Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31,
1998 1997 1998 1997
Revenues
Equipment & Other $29,052 $36,067 $106,255 $ 496,689
Rental 8,458 187,175 207,349 755,875
Calling Card & Long Distance 55,273 65,349 216,182 225,060
License Fee Income 0 500,000 0 500,000
Movie Rentals 125,099 125,099
--------- ------- --------- --------
Total Revenues 217,882 788,591 654,885 1,977,624
Cost of Sales 134,108 160,290 394,913 960,265
-------- -------- -------- --------
Gross Profit 83,774 628,301 259,972 1,017,359
Operating Expenses
General & Administrative 605,441 394,739 1,518,611 1,008,120
Depreciation and 99,812 62,008 227,732 170,000
Amortization
Interest-net 22,672 4,690 104,289 29,613
Selling & Marketing 185,914 140,626 695,701 395,661
Stock Based Compensation/Services 239,743 0 1,007,874 381,393
Research & Development 32,760 1,294 32,760 28,362
Provisions for Bad Debt & Contract 0 0 933,000 0
Termination
Litigation Settlement 424,300 0 424,300 0
(Note 10)
---------- ---------- ---------- -------
Total Expenses 1,610,642 603,357 4,944,267 2,013,149
Income /(Loss) Before Income
Taxes ($1,526,868) $24,944 ($4,684,295($995,790)
------------ ------------- ----------- --------
Income Tax Expense - - - -
------------- ------------ ----------- -------
Net Income/(Loss) from ($1,526,868) $24,944 ($4,684,295($995,790)
Continuing
Operations
Discontinued Operations (54,717) 697 (107,139 44,145
(Note 11)
------------ ------------- ---------- -----
Net Loss ($1,581,585) $25,641 ($4,791,434($951,645)
======== ======== ======= ========
Net Income/(Loss) Per Common ($0.28) $0.01 ($1.71) ($0.75)
Share Basic & Diluted (Note 1 )
======== ======== ======== ========
Weighted Average Common
Shares Outstanding 5,599,129 1,927,553 2,808,899 1,274,310
<PAGE>
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDING MARCH 31, 1998 AND 1997
(Unaudited)
March
31,
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997
Net (loss) ($4,791,434) ($951,645)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation & Amortization 227,732 170,000
Equity Based Compensation 1,007,874 381,393
/Services
Expenses of Stock issued (180,505)
Provision for Contract 764,000
Termination
Stock issued for 309,300
litigation settlement
Changes in assets and
liabilities
Inventories (382,380) 197,930
Accounts and other receivables 160,809 (547,519)
Prepaid Expenses and other 14,772 (625)
Current Assets
Accounts payable and accrued expenses (396,622) (234,318)
Franchise and customer deposit & (126,135) (37,083)
Deferred Revenues
Advances to acquisition (132,458)
--------- ---------
NET CASH FROM (USED IN) OPERATING ACTIVITIES (3,525,047)(1,021,867)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (59,311) (44,120)
Net cash received from acquisition (Note 5) 10,915 2,737
Net cash used for acquisition 0 (48,660)
Notes receivable 481 (413,404)
Change in other assets 27,955 (11,171)
---------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES (19,960) (514,618)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 1,460,000 422,500
Payments on debts (88,714) (264,020)
Loans from (repayments to) (65,809) 60,569
officers
Proceeds from issuance of common stock 869,001 1,274,381
Reduction in investments 1,360,000 --
Payments of obligation under capital (4,734) (6,018)
lease
---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,529,744 1,487,412
---------- ---------
NET INCREASE (DECREASE) IN CASH (15,263) (49,073)
<PAGE>
CASH AT BEGINNING OF PERIOD 295,900 322,542
---------- ----------
CASH AT END OF PERIOD 280,637 273,469
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid during the 9 months for interest $51,63 $49,670
Cash paid during the 9 months for income taxes $ 0 $ 0
See notes to consolidated financial
statements
<PAGE>
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE NINE MONTHS ENDING MARCH 31, 1998
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK COMMON STOCK
SERIES A SERIES B ADDITIONAL
NUMBER NUMBER OF NUMBER OF PAID IN ACCUMULAT-
OF ED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
Balance - June 30, 1997 25,250 $25 10,000 $100 8,481,995 $848 $15,134,047 ($13,307,196) $1,827,824
Adjustment of stock (6,361,496) (636) 636
on reverse stock
split of 1 for 4 (Note 6 )
Net loss -9 months (4,791,434) (4,791,434)
ended March 31, 1998
Common stock issued for the 75,000 7 (7) 0
conversion of incentive stock
options net of shares returned
to Company as payment
Issuance of Common Stock to officers 167,817 17 369,180 369,197
and directors for accrued salaries and
loans at $2.20 per share
Conversion of Notes Payable to 62,500 6 49,994 50,000
officers
at a value of $.80
Issuance of Common Stock and options 550,000 55 1,126,659 1,126,714
for investment (Note 9)
Issuance of Common Stock for cash 999,478 100 868,901 869,001
Issuance of Common Stock for Conversion 876,827 88 933,006 933,094
of Notes Payable to Foreign Individuals
Under Reg S (net of $166,095 expenses)
Issuance of Common Stock for 320,250 32 832,339 832,371
Services
Issuance of Common Stock For Conversion of 452,574 50 646,000 646,050
Notes
(net of $ 7,550 Expenses)
Issuance of Common Stock in 75,000 8 309,270 309,300
partial settlement of litigation
--------------------------------------------------------------------------------------- --------------
Balance -March 31, 25,250 $25 10,000 $100 5,699,945 $575 $20,270,047 ($18,098,630) $2,172,117
1998
See notes to consolidated financial statements
7
</TABLE>
<PAGE>
SIMS COMMUNICATIONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Significant Accounting Policies
Organization
Sims Communications, Inc. provides low cost, turnkey point-of-sale (POS)
transaction automation solutions to retailers. These solutions include a
comprehensive network of transaction processing applications using its patented,
intelligent DebitLink POS terminal with custom software. Functions include
processing credit card and ATM charges and payments, cash-backs, activating
prepaid phone cards, obtaining prepaid cellular phone service, securing check
guarantees and authorizations and tracking customer affinity programs.
Sims Communications Inc. and Subsidiaries (the Company) was incorporated in
the State of Delaware on August 15, 1991. The Company was initially formed
as a communication equipment company and had expanded its focus to include
telecommunication and cellular and prepaid telephone activities
Besides POS automation processing, new products include: automated or manual
prepaid phone card dispensing machines, and script terminals. The Company is
also in the automated Movie rental business at hotels.
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, 1998
are not necessarily indicative of the results that may be expected for the year
ended June 30, 1998. For further information, refer to the consolidated
financial statements and footnotes included in the Company's financial
statements for the year ending June 30, 1997 which are included elsewhere in
this prospectus.
Principles of Consolidation
The consolidated financial statements includes the accounts of Sims
Communications Inc. and its wholly owned subsidiaries Sims Franchise Group,
Inc., Cellex Communications, Inc., Sims Communications International, Inc. and
Link Technologies Inc. (and its wholly owned subsidiaries New View Technologies,
Inc., Link Dispensing Systems and Southeast Phone Card, Inc.). The Movie Vision
operations (reflecting the net assets of Movie Bar and Vector Vision) that were
acquired in January 1998, are being operated as a division of New View
Technologies. All intercompany balances and transactions have been eliminated in
consolidation. The 10% minority investment in Smartphone is accounted for under
the cost method.
<PAGE>
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with a maturity
date of three months or less to be cash equivalents.
Inventories
Inventories consists primarily of automated cellular distribution centers
(ACDC's), cellular phones, other communication equipment and Link Technologies'
debit and calling card vending machines and equipment and point of sales (POS)
materials. This is recorded at the lower of cost or market determined by the
first in, first out method.
Property and Equipment
Property and equipment are recorded and depreciated over their estimated useful
lives (5-7 years), utilizing the straight-line method. Expenditures for
maintenance and repairs are charged to expense as incurred.
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
The Company adopted Statement of Financial Accounting Standard No. 128 (FAS 128)
Earnings Per Share. All prior period loss per common share data has been
restated to conform to the provision of this statement where appropriate. Basic
loss per common share is computed using the weighted average number of shares
outstanding. Diluted loss per common shares is computed using the weighted
average of number of shares outstanding adjusted for the incremental shares
attributed to outstanding options to purchase common stock, only if their effect
is dilutive. Options and warrants to purchase common shares of common stock
issued in 1997 and 1998 were not included in the computation of diluted loss per
share because their effort would be antidulutive.
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. Revenues from the sale of the Automated Cellular Distribution
Center (ACDC) and other equipment are recognized upon title passing. Income
from movie rentals is recorded upon the rental of the movie.
<PAGE>
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.
Patents
The patents acquired by the Link acquisition are amortized based on the expected
useful life over a ten-year period.
Note 2- Notes and Loans Payable
During the quarter ended March 31, 1998, the Company converted $ 165,118 of
8%-10% convertible debt maturing January through May 1998 (and accrued interest)
into 165,699 shares of common stock. Also, $50,000 of notes due former officers
were converted to common stock.
A detail listing of debt follows:
March 31,1998
Promissory note payable at 10% interest payable
monthly, commencing Sept. 15, 1995. Balance of
principal is payable in full on April 30, 1998.
As additional consideration, the Company agreed
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. 1,928
Notes payable to former officers, $ 3,003
payable monthly (inclusive of 10% interest)
payable through June 1999 47,412
8%-10% Convertible notes payable, principal
due at maturity dates ranging from January
through April 1998. Debt includes conversion
to common stock feature with conversion rates
of $ 1.60 per share. Additionally each note
holder was issued options to purchase shares
of the Company stock 408,500
Note payable - $5,000 principal plus interest
(prime +1%) payable monthly through October 1998 35,000
Note payable - principal (non interest bearing)
payable in monthly installments of $1,500 through
June 2000. 48,000
<PAGE>
851,188
Less: Current Maturities (816,688)
Total Long Term $ 34,500
========
Note 3 - Continuing Operations and Subsequent Financing
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and liquidation of
liabilities in the ordinary course of business. In prior years, the Company had
been in the development state and did not begin earning significant revenues
until the middle of fiscal year ended 1994. During the period from the year
ending June 1995 and continuing through the nine months ended March 31, 1998,
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. For the first 9 month of fiscal 1998,
management sold in private offerings, or had liabilities of $2.4 million
converted into, 2.1 million shares of common stock. 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 corporation that sells a debit cellular telephone) from former
management at their original cost. The Company issued 400,000 shares of common
stock for its interest in Smartphone. This investment is recorded under the cost
method. A $50,000 realization reserve was established in recognition of the
discontinued operation.
Note 5- Provisions for Bad Debt and Contract Termination
During the year ended June 1997 the Company received 1,807,800 shares of Cancall
Cellular Communications, Inc. Class A preferred stock with a recorded value of
$1,310,000 from the sales of licensing rights and equipment. During the last
quarter, this agreement was mutually terminated as management of both companies
did not desire to go forward together in cellular telephone rentals.
Accordingly, the equipment was returned to the company, the Preferred Stock was
returned to Cancall and a loss provision for $ 764,000 was provided, which
represented the full profit on the agreement previously recorded.
The Company sold 30 ACDC units to a master licensee from June through September
1996. A majority of these units were installed at Los Angeles Airport terminals
with the remaining units anticipated to be installed in the San Francisco bay
area. The airport terminals were briefly functional but Airport management and
licensee management requested a secession of operations until contract
provisions could be renegotiated. The Company has not received payment for the
units and a loss provision of $169,000 (the profit on the units sold) was
recorded for uncollected receivables. The receivable was personally guaranteed
by the owner/president of the master licensee company, and Management believes
that the sold units will be returned to the company, and ultimately, the company
will participate in the airport cellular rental operations.
<PAGE>
Note 6-Stockholders, Equity and Stock Split
Effective February 16, 1998, the company's shareholders approved a 1 for 4
reverse stock split. Accordingly, all weighted average share, per share and
option information throughout the consolidated financial statements has been
restated to reflect this split.
For the nine months ended March 1998 the Company issued 320,250 shares and
associated stock options to officers, directors and consultants for services
valued at $832,371.
The Company issued 75,000 shares of common stock to two officers for the
conversion of incentive stock options valued at $ 4.00 per share, net of options
for common stock returned to the Company, then valued at $6.00 per share. The
Company sold in October and November 1997, $1,100,000 of convertible notes to
four foreign investors. The notes bear interest at 8% per year and were due and
payable in November 1999. These notes have been converted into 876,827 shares of
the Company's common stock in December and January. . Notes (and accrued
interest) sold for $ 646,050 (between February and October 1997) were converted
to 452,574 shares of common stock.
In December 1997 $369,000 owed to former officers and directors of the Company
were converted to 167,817 shares of common stock at $ 2.20 per share. In January
1998 $50,000 owed to two former officers and directors were converted into
62,500 shares of common stock.
During the quarter ended March 1998, the Company sold 999,478 shares of common
stock for $869,000, or an average price of $ .87 per share.
The settlement of litigation with a former Instafone master license holder
required the issuance of 75,000 shares, valued at $ 309,300
The Movie Vision investment and business were acquired via the issuance of
550,000 shares of common stock at a value of $1.1 million.
Note 7-Stock Options
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No 123 "Accounting for Stock-based Compensation" (SFAS No.
123). Accordingly, no compensation cost has been recognized for stock options
and warrants granted. Consistent with the disclosure-only provisions of SFAS No.
123, the Company must provide pro forma net earnings and pro forma earnings per
share disclosures for employee stock option grants made in 1995 and future years
as if the fair value based method defined in SFAS No. 123 had been applied.
The Company uses one of the most widely used option pricing models, the
Black-Scholes model (the Model), for purposes of valuing in stock option grants.
The Model was developed for use in estimating the fair value of traded options
which have no vesting restrictions and are fully transferable. In addition, it
requires the input of highly subjective assumptions including the expected stock
price volatility, expected dividend yields, the risk free interest rate and the
expected life. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the value determined by the Model is not necessarily
indicative of the ultimate value of the granted options.
<PAGE>
In February 1998, the Company issued 412,500 options to employees, directors and
consultants (in connection with services), which allow holders to purchase
common stock at prices ranging from $3.00 to $8.00 per share. These options vest
over a two-year period and expire in five years. Compensation expense of $
94,302 will be recognized over the two-year vesting period for the consultants
options.
Note 8 - Capital Leases
The Company leases various office equipment which is accounted for as capital
leases. The current liability for the leases is $8,377 and the long-term portion
is $30,898 payable through the year 2002.
Note 9- Acquisition of investment
Effective January 1998, the Company issued 550,000 shares (split adjusted) of
its common stock to the shareholders of Movie Bar, Inc. and Vector Vision Inc.
in consideration for the acquisition of a business known as "Movie Vision".
Movie Vision rents videocassettes, primarily containing motion pictures, through
automated dispensing units in hotels. Movie Vision currently has videocassette
dispensing machines in approximately 120 hotels in the United States. For
financial statement purposes, the purchase acquisition of Movie Vision was
valued at $1.1 million based on a $2.00 market price of the Company's stock.
The summarized net assets acquired from Movie Vision are as follows:
Cash $ 10,914
Other current assets 121,217
Equipment and machinery 1,128,699
Current Liabilities (161,116)
Net Assets Acquired 1,099,714
Acquisition expenses ($27,000)
Note 10- Litigation Settlement
In February 1998 the Company settled litigation with a former Instafone Master
Licensee resulting in a special charge of $424,300. The terms of the settlement
provide for payments of cash and common stock to the former Master Licensee over
a twenty-one month period.
Note 11- Discontinued Operations
The Company decided in 1998 to discontinue the cellular activation (Cellex) and
cellular prepaid business. The activation business was discontinued due to the
loss, via acquisition, of its major contracted American Automobile Association
customer base. The loss for the fiscal 1998 third quarter and nine months to
date for Cellex was $4,717 and $57,139 respectively, as compared to income for
comparable prior years periods of $ 696, and $44,145, respectively.
Additionally, a loss provision of $50,000 was provided for realization in the
investment in Smartphone, a non-
<PAGE>
consolidated subsidiary which sells prepaid cellular telephones. The income
statement has been restated to segregate the discontinued from ongoing
operations.
Note 12 -Subsequent Transactions
The Company has signed an agreement for the acquisition of 1 One Medical Service
Inc., for 142,350 shares of common stock. 1 One Medical uses the Company's
Point-of-Sale terminals to enable retail pharmacies and their customers to
obtain on-line credit card and medical reimbursement approval, and automated
product ordering and payment.
<PAGE>
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 Irvine, California,
on the 4th day of August, 1998.
SIMS COMMUNICATIONS, INC.
By:/s/ Mark Bennett
Mark Bennett, President
By:/s/ Bruce Schames
Bruce Schames, Principal Financial Officer
and Chief Accounting 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/ Mark Bennett
Mark Bennett Director August 4, 1998
/s/ Michael Malet
Michael Malet Director August 4, 1998
Chet Howard Director , 1998
/s/ George Pursglove
George Pursglove Director August 5, 1998
<PAGE>
SIMS COMMUNICATIONS, INC
REGISTRATION STATEMENT
ON
FORM SB-2
EXHIBITS
<PAGE>
EXHIBIT 5
<PAGE>
August 5, 1998SIMS Communications, Inc.
17821 Skypark Circle
Suite G
Irvine, CA 92614
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
4,061,562 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
<PAGE>
EXHIBIT 23.1
<PAGE>
CONSENT OF ATTORNEYSReference is made to the Registration Statement of SIMS
Communications, Inc. (the "Company"), whereby certain Selling Shareholders
propose to sell up to 4,061,562 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
August 5, 1998
<PAGE>
EXHIBIT 23.2
<PAGE>
November 6, 1996
Mr. William T. Hart
Hart & Trinen
1624 Washington
Denver, Colorado 80203
Dear Mr. Hart:
Please find enclosed 1 unbound copy of the financial statements for SIMS
Communications, Inc. and Subsidiaries for June 30, 1997. I have also enclosed a
disk of the financial statements. The document is entitled FS9706.doc and is
done in Microsoft Word 7.0.
If you have any questions regarding the format of the document, please feel free
to call to Anne Baumann. Thank you.
Sincerely,
Robert B. Hottman
Ehrhardt Keefe Steiner & Hottman PC
RBH/acb
Enclosures
