SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-25474
SIMS COMMUNICATIONS, INC.
(Name of Small Business Issuer in its charter)
Delaware 65-0287558
(State of incorporation) (IRS Employer
Identification No.)
18001 Cowan, Suites C&D
Irvine, California 92614
(Address of Principal Executive Office) Zip Code
Registrant's telephone number, including Area Code: (949) 261-6665 Securities
registered pursuant to Section 12(b) of the Act: None Securities registered
pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
X
YES NO
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The Company's revenues for the most recent fiscal year were $2,240,876.
The aggregate market value of the voting stock held by non-affiliates of the
Company, (17,172,937 shares) based upon the average bid and asked prices of the
Company's Common Stock on September 30, 1999 was approximately $1,288,000.
As of September 30, 1999 the Company had 17,635,639 issued and outstanding
shares of common stock.
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS SIMS Communications, Inc. (the "Company") was
incorporated in Delaware in August 1991 to rent cellular telephones through a
stand-alone dispensing station known as an Automated Communications Distribution
Center ("ACDC"). 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. At September 30, 1999, the
Company was not operating any ACDC units and the Company's only remaining
franchisee had four ACDC units in operation.
The Company changed its name to MedCom USA, Incorporated in October, 1999.
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.
In December 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 ("PCD's") 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 PCD's are full sized stand-alone vending machines and are operated
by the Company. Long distance time for the prepaid calling cards is purchased by
the Company from various venders. Link also markets a proprietary scrip terminal
which dispenses a receipt to the customer which can be used to pay for
merchandise and/or services.
In June 1999 the Company sold 520 of Link's scrip terminals to the employee who
was responsible for overseeing this aspect of the business. Although the Company
did not receive any material cash payment in connection with this sale, the
purchaser of the assets agreed to assume $70,000 in accounts payable and
approximately $600,000 in capitalized lease obligations associated with the
acquisition of the scrip terminals. The assets sold had a net book value of
approximately $635,000. The Company recognized as income previously recorded
deferred revenue related to the scrip terminals totaling $212,805, as well as an
immaterial gain related to the sale of the assets and the release from the
related obligations. Excluded from the sale of Link's assets were 117 scrip
terminals (45 of which are in operation) and all of the PCD's. The purchaser
also agreed to hire all of the employees involved with this business line and to
assume the lease obligation for the related office space. The script terminals
were sold because this line of business was not profitable and, in the opinion
of the Company's management, was not likely to become profitable in the
foreseeable future.
The Company is continuing to use the scrip terminals and PCDs excluded from the
sale, although this is not a major focus of the Company. The script terminals
and PCD's are managed by personnel involved in other aspects of the Company's
business.
<PAGE>
In May 1998 the Company acquired One Medical Services, Inc. in
consideration for 142,350 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 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 quarter 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. One Medical provides a financial processing and communications network
for the Home Medical Equipment (HME) industry. In addition to processing
information and verifying insurance medical cards, this network connects HME
buyers with a network of HME vendors. This proprietary network has been
designated for the medical and managed healthcare market, but at the present
time is being marketed to the retail pharmacy industry. As of September 30,
1999, 80 pharmacies, 13 HME service centers, 8 HME vendors and one catalogue
vendor were members of the One Medical network.
In July 1999 the Company licensed its rights to the One Medical Service
Network to an unrelated third party for $1,377,000, of which $300,000 was paid
by September 30, 1999, $267,000 of which is to be paid by January 5, 2000 and
the remainder of which ($810,000) will be paid in accordance with the terms an
unsecured promissory note which bears interest at 7% per year. The principal due
on the note is to be reduced by license royalties due the Company, up to a
maximum of $6,000 per month, and prepaid phone card credits of $3,000 per month.
On July 30, 2002 the licensee is to make a one-time payment to the Company equal
to 25% of the then outstanding principal on the note. All unpaid principal and
interest is due on July 30, 2006. The licensee can convert the amounts paid for
royalties and the license fee into an 81% interest in One Medical Services and
can acquire the remaining 19% for the greater of $132,000 or its fair market
value. The licensee also agreed to acquire the inventory, pay $200,000 of
accounts payable and assume the salaries and other overhead associated with the
One Medical operation. The Company uses the prepaid phone card credits in the
sale of its prepaid calling cards.
The Company licensed the rights to the One Medical service because this
line of business was not profitable. The license also provides the Company with
monthly income.
All historical share data in this report 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.
As of September 30, 1999 substantially all of the Company's revenues were
generated by the Justmed.com and the Movie Vision divisions.
JustMed.com
The JustMed.com division involves three components:
o The MedCard health insurance verification and billing system
o The JustMed.com website
o The Med Store
<PAGE>
MedCard System
In November 1998 the Company acquired, from an unrelated entity, Dream
Technologies, LLC (Dream), an exclusive worldwide license to software programs
and related technology known as the MedCard System. The license is for a period
of fifteen years. The term of the License can be extended for ten consecutive
one-year periods after expiration of the initial fifteen-year term.
The Medcard license is exclusive for the entire term provided at least
fifteen thousand systems are sold to end users by May 31, 2001. Although the
Company, as of March 31, 2000 had sold approximately 850 systems, the Company
believes that the minimum sales requirement will not have a significant impact
since: (1) the Company believes it will reach this milestone within the required
timeframe, and (2) the Company believes it will be able to extend the May 31,
2001 date. If neither (1) or (2) occur, the Company believes that the time,
money and infrastructure already devoted to the Medcard system will create a
significant obstacle to others desiring to market the system. Additionally, the
Company will have a two-year advantage on the potential competition in terms of
identifying and aligning itself with various sales channels.
The Company is required to pay a royalty to Dream equal to twenty-five
percent of the first $1,000,000 of net monthly revenue and ten percent of net
monthly revenue in excess of $1,000,000. The term net revenues means the gross
revenues received from the use of the MedCard software program less (a) terminal
lease costs of up to $50 per month,: (b) commissions payable to agents which
place terminals with end users; and (c) network costs which include (i) claim
fees payable to data vendors, (ii) charges for verification of insurance
converage and (iii) similar telecommunications charges related to obtaining
claims processing and/or benefits verification information.
The License agreement also requires the Company to retain as consultants
two owners of Dream Technologies until May 31, 2000 at a fee of $2,000 per
person per week.
The MedCard System is an electronic processing system which consolidates
insurance eligibility verification and processes medical claims and approvals of
credit card and debit card payments in under 30 seconds through a small terminal
or personal computer. Using the MedCard system, patients are relieved from the
problems associated with eligibility confirmation and billings, healthcare
providers' reimbursements are accelerated and account receivables are reduced.
The time it takes to collect payments from insurance providers decreases from
months to days.
The Medcard System also allows a patient's primary care physician to
request approval from the patient's insurance carrier or managed care plan for a
referral to a secondary physician or specialist. The secondary physician or
specialist can use the MedCard system to verify that the referral has been
<PAGE>
approved by the patient's insurance carrier, thereby eliminating numerous
telephone calls that are normally required with referrals. The MedCard system's
referral capabilities reduces paperwork and administrative costs, increases
productivity and provides greater patient information for the specialist, as
well as a written record of the referral authorization.
The MedCard system can record and track encounters between patients and
health care providers for performance evaluation and maintenance of hospital
records. After examining a patient a physician is able to enter the patient's
name, procedure code and diagnostic code at a nearby terminal. This information
is then downloaded daily to MedCom's computer network, processed and transmitted
back to the hospital in both summary and detail reports sorted by day, week,
date and name of physician.
The MedCard System currently operates through either a Point of Sale
Terminal or a personal computer. An on-line version is under development.
Revenues from the MedCard system are generated through the sale of terminals,
for verifying insurance eligibility and for processing insurance claims.
Potential revenue sources include fees for credit card transactions processed
through the terminal, fees for collection of receivables if the Company provides
billing services, reimbursement by insurance carriers for submission of claims
electronically, fees for using the system's referral program and processing
encounter data.
The MedCard System is marketed through Company sales personnel,
independent sales representatives and financial institutions. Company sales
personnel generally receive a commission for sales of the terminals. The Company
receives a fixed amount per terminal if the sale is not made by Company sales
personnel. The Company also receives a fee for each transaction processed
through the MedCard System.
As of September 30, 1999 the MedCard system was able to retrieve on-line
eligibility and authorization information from 77 medical insurance companies
and electronically process and submit billings for its healthcare providers to
over 1,650 companies. These insurance providers include CIGNA, Prudential,
Oxford Health Plan, United Health Plans, Blue Cross, Medicaid, Aetna, Blue
Cross/Blue Shield and Metrahealth.
Website
The JustMed.com website is an Internet website which began functioning on
July 1, 1999. The website advertises healthcare products and services which are
available to the general public and provides medical information to the general
public. Persons in need of healthcare products and services can access the
website and order products or transfer to the more detailed websites maintained
by the companies which provide the products and services. The Company expects to
generate revenues from this website by charging providers of healthcare products
and services fees for advertising on the website. The Company will also receive
fees when a person transfers from the Company's website to the websites
maintained by a provider of healthcare products or services. The Company expects
that advertisers on its website will include distributors of healthcare
equipment and products, hospitals, physician practice groups, and clinics.
<PAGE>
The Company obtains the medical and other information for its website
primarily from three independent suppliers, Healthology, InfoSpace.com and
iSyndicate.
Med Store
The Med Store is a feature of Sims' website which allows consumers to use
their computers to purchase a variety of healthcare products and services
supplied by unrelated manufacturers and healthcare service providers. Items
available for purchase include canes, crutches, walkers, bath chairs, blood
pressure units, cold therapies, exercise equipment and hot and cold packs. The
Med Store became operational on July 1, 1999.
Accredited Homecare Pharmacy and Accredited Medical Services are
responsible for filling orders for products or services purchased from the Med
Store.
Movie Vision
In January 1998 the Company issued 550,000 shares of its common stock to
the shareholders of Moviebar Company USA and Vectorvision, Incorporated in
consideration for the acquisition of businesses known collectively 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 150 hotels in the United
States.
DCB Actuaries & Consultants
In April 2000, the Company acquired 100% of the stock of DCB Actuaries &
Consultants SRO (DCB), a Czech Republic based company and certain technology and
intellectual property from DSM, LLC, a Florida limited liability company. DCB
developed and currently operates a health insurance decision support system with
advanced data structures.
DCB's advanced data structures can support the needs of a comprehensive
health care delivery system in a multitude of areas, including: patient
services, risk management, clinical services and administrative functions.
Clinical services provided by DCB's system include electronic patient record
systems, critical care pathways (i.e. treatment programs) and electronic medical
documents (i.e. x-rays, lab results, EKG's, etc.). Administrative functions
provided by DCB's system cover quality assurance, claims management and
market/sales analysis.
The Company intends to market DCB's products and services to hospitals,
insurance companies and governmental agencies in the United States and abroad.
Competition
There are many companies that compete with the Company at some level.
Competing health insurance processing systems include Envoy, Medical Manager,
<PAGE>
Medic, Spot Check and Mediphis. Leading consumer healthcare websites include AOL
Health Channel, Thrive Online, drkoop.com, Mayo Clinic Health Oasis,
InteliHealth, Mediconsult.com, and OnHealth. The Company also faces competition
from a variety of sources with respect to its Movie Vision operations, including
premium cable companies such as HBO and Showtime, video on demand companies
including On Command Video and Lodgenet Entertainment as well as smaller
vendors, such as VTV and Suite View that provide the same service as the
Company. Many of these competitors are far better capitalized than the Company
and control significant market share in their respective industry segments.
Employees and Offices
As of September 30, 1999, the Company employed 18 persons on a full-time
basis. Nine 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's executive offices are located at 18001 Cowan, Suite C&D,
Irvine, California 92614 and consist of 4,900 square feet of space which are
leased at an annual rent of $70,000. This lease on the space expires in August
2003. The Company leases a 7,000 square foot production and office facility in
Orlando, Florida at an annual rent of $50,000. The lease on this facility
expires in December 2005. The Company's telephone number is (949) 261-6665.
ITEM 2. DESCRIPTION OF PROPERTIES See Item 1 of this report.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings to which the Company is a party or
to which its properties are subject.
On December 21, 1998 Albert Levenberg filed a complaint against the
Company in the Fifteenth Judicial Circuit Court, Palm Beach County, Florida. The
complaint seeks $250,000, plus interest and legal costs, related to loans made
by Mr. Levenberg to the Company in 1994. The Company believes the claim is
without merit as the loans had either been repaid or converted into franchises
for sale of ACDC units.
On May 11, 1999 Arthur Fried, a former employee, filed a complaint against
the Company in the Orange County, California Superior Court seeking actual
damages of $269,000, and an unspecified amount of general and punitive damages.
The former employee claims that the Company breached a written employment
agreement and made certain misrepresentations to the
<PAGE>
former employee. The Company believes these claims are without merit and has
filed a counterclaim against the former employee.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of September 30, 1999, there were approximately 350 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 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 High Low
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
9/30/98 $2.88 $1.38
12/31/98 $2.44 $.56
3/31/99 $2.25 $.44
6/30/99 $1.69 $.88
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors 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.
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.
<PAGE>
Issuance of Common Stock
During the two years ended June 30, 1999 the Company issued:
846,827 shares pursuant to the exemption provided by Regulation S,
28,200 shares upon the conversion of the Company's Series A and Series B
preferred stock,
2,679,271 shares in settlement of notes payable,
1,041,500 shares pursuant to the Company's stock bonus plans,
792,350 shares in connection with the acquisition of the Company's Movie
Bar, One Medical and MedCard divisions,
318,512 shares in payment of outstanding liabilities,
300,000 shares in connection with the termination of certain franchises
which were previously sold by the Company (as well as related litigation),
2,716,968 shares for services rendered, and
5,883,379 shares for cash in private offerings.
The shares issued upon the conversion of the Series A and B preferred
stock and in settlement of the notes payable were issued in reliance upon the
exemption provided by Section 3(a)(9) of the Securities Act of 1933.
The shares issued pursuant to the Stock Bonus Plan were registered by
means of a registration statement on Form S-8.
The remaining shares issued or sold during the two years ended June 30,
1999 were issued or sold in reliance upon the exemption provided by Section 4(2)
of the Act. The persons who acquired these shares were either accredited or
sophisticated investors. The shares of common stock were acquired for investment
purposes only and without a view to distribution. The persons who acquired these
shares were fully informed and advised about matters concerning the Company,
including the Company's business, financial affairs and other matters. The
persons acquired these shares for their own accounts. The certificates
representing the shares of common stock bear legends stating that the shares 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. The shares are "restricted" securities
as defined in Rule 144 of the Securities and Exchange Commission.
<PAGE>
ITEM 6. 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:
Years Ended June 30,
1999 1998
---- ----
Revenues $2,240,876 $980,951
Cost of Services (697,481) (523,479)
Operating and other
Expenses (8,690,380) (7,503,483)
Loss from Discontinued Operations -- (63,737)
---------------- ---------------
Net Loss $(7,146,985) $(7,109,748)
============ ============
Balance Sheet Data:
June 30,
1999 1998
---- ----
Current Assets $1,405,096 $1,088,002
Total Assets 6,374,862 5,602,751
Current Liabilities 2,142,550 2,785,015
Total Liabilities 2,268,256 3,372,542
Working Capital (Deficit) (737,454) (1,697,013)
Shareholders' Equity 4,106,606 2,230,209
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, 2000.
Percent of Gross Revenues
Year Ending
Years Ending June 30, June 30, 2000
1998 1999 (Projected) (1)
---- ---- ---------------
Rental of cellular telephones directly from
Company and from ACDC Units. 11% -- --
Sale of ACDC units and related equipment. -- -- 4%
Fees paid by cellular telephone companies
for activation of cellular telephones. 17% -- --
Sale of prepaid calling cards. 14% 4% 1%
Sale of long distance telephone service. 4% -- --
Revenues from Link International. 15% 28% --
Revenues from Movie Vision 38% 40% 15%
Revenues from One Medical Service 1% 7% 10%
Revenues from Justmed.com -- 19% 70%
Miscellaneous Income -- 2% --
(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, 2000 constitute a
forward-looking statement which is subject to risks and uncertainties which
could cause actual results to differ materially from those projected.
Factors that could cause or contribute to such differences include lack of
adequate funding, loss of major customers and inability to meet sales
projections.
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. At September 30, 1999, the Company was not
operating any ACDC units and the Company's only remaining franchisee had four
ACDC units in operation.
<PAGE>
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.
In December 1996 the Company acquired all the issued and outstanding
shares of Link International, Inc. (see Item 1 of this report). In June 1999 the
Company sold 520 of Link's scrip terminals to the employee who was responsible
for overseeing this aspect of the Company's business. Although the Company did
not receive any material cash payment in connection with this sale, the
purchaser of the assets agreed to assume $70,000 in accounts payable and
approximately $600,000 in capitalized lease obligations associated with the
scrip terminals. The assets sold had a net book value of approximately $635,000.
The Company recognized as income previously recorded deferred revenue related to
the scrip terminals totaling $212,805, as well as an immaterial gain from the
sale of the assets and the release from the related obligations.
In January 1998 the Company acquired its Movie Vision division from
Moviebar Company USA and Vectorvision, Incorporated. Movie Vision rents
videocassettes, primarily containing motion pictures, through automated
dispensing units in hotels.
In May 1998 the Company acquired One Medical Services, Inc. (see Item 1 of
this report). In July 1999 the Company licensed its rights to the One Medical
Service Network to an unrelated third party for $1,377,000, of which $300,000
was paid by September 30, 1999, $267,000 of which is to be paid by January 5,
2000 and the remainder of which (810,000) will be paid in accordance with the
terms an unsecured promissory note which bears interest at 7% per year. The
principal due on the note is to be reduced by license royalties and other
credits up to a maximum of $9,000 per month. Additionally, the third party
assumed all of the operations of One Medical, including payroll and other
operating expenses. This transaction will improve the Company's cash flow by
eliminating overhead and providing for future licensing and royalty fee income.
In November 1998 the Company acquired an world wide license to software
programs and related technology known as the MedCard system. The MedCard system
is an electronic processing system which consolidates insurance eligibility
verification and processes medical claims and approvals of credit card and debit
card payments in under 30 seconds through a single, small terminal or a personal
computer. The MedCard system is a major component of the Company's JustMed.com
division.
Revenues from the MedCard System are generated from the sale of terminals,
for verifying insurance eligibility and for processing insurance claims.
Potential revenue sources include fees for credit card transactions processed
through the terminal, fees for collection of receivables if the Company provides
billing services, reimbursement by insurance carriers for submitting claims
electronically, fees for using the system's referral program and fees for
processing encounter data. The Company anticipates that the MedCard System will
begin generating significant revenues during the year ending June 30, 2001.
<PAGE>
Year Ending June 30, 1999
During the year ending June 30, 1999, the Company's revenue increased as a
result of the Company's expansion into financial processing (Link debit and
scrip terminals), medical transaction processing (One Medical and MedCard
divisions) and automated motion picture rentals (Movie Vision division). These
business segments produced revenues of $625,801, $583,777 and $888,626,
respectively for the year ended June 30, 1999. Comparable revenues from these
segments for the year ended June 30, 1998 were substantially less since the full
scale distribution of the Link debit and scrip terminals did not begin until
April 1998, and the One Medical and MedCard divisions did not commence
operations until May 1998 and November 1998, respectively. During the summer of
1999 the Company began directing its efforts toward its Justmed.com division. As
a result of this change in focus, and as discussed above, the Company in June
1999 sold a major portion of its script terminals and in July 1999 the Company
licensed its rights to the One Medical division. In connection with the sale of
the financial processing division, the Company recognized $210,000 of deferred
gross profit.
Selling, Marketing and General and Administration expenses (including
depreciation) increased to nearly $8,300,000 during the year ended June 30, 1999
compared to $5,900,000 in the prior year primarily due to the following:
1) The Company's financial processing, One Medical and Movie Bar divisions
were in operation during all twelve months of fiscal 1999, compared to
shorter periods in the prior year.
2) The Company acquired its MedCard division in November 1998. As a result,
only operations for the twelve month period ending June 30, 1999 were
affected by the expenses of this division.
3) Depreciation and amortization expense was $1,056,572 in the year ended
June 30, 1999 compared to $474,372 in the prior period. A substantial
portion of this increase was the result of depreciating assets related
to the Company's ACDC operations for a full year compared to the prior
year.
4) As a result of the sale of a portion of its financial processing
division, the Company incurred approximately $140,000 of commission
expense in the quarter ended June 30, 1999.
5) The Company incurred one-time expenses related to the closing of offices
in New Jersey and Modesto, California offices and in the termination of
offices leases Florida.
6) The Company expensed approximately $200,000 in additional reserves
against note receivables deemed uncollectible at June 30, 1999. See Note
5 to the Company's June 30, 1999 Financial Statements.
During the year ended June 30, 1999 stock-based compensation increased to
$2,540,338, which was 50% greater than the prior period. The Company issued
shares of its common stock to pay for the services provided by employees and
outside consultants retained for a number of projects, including the development
of the Company's website, internet healthcare web portal and e-commerce business
applications.
<PAGE>
Year Ending June 30, 1998 During the year ending June 30, 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.
During fiscal 1998 the Company concentrated on its three new divisions:
Link, Movievision and One Medical Service. During the year ended June 30, 1998
revenues from the Link and Movie Vision divisions were $148,000 and $371,000
respectively. Revenues from the One Medical Service division, which was acquired
effective May 30, 1998, were not significant during fiscal 1998.
General and Administrative expenses as well as Selling and Marketing
expenses increased due to the acquisition of Link, Movie Vision, and One Medical
Service, 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
year ended June 30, 1998:
1) An expense of $1,687,422 as the result of issuing shares of stock,
options and warrants for services rendered.
2) 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.
3) 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 determined that Cancall would not be able to comply
with the terms of the Licensing Agreement. Accordingly, 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) an
expense of ($764,000) was recorded which represented the profit previously
recorded by the Company on the sale of the ACDC units and the recept of the
licensing fee.
4) 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
<PAGE>
Company did not receive payment for the units, which were subsequently returned
to the Company, and a reserve of $374,980 (the profit recognized for the units
sold) was recorded for uncollected receivables.
5) The Company recorded a valuation reserve ($200,000) for the Company's
investment in Smartphone, a corporation which sold prepaid cellular telephones.
The Company's investment represented a 10% interest in Smartphone. The Company
wrote off its investment in Smartphone since Smartphone ceased operations and
did not have any net worth.
6) An increase in the ACDC depreciation and patent amortization rates due
to the classification of ACDC machines as fixed assets and a full year of patent
amortization.
Liquidity and Sources of Capital
During the year ending June 30, 1999 the Company's operations used
approximately $3,400,000 of cash. In order to fund its operating losses, the
Company sold shares of its common stock and preferred stock in private
placements. Approximately $1,400,000 was raised from the sale of preferred stock
and approximately $2,500,000 was raised from the sale of 3,636,879 shares of
common stock. The 3,636,879 shares of common stock were sold at discounts
ranging from 11% to 60% of the then prevailing market price of the Company's
common stock since the shares were restricted securities, as that term is
defined in Rule 144 of the Securities and Exchange Commission. During fiscal
year 1999, the Company also issued (i) 2,607,950 shares of common stock in
exchange for services and equipment valued at $2,340,423, (ii) 2,260,675 shares
of common stock in settlement of outstanding liabilities totaling $1,796,201,
and (iii) 262,969 shares of common stock for other matters. The total shares
issued during the year was 8,768,473.
During the year ended June 30, 1999 the Company granted options and
warrants for the purchase of 6,771,164 shares of common stock to officers,
employees consultants and other third parties. The exercise prices of the
warrants relating to 994,360 shares of common stock were below the then
prevailing market price of the Company's common stock on the date the warrants
were granted since the shares issuable upon the exercise of the warrants were
restricted securities as that term is defined in Rule 144 of the Securities and
Exchange Commission.
Between July 1, 1999 and April 3, 2000, the Company raised approximately
$6,100,000, net of expenses of approximately $659,000, from the sale of
6,562,645 shares of common stock at prices ranging from $.45 to $4.00 per share.
A total of 3,090,000 of these shares were issued at prices below market since
the shares were restricted securities. The Company also issued approximately
1,800,000 shares of common stock and received approximately $2,100,000 in cash
as a result of the exercise of options and warrants at prices ranging between
$.44 and $5.00 per share.
Proceeds of $567,000 from the licensing of the One Medical Services
Network were also used to fund the Company's operations.
<PAGE>
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 repay outstanding debt and fund receivables and inventory balances.
The Company's auditors stated in their report on the Company's financial
statements for the year ended June 30, 1999 that due to the Company's recurring
losses form operations there is substantial doubt as to the Company's ability to
continue in business. The existence of such an explanatory paragraph in the
auditor's opinion can make it more difficult for the Company to raise or borrow
additional funds.
Although the Company has reduced its cash requirements for normal
operations through the sale of the Link assets and the license of the One
Medical Services Network, it will still need cash to fund operating losses
during the year ending June 30, 2000. As of April 3, 2000 the Company had
approximately $5,000,000 in cash. The Company believes that this amount will be
sufficient to fund its operations, to purchase computer and telecommunications
equipment required for expansion of the MedCard System, and the acquisition and
operations of DCB as discussed in Item 1. In the event that the Company does not
have adequate cash to purchase all of the computer and telecommunications
equipment which it expects it will need, the Company is of opinion that it will
be able to acquire a certain amount of the equipment through leasing
arrangements or other financing sources. The Company may also be able to obtain
additional funding, if necessary, by selling additional shares of its common
stock. There can be no assurance, however, that the Company will be successful
in obtaining additional funding.
As of June 30, 1999 the Company had borrowed $250,000 under a bank line of
credit, which was secured by a certificate of deposit. In July 1999, the Company
redeemed the certificate of deposit and used the proceeds to pay amounts due
under the line credit. The line of credit was then terminated.
As of June 30, 1999, the Company had defaulted on the payment of
convertible notes in the principal amount of $94,000. Subsequent to June 30,
1999, notes in the principal amount of $69,000 were converted into shares of
common stock. A note with a balance of $25,000 remains unpaid as the Company is
unable to locate the lender. With respect to the remaining notes payable as of
June 30, 1999, $11,214 was paid, $343,905 was converted into 393,035 shares of
common stock and the maturity on the balance ($70,000) was extended to November
1, 2000.
The Company's long-term debt consists entirely of obligations under
capital leases.
In January 2000 the holders of the Company's Series C preferred shares
converted the preferred shares into 3,490,000 shares of the Company's common
stock. In payment of accrued dividends and other costs the Company made cash
payments of $160,567 and issued 60,000 shares of its common stock plus warrants
to the holders of the Series C preferred shares. The warrants allow the holders
to purchase 132,000 shares of the Company's common stock at a price of $0.75 per
<PAGE>
share at any time prior to December 22, 2002. For assisting in arranging the
conversion of the preferred shares, the Company issued 175,000 shares of common
stock to a financial consultant.
Year 2000 Issue
The "Year 2000" issue affects the Company's installed computer systems,
network elements, software applications and other business systems that have
time-sensitive programs that may not properly reflect or recognize the Year
2000. Because many computers and computer applications define dates by the last
two digits of the year, "00" may not be properly identified as the Year 2000.
This error could result in miscalculations or system failures. The Year 2000
issue does not materially affect the Company's computer systems, software or
other business systems. The Company has conducted a review to identify areas
that could be affected and has developed an implementation plan to ensure
compliance. The Company believes that with modifications to existing software
the issue will not pose significant operational concerns nor have a material
impact on financial position or results of operations. The costs of
modifications are not expected to be material and will be expensed as incurred.
However, failures of computer systems maintained by third parties could have a
material impact on the Company's ability to conduct business. The Company has
requested that its major independent suppliers and support providers confirm
that they will be Year 2000 compliant.
ITEM 7. FINANCIAL STATEMENTS
See the financial statements attached to this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Company's officers and directors are as follows:
Name Age Position
---- --- --------
Mark Bennett 40 President and a Director
Michael Malet 51 Executive Vice President and a Director
Alan Ruben 43 Chief Accounting and Financial Officer
David Breslow 55 Director
Julio Curra 40 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.
<PAGE>
The following sets forth certain information concerning the past and
present principal occupations of the Company's officers and directors and other
key employees.
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 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.
Alan Ruben joined the Company as Chief Accounting and Financial Officer in
October 1999. Prior to joining the Company, he was the Chief Financial Officer
for Direct Container Line, Inc., an international shipping company. Previously
Mr. Ruben was the Vice-President and Chief Financial Officer for Relsys
International, Inc., a medical software development company. Mr. Ruben is a
certified public accountant, licensed in the state of California. He began his
career with Coopers & Lybrand and was in public accounting for eighteen years.
David Breslow has been a director of the Company since March 1999. Since
1996 Mr. Breslow has been the President and Executive Director of United
Pharmacists Network, Inc., a corporation involved in purchasing, management and
other services to pharmacies. Between 1976 and 1995 Mr. Breslow owned and
managed various pharmacies in the Los Angeles, California metropolitan area.
Julio Curra has been a director of the Company since March 1999. Since
1996 Mr. Curra has been the president of All-Line Communications, Inc., a
corporation involved in telecommunication sales. Between 1987 and 1996 Mr. Curra
was the president of Julio Curra & Associates, a firm also involved in
telecommunication sales.
Robert Stevens is the Company's Director of Development and Information
Technology. He has been with the Company or its subsidiaries since 1994. Prior
to joining the Company, Mr. Stevens was the Vice President of Development for
three different companies. He was involved with a ten-year development effort on
EZ-Fax, the first network fax server developed in 1984. He also spent seventeen
years at IBM, primarily in their complex systems group.
<PAGE>
All of the Company's officers devote substantially all of their time on the
Company's business. Mr. Breslow and Mr. Curra, as directors, devote only a
minimal amount of time to the Company.
Mr. Breslow and Mr. Curra are members of the Company's audit committee.
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. Mark Bennett, Michael Malet, Chet Howard and George Pursglove
remained directors of the Company. In September 1998 Cornelia Eldridge was
appointed a director of the Company. In February 1999 Mr. Howard, Mr. Pursglove
and Ms. Eldridge resigned as directors of the Company. In March 1999 David
Breslow and Julio Curra were appointed directors of the Company. In October
1999, Alan Ruben was appointed Chief Accounting and Financial Officer after Ian
Hart's employment contract as chief financial officer expired. In January 2000,
Mr. Marvin Berger resigned as the Company's Vice President of Sales & Marketing.
ITEM 10. 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 years ended June 30, 1998 and 1999.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Other Annual Restricted Options
Name and Fiscal Salary Bonus Compensation Stock Awards Granted
Principal Position Year (1) (2) (3) (4) (5)
- ------------------- ---------------------------------------------------------------
Mark Bennett, 1999 $128,482 $8,400 -- 1,015,000
President and Chief 1998 $111,350 -- $8,400 $67,500 560,500
Executive Officer
Michael Malet, 1999 $112,462 $8,400 -- 925,000
Vice President 1998 $100,923 -- $8,400 $58,500 457,000
</TABLE>
(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 represent automobile allowances.
<PAGE>
(4) Amounts reflect the value of 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,
1999.
Name Shares Value
Mark Bennett 224,900 $218,153
Michael Malet 117,400 $113,878
(5) The shares of Common Stock to be received upon the exercise of all stock
options granted during the fiscal years shown in the table.
Employment Contracts
In March 1999 the Company entered into employment agreements with Mark
Bennett and Michael Malet. Each employment agreement provides for the following:
1. Term of three years.
2. Annual salary of $137,500 in the case of Mr. Bennett and $120,000 in the
case of Mr. Malet.
3. Automobile allowance of $700 per month.
4. Four weeks of paid vacations and the right to participate in any
group medical, group life insurance or any other employee benefit
plan that the Company may, from time to time, maintain.
5. Reimbursement for any medical, dental or optical expenses not
covered by any Company group healthcare plan.
6. Disability benefits equal to the employee's salary payable to the
employee for the remaining term of the employment agreement.
7. Premium payments for a $1,000,000 term life insurance policy with
the beneficiary to be designated by the employee.
In the event that there is a change in the control of the Company and the
employee is terminated without cause or the employee resigns for cause then the
Company is required to pay the Company a lump-sum amount equal to the employee's
annual salary multiplied by 2.99. The term "resignation for cause" means there
is a material change in the employee's authority, duties or activities. For
purposes of the employment agreement a change in the control of the Company
<PAGE>
means: (1) the acquisition by any person of more than 15% of the Company's
common stock; (2) the acquisition by any person more than 50% of the voting
capital stock of any subsidiary of the Company; (3) the merger of the Company
with another entity if after such merger the shareholders of the Company do not
own at least 85% of voting capital stock of the surviving corporation; (4) the
approval by the shareholders of the Company of a plan to liquidate or dissolve
the Company; (5) the sale of substantially all of the assets of the Company; or
(6) a change in a majority of the Company's directors which has not been
approved by at least two-thirds of the incumbent directors.
If following a change in control the employee is terminated without cause,
all options granted to the employee pursuant to any of the Company's incentive
or non-qualified stock option plans will be fully vested.
Options Granted During Fiscal Year Ending June 30, l999 The following tables set
forth information concerning the options granted, during the fiscal year ended
June 30, 1999, to the persons named below, and the fiscal year-end value of all
unexercised options (regardless of when granted) held by these persons. The
options listed below were not granted pursuant to the Company's incentive or
non-qualified stock option plans.
% of Total Options Exercise
Options Granted to Employees Price Per Expiration
Name Granted (#) in Fiscal Year Share Date
Mark Bennett 1,015,000 33% $0.82 4/16/04
Michael Malet 925,000 30% $0.82 4/16/04
Option Exercises in Last Fiscal Year and Fiscal Year-End Values
Number of Value of Unexer-
Securities Underlying cised In-the-
Unexercised Options Money Options
Shares at June 30, 1999 at June 30, 1999
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
(1) (2) (3) (3)
- -------------------------------------------------------------------------------
Mark Bennett -- -- 1,575,500/-- $152,250/--
Michael Malet -- -- 1,382,000/-- $138,750/--
(1) The number of shares received upon exercise of options during the fiscal
year ended June 30, 1999.
(2) With respect to options exercised during the Company's fiscal year ended
June 30, 1999, the dollar value of the difference between the option
exercise price and the market value of the option shares purchased on the
date of the exercise of the options.
(3) The total number of unexercised options held as of June 30, 1999, separated
between those options that were exercisable and those options that were not
exercisable.
<PAGE>
(4) For all unexercised options held as of June 30, 1999, the excess of the
market value of the stock underlying those options (as of June 30, 1999)
and the exercise price of the option
Long Term Incentive Plans - Awards in Last Fiscal Year
None.
Employee Pension, Profit Sharing or Other Retirement Plans
Except as provided in the Company's employment agreements with its
executive officers, the Company does not have a defined benefit, pension plan,
profit sharing or other retirement plan, although the Company may adopt one or
more of such plans in the future.
Compensation of Directors
Standard Arrangements. At present the Company does not pay its directors
for attending meetings of the Board of Directors, although the Company expects
to adopt a director compensation policy in the future. The Company has no
standard arrangement pursuant to which directors of the Company are compensated
for any services provided as a director or for committee participation or
special assignments.
Except as disclosed elsewhere in this report no director of the Company
received any form of compensation from the Company during the year ended June
30, 1999.
Stock Option and Bonus Plans
The Company has an Incentive Stock Option Plan, Non-Qualified Stock Option
Plans and Stock Bonus Plans. 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 1,500,000 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. Only officers, and 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:
(a) The expiration of thirty (30) days after the date on which an option
holder's employment by the Company is terminated.
<PAGE>
(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 Board of Directors 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 Plans.
The Non-Qualified Stock Option Plans authorize the issuance of options to
purchase up to 3,000,000 shares of the Company's Common Stock less the number of
shares already optioned under both this Plan and the Incentive Stock Option
Plan. The 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
Board of Directors but cannot be less than the market price of the Company's
Common Stock on the date the option is granted.
Options granted pursuant to the Plan not previously exercised terminate
upon the first to occur of the following dates:
(a) The expiration of one year after the date on which an option
holder's employment by the Company is terminated (whether
termination is by the Company, disability or death); or
(b) The expiration of the option which occurs five (5) years from the
date the option was granted.
<PAGE>
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 Plans.
Up to 2,400,000 shares of Common Stock may be granted under the Stock
Bonus Plans. 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 Options
During the year ended June 30, 1999 the Company granted Mark Bennett and
Michael Malet options to purchase 1,015,000 and 925,000 shares respectively, of
the Company's common stock. The options may be exercised at any time prior to
April 16, 2004 at an exercise price of $0.82 per share. These options were not
granted pursuant to the Company's Incentive or Non-Qualified stock option plans.
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
<PAGE>
options not fully vested will be forfeited and cancelled. In the discretion of
the Board of Directors payment for the shares of Common Stock underlying options
may be paid through the delivery of shares of the Company's Common Stock having
an aggregate fair market value equal to the option price, provided such shares
have been owned by the option holder for at least one year prior to such
exercise. A combination of cash and shares of Common Stock may also be permitted
at the discretion of the Board of Directors.
Options are generally non-transferable except upon death of the option
holder. Shares issued pursuant to the Stock Bonus Plan will generally not be
transferable until the person receiving the shares satisfies the vesting
requirements imposed by the Board of Directors when the shares were issued.
The Board of Directors of the Company may at any time, and from time to
time, amend, terminate, or suspend one or more of the Plans in any manner it
deems appropriate, provided that such amendment, termination or suspension
cannot adversely affect rights or obligations with respect to shares or options
previously granted. The Board of Directors may not, without shareholder
approval: make any amendment which would materially modify the eligibility
requirements for the Plans; increase or decrease the total number of shares of
Common Stock which may be issued pursuant to the Plans except in the case of a
reclassification of the Company's capital stock or a consolidation or merger of
the Company; reduce the minimum option price per share; extend the period for
granting options; or materially increase in any other way the benefits accruing
to employees who are eligible to participate in the Plans.
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 September 30, 1999,
concerning the stock options and stock bonuses granted by the Company pursuant
to its Plans. Each option represents the right to purchase one share of the
Company's Common Stock.
Shares
Total Shares Reserved for Shares Remaining
Reserved Outstanding Issued As Options/Shares
Name of Plan Under Plan Options Stock Bonus Under Plan
- ------------ ---------- -------------- ----------- -----------
1998 Incentive Stock Option
Plan 1,500,000 688,000 N/A 812,000
1996 Non-Qualified Stock
Option Plan 1,500,000 607,500 N/A 892,500
1998 Non-Qualified Stock
Option Plan 1,500,000 -- N/A 1,500,000
1996 and 1998 Stock Bonus
Plans 1,500,000 N/A 1,497,625 2,375
1999 Stock Bonus Plan 900,000 N/A 46,571 853,429
Stock Bonuses
The Company, in accordance with the terms of its Stock Bonus Plans, has
issued shares of Common Stock to certain Company officers, employees and
<PAGE>
consultants. The following persons (including former officers and directors)
received shares of the Company's common stock as stock bonuses:
Shares Issued as Stock Bonus
Name 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
Mark Bennett 18,750
Michael Malet 5,000 16,250
Other employees and
consultants as a grou 461,250 111,875 174,000 710,500 46,571
------- ------- ------- ------- ------
461,250 116,875 209,000 710,500 46,571
======= ======= ======= ======= ======
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of September 30, 1999, 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.
Percent of
Name and Address Shares Owned (1) Class (2)
- ---------------- ----------------- -------------
Mark Bennett 224,900 1%
18001 Cowan, Suite C&D
Irvine, CA 92614
Michael Malet 117,400 *
18001 Cowan, Suite C&D
Irvine, CA 92614
Marvin Berger 65,000 *
18001 Cowan, Suite C&D
Irvine, CA 92614
David Breslow 10,000 *
701 N. Brand, #380
Glendale, CA 91203
Julio Curra -- --
1767 Veterans Memorial Hwy. #6
Islandia, NY 11722 _______ ____
Officers and Directors as a
Group (6 persons) 417,300 3%
======= =====
* Less than 1%
<PAGE>
(1) Excludes shares issuable prior to December 31, 1999 upon the exercise of
options or warrants granted to the following persons.
Name Options exercisable prior to December 31, 1999
---- ----------------------------------------------
Mark Bennett 1,575,500
Michael Malet 1,382,000
Marvin Berger 25,000
David Breslow 10,000
Julio Curra --
(2) Excludes any shares issuable upon the exercise of any warrants or options or
upon the conversion of any promissory notes or other convertible securities.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Effective January 30, 1998 the Company issued 550,000 shares of its common
stock to the shareholders of Moviebar Company USA and Vectorvision, Incorporated
in consideration for the acquisition of businesses collectively 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 150 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 Company USA and Vectorvision, Incorporated and
received 55,000 shares of the Company's common stock in connection with this
transaction.
During the fiscal 1998 the Company issued 18,750 shares of its common
stock to David Markowski, a former officer and director of the Company, in
consideration for services provided to the Company. The Company also issued Mr.
Markowski 6,250 shares of common stock pursuant to the Company's stock bonus
plan.
During the year ended June 30, 1998, the Company acquired One Medical
Services, Inc. David Breslow, a director of the Company, is the Executive
Director of an entity that owned forty percent (40%) of the acquired company.
One Medical Services was valued at $1,067,398. This transaction was completed
before Mr. Breslow became a member of the Company's Board of Directors.
See "Stock Option and Bonus Plans" in Item 10 of this report for
information concerning stock options and stock bonuses granted to the Company's
present officers and directors.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
Number Exhibit Page Number
3.1 Certificate of Incorporation (1)
3.1.1 Amendment to Certificate of Incorporation (3)
3.2 Bylaws of the Company (1)
4.1 Incentive Stock Option Plan __________
4.2 Non-Qualified Stock Option Plans __________
4.3 Stock Bonus Plans __________
10.5 July 1999 Licensing Agreement relating
to One Medical System __________
23 Consents of Accountants Previously Filed
27 Financial Data Schedule Previously Filed
(1) Incorporated by reference, and as same exhibit number, from Registration
Statement on Form SB-2 (Commission File Number 33-70546-A).
(2) 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).
(3) Incorporated by reference, and as same exhibit number, from Amendment No. 5
to Registration Statement on Form SB-2 (Commission File Number 33-70546-A).
<PAGE>
FINANCIAL STATEMENTS
<PAGE>
SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES
Table of Contents
Page
Independent Auditors' Report............................................F - 1
Financial Statements
Consolidated Balance Sheet...........................................F - 3
Consolidated Statements of Operations................................F - 4
Consolidated Statements of Stockholders' Equity......................F - 5
Consolidated Statements of Cash Flows................................F - 6
Notes to Consolidated Financial Statements..............................F - 7
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
SIMS Communications, Inc. and Subsidiaries
Irvine, California
We have audited the accompanying consolidated balance sheet of SIMS
Communications, Inc. and Subsidiaries as of June 30, 1999 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended June 30, 1999 and 1998. 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, 1999 and the results of their operations
and cash flows for the years ended June 30, 1999 and 1998 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
August 19, 1999
Denver, Colorado
<PAGE>
SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
June 30, 1999
Assets
Current assets
Cash and cash equivalents $ 189,772
Restricted cash (Note 7)
250,000
Accounts receivables, less allowance for doubtful 250,913
accounts of $31,811
Inventories 464,074
Prepaid expenses 100,337
Notes receivable, current portion (Note 5) 150,000
----------
Total current assets 1,405,096
Property and equipment, net (Note 4) 2,059,602
----------
Other assets
Notes receivable less allowance of $575,062 (Note 5) 241,200
Licensing rights, net of accumulated amortization of 885,558
$38,500
Patents, net of accumulated amortization of $189,446 327,299
Royalty advances (Note 3) 515,907
Goodwill, net of accumulated amortization of $136,070 819,299
(Note 3)
Other 120,901
Total other assets 2,910,164
Total assets $6,374,862
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 649,154
Accrued expenses 622,820
Bank line of credit (Note 7) 250,000
Notes payable (Note 8) 519,119
Current obligations under capital leases (Note 8) 43,432
Dividends payable 58,025
----------
Total current liabilities 2,142,550
Long-term liabilities
Obligations under capital lease (Note 8) 125,706
----------
Total liabilities 2,268,256
----------
Commitments and contingencies (Notes 2 and 14)
Stockholders' equity (Notes 10, 11 and 12) Preferred stock,
Series A, B and C, $.001 par value,
152,600 shares authorized - 50,000(A),
100,000 (B), 2,060 (C) 10,995 shares
issued and outstanding at June 30, 1999
(liquidation preference of $1,930,000) 11
Common stock $.0001 par value 40,000,000 shares
authorized, 16,727,506 issued and outstanding 1,673
Additional paid in capital 31,668,851
Accumulated deficit (27,563,929)
-----------
Total stockholders' equity 4,106,606
Total liabilities and stockholders' equity $6,374,862
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Operations
Year Ended June 30,
1999 1998
------- ------
Revenue (Note 13)
Telecommunications $ 142,672 $ 446,524
Financial processing 625,801 147,533
Automated movie rentals 888,626 371,416
Medical transaction processing 583,777 15,478
----------- ---------
Total revenue 2,240,876 980,951
----------- -----------
Cost of services 697,481 523,479
----------- -----------
Gross profit 1,543,395 457,472
----------- -----------
Operating expenses
General and administrative (Note 11) 6,101,305 4,405,486
Depreciation and amortization 1,057,908 474,372
Selling and marketing 1,164,761 1,058,252
Loss on termination of licensing and equipment -- 764,000
agreement (Note 6)
Research and development -- 32,760
Litigation settlement (Note 14) -- 444,300
----------- --------
Total expenses 8,323,974 7,179,170
----------- -----------
Operating loss (6,780,579) (6,721,698)
----------- -----------
Other income (expense)
Interest expense (337,153) (158,263)
Interest income 28,772 28,424
Loss on write down of investment (Note 6) -- (200,000)
Other -- 5,526
----------- ----------
(308,381) (324,313)
Loss from continuing operations before income taxes (7,088,960) (7,046,011)
Income tax benefit (Note 9) -- --
----------- --------
Net loss from continuing operations (7,088,960) (7,046,011)
Net loss from discontinued operations (Note 16) -- (63,737)
----------- ----------
Net loss (7,088,960) (7,109,748)
Preferred stock dividend 58,025 --
----------- --------
Net loss applicable to common shareholders $(7,146,985) $(7,109,748)
=========== ===========
Basic and diluted loss per common share from
continuing $ (0.67) $ (1.78)
=========== ==========
operations
Basic and diluted loss per common share from $ -- $ (.01)
=========== ==========
discontinued operations
Basic and diluted net loss per common share $ (0.67) $ (1.79)
=========== ===========
Weighted average common shares outstanding
(Notes 11 and 12) 10,602,609 3,961,389
=========== ===========
See notes to consolidated financial statements.
<PAGE>
SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES
See notes to consolidated financial statements.
F - 4
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 1999 and 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred Stock
Series A and B Series C Common Stock
Additional
Number Number Number Paid-in Accumulated
of Shares Amount of Shares Amount of Shares Amount Capital Deficit Total
Balance June 30, 1997 125,250 $ 125 -- $ -- 2,120,499 $ 212 15,134,68 $(13,307,196) $1,827,824
Issuance of common stock in
connection with acquisitions
(Notes 3 and 12) -- -- -- -- 692,350 69 1,327,691 -- 1,327,760
Issuance of common stock for
cash (ranging from $.80 to
$1.00) net offering costs
of $633,421 (Note 12) -- -- -- -- 2,246,500 225 1,475,855 -- 1,476,080
Issuance of common stock for
conversion of notes payable
to investors in connection
with a Regulation S offering, net
of expenses of $162,956 (Note 12) -- -- -- -- 846,827 85 936,959 -- 937,044
Issuance of common stock in
exchange for services (Note 12) -- -- -- -- 1,015,749 102 1,696,134 -- 1,696,236
Unearned compensation expense
(Note 12) -- -- -- -- -- -- (136,475) -- (136,475)
Issuance of common stock upon
conversion of notes payable
and interest (Note 12) -- -- -- -- 506,791 50 707,039 -- 707,089
Issuance of common stock upon
conversion of former officer
notes payable and accrued
salaries (Note 12) -- -- -- -- 230,317 23 419,174 -- 419,197
Issuance of common stock in
connection with litigation
settlement (Notes 12 and 16) -- -- -- -- 300,000 30 309,270 -- 309,300
Imputed value of stock option
grants in exchange for consulting
and other services (Note 12) -- -- -- -- -- -- 775,902 -- 775,902
Net loss for the year ended
June 30, 1998 -- -- -- -- -- -- -- (7,109,748) (7,109,748)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 1998 125,250 125 -- -- 7,959,033 796 22,646,232 (20,416,944 2,230,209
Issuance of common stock
for cash ranging from $.44 to
$1.00 per share, net of
$307,925 of offering costs -- -- -- -- 3,636,879 364 2,552,748 -- 2,553,112
Issuance of preferred stock at
$1,000 per share, net of
$253,154 and issuance of
common stock for offering costs -- -- 1,745 2 134,769 13 1,446,830 -- 1,446,845
Issuance of common stock for
services and equipment -- -- -- -- 2,607,950 261 2,340,162 -- 2,340,423
Issuance of common stock for
accounts payable -- -- -- -- 150,700 15 123,415 -- 123,430
Imputed value of stock option
grants in exchange for
consulting and other services -- -- -- -- -- -- 424,671 -- 424,671
Issuance of common stock for
conversion of notes payable,
franchise deposits and accrued
interest -- -- -- -- 2,109,975 211 1,672,786 -- 1,672,997
Issuance of common stock and
warrants in connection with
MedCard acquisition -- -- -- -- 100,000 10 461,894 -- 461,904
Conversion of Preferred Stock (116,000) (116) -- -- 28,200 3 113 -- --
Dividend on Series C Preferred
Stock -- -- -- -- -- -- -- (58,025) (58,025)
Net loss for the year ended
June 30, 1999 -- -- -- -- -- -- -- (7,088,960) (7,088,960)
----------------------------------------------------------------------------------------------------
Balance - June 30, 1999 9,250 $ 9 1,745 $ 2 16,727,506 $ 1,673 $31,668,851 $(27,563,929) $4,106,606
==================================================================================================
</TABLE>
<PAGE>
SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
F - 40
Consolidated Statements of Cash Flows
Year Ended June 30,
1999 1998
----------- ----------
Cash flows from operating activities
Net loss $(7,088,960) $(7,109,748)
----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 812,816 400,552
Amortization 245,092 73,820
Imputed value of options granted for services 424,671 127,661
and interest
Impairment of investment -- 200,000
Termination of licensing and equipment -- 764,000
agreement
Provision for uncollectible notes receivable 178,387 400,902
Officer salaries converted to equity -- 419,197
Stock issued for services, interest, and in
connection with litigation settlement 2,425,072 1,869,061
Changes in assets and liabilities
Accounts and other receivables (126,156) 167,832
Inventories (11,601) 51,574
Prepaid expenses (7,670) 113,193
Royalty advances (515,907) --
Accounts payable 229,526 (147,349)
Accrued expenses 40,425 (103,339)
Franchise deposits and customer deposits -- (11,493)
---------- ----------
3,694,655 4,325,611
Net cash used in operating activities (3,394,305) (2,784,137)
---------- ----------
Cash flows from investing activities
(Advances) repayments on notes receivable, net -- (54,372)
Acquisition costs paid, net of cash acquired (462,154) (424,095)
Capital expenditures (57,398) (34,122)
Change in other assets 5,851 62,664
---------- ----------
Net cash used in investing activities (513,701) (449,925)
---------- ----------
Cash flows from financing activities
Proceeds from issuance of long-term debt 537,892 805,459
(Payments on) proceeds from officer advances -- (65,809)
Payments under capital lease obligation (127,216) (10,200)
Proceeds from issuance of common and preferred 3,999,957 2,820,781
stock, net
Payments on long-term debt (326,733) (348,191)
Net cash provided by financing activities 4,083,900 3,202,040
Net increase (decrease) in cash 175,894 (32,022)
Cash and cash equivalents at beginning of year 263,878 295,900
---------- ----------
Cash and cash equivalents at end of year $ 439,772 $ 263,878
========== ==========
Supplemental disclosure of cash flows information
Cash paid during the year for interest was $164,167 (1999) and $169,345 (1998).
Non-cash investing and financing activities (Note 15)
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 provides low cost, turnkey
point-of-sale (POS) transaction automation solutions to retailers and
pharmacies. These solutions include a comprehensive network of transaction
processing applications using its patented, intelligent DebitLink POS terminal
with custom software. Functions include processing on-line credit card and
medical reimbursement approvals, processing automated home medical equipment
product orders and payments, 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. Additionally, the Company rents videocassettes
through its automated dispensing units. Most recently, the Company has evolved
such that while the primary business is still telecommunications; the Company's
telecommunications expertise and technology have been applied to the healthcare
industry in general and electronic processing of medical claims, on-line
insurance eligibility verification and e-commerce, specifically. And, as a means
to establish and gain recognition for SIMS' new identity, the Company included
in its proxy, a ballot to change the name of SIMS Communications, Inc. to MEDCOM
USA, Incorporated. Upon acceptance of the proposed name change, MedCom USA's
ticker symbol on The Nasdaq Stock Market will be "EMED."
Principles of Consolidation
The consolidated financial statements include the accounts of SIMS
COMMUNICATIONS, Inc. and its wholly owned subsidiaries SIMS Franchise Group
Inc., SIMS Communications International, Inc., Link International Technologies,
Inc., New View Technologies, Inc. and JustMed.com, Inc. Additionally, the
consolidated financial statements include the accounts of One Medical Service,
Inc., Moviebar Company USA, Inc., and Vector Vision, Inc. since their respective
dates of acquisition. The financial statements also include the operations of
the Company's MedCard division from the date of the acquisition of the licensing
rights (Note 3). 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.
<PAGE>
Note 1 - Organization and Significant Accounting Policies (cont'd)
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 consist primarily of automated video dispensing units, video
cassette players, movie video cassettes, debitlink terminals and other
associated miscellaneous parts and equipment and are recorded at the lower of
cost or market determined by the first-in, first-out method.
Property and Equipment
Property and equipment is stated at cost. Equipment under capital leases is
valued at the lower of fair market value or net present value of the minimum
lease payments at inception of the lease. Depreciation is provided utilizing the
straight-line method over the estimated useful lives for owned assets, ranging
from 5 to 7 years, and the related lease term for leasehold improvements and
equipment under capital leases. Expenditures for maintenance and repairs are
charged to expense as incurred.
Net loss Per Common Share
Basic earnings per share is calculated by dividing net income attributable to
common shareholders by the weighted average number of common shares outstanding.
Dilutive earnings per common share is computed similarly, but also gives effect
to the impact convertible securities, such as convertible debt, stock options
and warrants, if dilutive, would have on net income and average common shares
outstanding if converted at the beginning of the year. The Company has incurred
losses in each of the periods covered in these financial statements, thereby
making the inclusion of convertible securities and stock options in the 1999 and
1998 dilutive earnings per share computations antidilutive. Accordingly,
convertible securities and stock options have been excluded from the calculation
of dilutive earnings per share. Basic and dilutive earnings per share are the
same for each period presented.
Antidilutive securities excluded from dilutive earnings per share.
Security Price Shares Expiration Date
Stock options and warrants $0.44 - $13.00 9,988,429 7/1999-12/2006
Convertible Preferred Stock $1.28 - $ 1.50 1,249,271 10/2001
<PAGE>
Note 1 - Organization and Significant Accounting Policies (cont'd)
Licensing Rights
Licensing rights capitalized in connection with the MedCard licensing agreement
are being amortized over the length of the agreement of fifteen years.
Goodwill
The excess of the cost of the net tangible and identifiable intangible assets of
acquired businesses is stated at cost and is being amortized over seven years.
Revenue Recognition
Revenues from the sale of intelligent vending equipment are recognized upon
delivery of the equipment. Revenue from the sale of MedCard units is recognized
upon shipment of the unit. Revenue is recognized upon the sale of phone cards at
the time of the sale. Revenue on the rental of cellular phones through ACDC
machines is recognized at the time the rental is completed. Processing fees
related to medical transactions and financial processing are recognized as
revenue at the time the transaction is completed. Deferred revenue on equipment,
which has been sold and leased back, is recognized over the term of the
resulting lease. Automated movie rental revenues are recognized at the time of
rental and upon delivery of prepaid movie cards (where applicable).
Patents
Patent costs are those costs related to filing for patents and the value
allocated to patents based upon the acquisition of Link Technologies and its
subsidiaries. They are amortized on the straight-line basis over their expected
economic life of seven years.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, receivables, accounts payable, and accrued expenses approximates
fair value at June 30, 1999 because of the relatively short maturity of these
instruments.
The carrying amounts of debt issued approximates fair value because interest
rates on these instruments approximate market interest rates and all 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
<PAGE>
Note 1 - Organization and Significant Accounting Policies (cont'd)
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.
Impairment of Long-Lived Assets
The Company follows the Statement of Financial Accounting Standards (SFAS No.
121) "Accounting for the Impairment of Long-Lived Assets." Under the provisions
of this statement, the Company has evaluated its long-lived assets for financial
impairment and will continue to evaluate them as events or changes in
circumstances indicate that the carrying amount of such assets may not be fully
recoverable.
The Company evaluates the recoverability of long-lived assets not held for sale
by measuring the carrying amount of the assets against estimated undiscounted
cash flows associated with them. At the time such evaluations indicate that the
future undiscounted cash flows of certain long-lived assets are not sufficient
to recover the carrying value of such assets, assets are adjusted to their fair
values.
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 and receivables. The
Company places its cash investments with high credit quality financial
institutions and, by policy limits the amount of credit exposure to any one
institution. The Company grants credit to hotels that the Company has placed
automated movie rental units in. The Company periodically performs credit
analysis and monitors the financial condition of its clients in order to
minimize credit risk. Additionally, the Company attempts to limit its note
receivable credit risk by maintaining sufficient collateral, which consists of
the equipment which gave rise to the original note, when available.
Reclassifications
Certain accounts in the June 30, 1998 financial statements have been
reclassified to conform to the June 30, 1999 presentation.
<PAGE>
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,
1999, the Company continued to suffer recurring losses from operations in excess
of $7,000,000, resulting in an accumulated deficit of approximately $27,500,000.
Subsequent to June 30, 1999, the Company has raised approximately $400,000 in
private placement offerings and is continuing to look for additional equity
capital. Additionally, the Company has entered into an Exclusive License
Agreement with an outside party for its One Medical Services, Inc. subsidiary
whereby it will receive $567,000 over the next six months and an 8% 7-year note
payable in the amount of $810,000 (see Note 17). There can be no assurances
however that the Company will be successful in obtaining additional equity
financing, if needed, or if available on terms satisfactory to the Company, or
be able to generate significant profits from the operations described above. If
the Company is unable to raise additional equity capital or unable to generate
profits from operations, it may not be able to continue as a going concern.
Although the Company's common stock is currently listed on the NASDAQ Small Cap
Market ("NASDAQ"), there is no assurance that the Company's stock will continue
to be listed. 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 tangible net worth and that the bid price of
the Company's common stock must be at least $1.00. If delisted from NASDAQ, the
Company's stock would trade in the unorganized interdealer over-the-counter
market through the OTC Bulletin Board which provides significantly less
liquidity than NASDAQ. Securities which are not traded on NASDAQ may be more
difficult to sell and may be subject to more price volatility than NASDAQ listed
securities. The consolidated financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
Note 3 - Acquisitions
Moviebar Company USA, Inc. and Vector Vision, Inc.
In January 1998, the Company purchased the net assets of Moviebar Company USA,
Inc. and all of the outstanding stock of Vector Vision, Inc., valued at
$1,126,714 in exchange for 550,000 shares of the Company's common stock.
Additionally, the Company issued options to purchase 25,000 shares of the
Company's common stock at $ 2.20 per share (Notes 10 and 11). The acquired
companies rent motion picture video cassettes through automated dispensing units
that are located in hotels throughout the United States. The acquisitions were
accounted for under the purchase method of accounting.
<PAGE>
Note 3 - Acquisitions (cont'd)
Moviebar Company USA, Inc. and Vector Vision, Inc. (cont'd)
The aggregate purchase price has been allocated to the net assets purchased
based on the fair market values at the date of acquisition, as follows:
Cash $ 6,518
Accounts receivable 90,928
Inventory 24,500
Property and equipment 1,127,768
Accounts payable (123,000)
---------
$1,126,714
The common stock issued in connection with the acquisition was recorded at the
market value of the stock at the date of the acquisition of $2.00 per share.
No pro forma statements of operations are presented as the effect would not be
material to the Company's operations.
One Medical Services, Inc.
In June 1998, the Company purchased all of the outstanding stock of One Medical
Services, Inc., ("One Medical") valued at $1,067,398 in exchange for 142,350
shares of the Company's common stock and additional consideration detailed
below. Additionally, the Company issued warrants to purchase 187,500 shares of
the Company's common stock at $ 2.00 per share (Notes 10 and 11). 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. One Medical, has developed, in conjunction with the Company, a
communications and transaction platform which allows pharmacies, insurance
companies, medical providers and suppliers to process transactions through a
Debit Link terminal for such items as ordering, medical reimbursement approval
and payment. The acquisition was accounted for under the purchase method of
accounting.
The aggregate purchase price has been allocated to the net assets purchased
based on the fair market values at the date of acquisition, as follows:
<PAGE>
Note 3 - Acquisitions (cont'd)
One Medical Services, Inc. (cont'd)
Cash $ 13,047
Fixed Assets 2,282
Contract Values 100,000
Goodwill 952,069
----------
$1,067,398
Acquisition costs $ 443,660
Promissory note assumed 182,108
Fair value of common stock and options issued 441,630
----------
$1,067,398
The common stock issued in connection was recorded at the market value of the
stock at the date of the acquisition of $1.60 per share.
No pro forma statements of operations are presented as the effect would not be
material to the Company's operations.
Subsequent to June 30, 1999, the Company has licensed the One Medical Services
technology to an outside party (see Note 17).
MedCard Management Systems, Inc.
In November, 1998, the Company purchased certain assets of MedCard Management
Systems, Inc. of Islandia, New York ("MedCard"), along with the licensing rights
to the MedCard name and the MedCard System software and network for fifteen
years. The term of the agreement may be extended after fifteen years for ten
successive one-year periods. The MedCard System is a comprehensive electronic
processing system that consolidates insurance eligibility verification and
processes medical claims and approval of credit card/debit card payments within
30 seconds. Consideration for the transaction included cash of $450,000, 100,000
shares of restricted common stock valued at $1.28 per share, which approximated
market, and warrants to purchase 350,000 shares of common stock with an imputed
value of $333,904. At June 30, 1999, licensing rights related to the agreement
totaled $885,558 net of $38,500 of accumulated amortization.
<PAGE>
Note 3 - Acquisitions (cont'd)
MedCard Management Systems, Inc. (cont'd)
In connection with the acquisition of the licensing rights, the Company entered
into a royalty agreement requiring future royalty payments based on sales (Note
14). The Company has provided additional funding related to these operations
that are recorded as royalty advances. As of June 30, 1999, royalty advances
totaled $515,907.
Note 4 - Property and Equipment
Property and equipment consist of the following:
June 30,
1999
Property and equipment
Vehicles $ 20,608
Furniture and fixtures 137,209
Machinery and equipment 3,497,529
Software 100,450
Less accumulated depreciation and amortization (1,696,194)
$2,059,602
Note 5 - Notes Receivable
The Company made advances to and entered into a joint venture agreement with
Commonwealth Group International, Inc. and Frederick C. Sayle. The $150,000 note
receivable bears interest at a rate of 10% per annum, with principal and
interest originally 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. The Company has received interest on the notes
through June 30, 1999 and believes that both principal and interest are
collectible at June 30, 1999.
As of June 30, 1997, the Company had sold equipment to a customer for a total
sales price of $664,000. 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. No payments have been received
as of June 30, 1999. Accordingly, the Company has recorded an allowance of
$452,800 which reduces the net balance to $211,200, which approximates the value
of the underlying collateral.
<PAGE>
Note 5 - Notes Receivable (cont'd)
The Company has an unsecured note receivable for $30,000, which was collected in
October 1999.
The Company has a note receivable from an entity owned entirely by former
officers of the Company, with a balance of $122,262. This amount has been fully
reserved against because collection is considered to be unlikely and the Company
does not have any collateral for this note.
Note 6 - Investments
During the year ended June 30, 1998, the Company terminated a licensing and
equipment agreement with a Canadian Company that had originally been entered
into in the year ended June 30, 1997 in exchange for preferred stock. The
equipment was returned to the Company, the preferred stock was returned to the
Canadian Company and a loss provision for $764,000 was provided for during the
year ended June 30, 1998.
Note 7 - Bank Line of Credit
The Company maintains a secured revolving line of credit with a bank for up to
$250,000. The balance at June 30, 1999 was $250,000. The line-of-credit is
secured by a restricted certificate of deposit with a balance at June 30, 1999
of approximately $250,000. The line-of-credit bears interest at 5.77% payable
monthly. The line-of-credit expired June 5, 1999 and on July 13, 1999, the
Company voluntarily redeemed the certificate of deposit and applied the proceeds
toward repayment of the credit line principal and accrued interest in full.
Note 8 - Notes Payable and Capital Leases
June 30, 1999
8.0% convertible notes payable - individuals,
interest payable quarterly, principal due at
maturity dates ranging from August 1997 to
May 1998. Debt includes conversion to common
stock feature with conversion rates ranging from
$1.25 to $2.50 per share. Currently in default 94,000
Note payable - individual, non-interest bearing
payable in monthly installments of $1,500 through
June 2000. 37,500
Note payable - franchisee, bearing interest at 10%,
principal and interest due October 31, 1999; debt
includes conversion to common stock feature at $.875
per share. 317,619
<PAGE>
Note 8 - Notes Payable and Capital Leases (cont'd)
Convertible Bridge Financing Note - corporation,
bearing interest at 4%, principal and interest due
July 28, 1999. Debt includes conversion to common
stock feature at $.70 per share. 70,000
----------
Total current maturities $ 519,119
==========
Capital Leases
The Company leases various office and other equipment which are 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, 1999.
Year Ending June 30,
2000 $68,843
2001 67,818
2002 67,818
2003 15,797
2004 3,814
-----
Total 224,090
Less interest (54,952)
-------
169,138
Less current portion (43,432)
$125,706
The assets recorded under capital leases are as follows:
Furniture, fixtures and equipment $162,630
Less accumulated depreciation (13,379)
$149,251
Depreciation expense for equipment under capital lease was $70,418 and $14,679
for the years ended June 30, 1999 and 1998, respectively.
Note 9 - 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
<PAGE>
Note 9 - Income Taxes (cont'd)
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 and the benefit of the Company's net operating
loss carryforward generated a long-term deferred tax asset that totals
approximately $8,800,000 and has been reduced 100% by a valuation allowance
because of a lack of profitable operating history. Accordingly, there is no net
deferred tax asset reflected in the accompanying consolidated financial
statements. The Company will continue to assess the valuation allowance and to
the extent it is determined that it is more likely than not that the tax
benefits will be realized, the tax benefit of the remaining net deferred assets
will be recognized at that time.
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,
1999 1998
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,
1999
Total long-term deferred tax asset $8,800,000
Valuation allowance (8,800,000)
$ --
At June 30, 1999, the Company has approximately $26,000,000 of net operating
loss carryforwards for income tax reporting purposes which expire in 2007
through 2014. During 1995, 1998 and 1999, there were transactions involving
changes in ownership which restrict the utilization of net operating loss
carryforwards in the future.
<PAGE>
Note 10 - Stock Option and Bonus Plans
The Company's Incentive Stock Option Plans, Non-Qualified Stock Option Plans and
Stock Bonus Plans are collectively referred to as the "Plans". The following
sets forth certain information as of June 30, 1999 concerning the stock options
and stock bonuses granted by the Company pursuant to the Plans. Each option
represents the right to purchase one share of the Company's Common Stock.
<TABLE>
<S> <C> <C> <C> <C>
Shares
Total Shares Reserved for Shares Issued Remaining
Reserved Outstanding as Stock Shares/Options
Under Plans Options Bonus Under Plan
1998 Incentive Stock Option Plan 1,500,000 688,000 N/A 812,000
1996 Non-Qualified Stock 1,500,000 607,500 N/A 892,500
Option Plan
1998 Non-Qualified Stock 1,500,000 -- N/A 1,500,000
Option Plan
1996 and 1998 Stock Bonus 1,500,000 N/A 1,497,625 2,375
Plans
1999 Stock Bonus Plan 500,000 N/A -- 500,000
</TABLE>
Incentive Stock Option Plan.
The 1998 Incentive Stock Option Plan authorizes the issuance of options to
purchase up to 1,500,000 shares of the Company's Common Stock. The Incentive
Stock Option Plan will remain in effect until 2008 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.
Non-Qualified Stock Option Plans
The Non-Qualified Stock Option Plans collectively authorize the issuance of
options to purchase up to 3,000,000 shares of the Company's Common Stock. The
Company's employees, directors, officers, consultants and advisors are eligible
to be granted options pursuant to the Plans, 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 and expiration date are determined by the
Board of Directors .
<PAGE>
Note 10 - Stock Option and Bonus Plans (cont'd)
Non-Qualified Stock Option Plans (cont'd)
The following is a summary of options granted:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Non-
Qualified Options and Weighted
Incentive Stock Warrants Weighted Average
Stock Options Issued Not Average Weighted Exercise Price
Options and and Related to a Exercise Average Currently Currently
Warrants Warrants Plan Price Fair Value Exercisable Exercisable
--------- -------- ------------ -------- ----------- ----------- -------------
Outstanding June 30, 1997 683,500 10,000 250,765 $ 4.96 944,265 $ 4.96
Options and warrants (161,000) -- -- (4.00)
expired or cancelled
Options transferred
between Plans (522,500) 522,500 -- 4.86
Options and warrants -- 75,000 2,362,000 1.73 1.17
granted --------- ------- ----------- ---------- ---------
Outstanding June 30, 1998 -- 607,500 2,612,765 2.56 3,220,265 2.56
Options and warrants -- -- --
expired or forfeited (3,000)
Options and warrants 691,000 -- 6,080,164 1.04 .69
granted ---------- --------- ---------- ---------- ---------
Outstanding June 30, 1999 688,000 607,500 8,692,929 $ 1.53 8,840,429 $ 1.61
=========== ========= ========== ========== ========= =========
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
June 30,1999
Options and Warrants Outstanding Options and Warrants Exercisable
Weighted
Weighted Average Weighted
Number Average Remaining Number Average
Outstanding Exercise Contractual Exercisable Exercise Price
Range of Exercisable Price Price Life
$.44 - $3.00 9,064,614 1.15 3.50 7,916,614 $ 1.18
$4.00 - $8.00 872,565 4.91 3.96 4.91
872,565
$10.00 - $13.00 51,250 11.76 .22 51,250 11.76
------------- ------------- ------------- ------------- -------------
9,988,429 1.53 3.52 8,840,429 $ 1.61
============= ============= ============= ============= ==========
</TABLE>
<PAGE>
Note 10 - Stock Option and Bonus Plans (cont'd)
Non-Qualified Stock Option Plans (cont'd)
The Company accounts for stock based compensation in accordance with Financial
Accounting Standards Board 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 years ended June 30, 1999 and 1998, employees of the Company
were issued options to purchase a total of 3,281,000 and 1,806,500 shares of the
Company's common stock, respectively, at rates ranging from $.81 to $13 per
share expiring from September 1999 to December 2006.
Had compensation cost for the Company's issuances of stock options during the
years ended June 30, 1999 and 1998 been determined based on the fair value at
the date of grant consistent with the provisions of FAS 123, the Company's 1999
and 1998 net loss and loss per share would have been increased to the pro forma
amounts indicated below:
June 30,
1999 1998
----------- ---------
Net loss - as reported $(7,088,960) $(7,109,748)
Net loss - pro forma $(9,469,523) $(9,227,346)
Net loss per share - as reported $ (.67) $ (1.79)
Net loss per share - pro forma $ (.89) $ (2.33)
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, 1999; dividends yield
of 0.0%; expected average annual volatility of 133.86%; average annual risk-free
interest rate of 6.0%; and expected terms averaging 3 years.
Stock Bonus Plans
Up to 2,000,000 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 Plans, 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
<PAGE>
Note 10 - Stock Option and Bonus Plans (cont'd)
connection with the offer or sale of securities in a capital-raising
transaction. As of June 30, 1999, 1,497,625 shares of the Company's common stock
have been issued under the Stock Bonus Plans.
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 established the 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 are not cumulative.
Additionally, each share of Series A Preferred Stock is convertible into .20
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, 1999,
the Company has 9,250 shares of Series A Preferred Stock issued and outstanding.
In March 1996, the Company established the 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 are not
cumulative. 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, 1999, all Series B
Preferred shares had been converted and there were no shares outstanding.
In November, 1998, the Company's board of directors amended the original
certificate of designation for its Series C Preferred Stock ("Series C") and
authorized the issuance of up to 2,060 shares. Each share of the Series C
Preferred Stock is entitled to a dividend at the rate of $.06 per share and has
a stated value of $ 1,000 per share. Dividends on all shares of the Series C
Preferred Stock shall begin to accrue and accumulate from the date of issuance.
Additionally, each share of Series C Preferred Stock is convertible into shares
of the Company's Common Stock at an adjustable conversion rate. Upon any
liquidation or dissolution of the Company,
<PAGE>
Note 11 - Stockholders' Equity (cont'd)
Preferred Stock (cont'd)
each outstanding share of Series C Preferred Stock is entitled to distribution
of the stated amount per share prior to any distribution to the holders of the
Company's common stock. From November, 1998 to January, 1999, the Company sold
1,700 shares of its 6% Series C Preferred Stock to a group of institutional
investors for $1,700,000 net of $253,154 in offering costs. For each preferred
share, the Company will issue warrants on certain dates. The warrants entitle
the holder to purchase common stock at prices ranging from $1.27 to $1.50 per
share. While the Company has the right to redeem the preferred shares at any
time; the redemption price varies from 110% to 125% of face value depending on
the redemption date. In connection with the preferred stock sales, the Company
issued 45 shares of preferred, 14,769 shares of common and 37,500 warrants to
purchase common at prices ranging from $1.27 to $1.50 per share to the placement
agent. In addition, the Company issued 120,000 shares of common stock to the
investment banking group and 200,000 warrants to purchase common stock at prices
of $2.50 to $5.00 per share. The dividend attributable to the Series C preferred
stock was $58,025 at June 30, 1999.
For the years ended June 30, 1999 and 1998, the Company did not declare any
dividends.
Equity Transactions
During the year ended June 30, 1999, the following equity transactions occurred:
The Company sold 3,636,879 shares of common stock at prices ranging from $.44 to
$1 per share in private placements raising $2,553,112 net of $307,925 in
offering costs.
The Company issued 2,607,950 shares of its common stock for $2,340,423 of
services and equipment received.
The Company issued 150,700 shares of its common stock for $123,430 for services
previously rendered.
The Company issued 2,109,975 shares of its common stock in order to convert
$1,672,997 worth of long-term debt, notes payable, franchisee deposits and
accrued interest into stockholders' equity.
The Company issued 466,150 shares of its common stock valued at $431,445 to its
employees under the Company's Stock Bonus Plan.
The Company issued 100,000 shares of its common stock valued at $128,000 in
connection with the acquisition of certain assets of MedCard including the
exclusive licensing rights to the MedCard name and the MedCard System software
and network. Additionally, the Company
<PAGE>
Note 11 - Stockholders' Equity (cont'd)
Equity Transactions (cont'd)
issued options to purchase 350,000 shares of the common stock at $1.34 per
share. The options expire in November, 2001 and have an imputed value of
$333,904 which was allocated as part of the purchase price of the licensing
rights acquired (Note 2).
The Company issued options to purchase 150,000 shares of its common stock at
$.59 per share to a company retained as its investment banker in connection with
any future offerings. As no such offering took place, the imputed value of the
options, $77,730, has been charged to stock based compensation at June 30, 1999.
The Company issued options to purchase 50,000 shares of its common stock at
$1.50 per share in connection with a loan advanced to the Company by an
individual. The imputed value of the options, $40,101, has been charged to
interest expense during the year ended June 30, 1999.
The Company issued options to purchase 420,000 shares of its common stock at
rates ranging from $.82 to $2.50 per share. These options expire September,
2001. $306,840 of expense has been recognized based on imputed values ranging
from $.61 to $1.50 per option.
The total value of the above-mentioned stock and warrants that is included in
general and administrative expenses in the accompanying consolidated statement
of operations was $2,540,338 during the year ended June 30, 1999.
During the year ended June 30, 1998, the following equity transactions occurred:
The Company acquired all of the outstanding stock of Vector Vision, Inc. and the
net assets of MovieBar Company USA, Inc. valued at a combined $1,100,000 in
exchange for 550,000 shares of the Company's common stock (Note 3).
Additionally, the Company issued options to purchase 25,000 shares of the
Company's common stock at $2.20. These options expire January 2003. These
options have an imputed value of $26,714 that was allocated to the value of the
assets as part of the purchase price.
The Company acquired all of the outstanding stock of One Medical Service Inc.
valued at $227,760 in exchange for 142,350 shares of the Company's common stock
(Note 3). Additionally, the Company issued options to purchase 187,500 shares of
the Company's common stock at $2.00. These options expire May 2003. These
options have an imputed value of $213,870 that was allocated as part of the
purchase price to goodwill.
The Company issued 2,246,500 shares of the Company's common stock at rates
ranging from $.80 per share to $1.00 per share in private placements raising
$1,476,080 net of $254,546 in offering related expenses and $407,657 of imputed
option value. Additionally, the Company issued options to purchase 354,000
shares of the Company's common stock at rates ranging from
<PAGE>
Note 11 - Stockholders' Equity (cont'd)
Equity Transactions (cont'd)
$.80 to $2.00. These options expire May 2000 and January 2002. These options
have an imputed value of $407,657 that was included in offering expenses.
The Company sold $1,100,000 of convertible notes to investors in connection with
a Regulation S offering raising $937,044 net of $162,956 in related expenses.
These notes were converted to 846,827 shares of the Company's common stock.
The Company issued 1,015,749 shares of the Company's common stock for $1,696,236
of professional services and consulting received. 265,000 shares of the stock
issued have a two year vesting period. As such, $136,475 of unearned
compensation expense has been recorded and will be amortized to expense over a
one-year period. Additionally, the Company issued options to purchase 110,000
shares of the Company's common stock at rates ranging from $1.00 to $5.00. These
options expire January 2003. $127,661 of expense has been recognized based on
imputed values ranging from $.84 to $1.33 per option.
The Company converted $707,089 of convertible debt and accrued interest payable
to 506,791 shares of the Company's stock at rates ranging from $.40 to $1.60 per
share.
The Company issued 230,317 shares of its common stock in repayment of former
officer notes and accrued salaries of $419,197.
The Company issued 300,000 shares of its common stock valued at $309,300 in
connection with the litigation settlement with a former Instafone master license
holder (Note 16).
The total value of the above-mentioned stock and warrants that is included in
general and administrative expenses in the accompanying consolidated statement
of operations was $1,687,422 during the year ended June 30, 1998.
Note 12 - Stock Splits
In February 1998, the Company declared 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
these split.
Note 13 - Business Segments
The Company has four reportable segments: telecommunications, financial
processing, automated movie rentals and medical transaction processing. The
telecommunications segment is responsible for the sales and processing of
cellular telephone activations and rentals, prepaid cellular phone
<PAGE>
Note 13 - Business Segments (cont'd)
cards and other telecommunications related services. The financial processing
segment has developed, in conjunction with the Company's intelligent "Debit
Link" system, a monetary transaction processing platform that eliminates the
need for ATM's used primarily in major fast food chains. The automated movie
rentals segment rents videocassettes through automated dispensing units in
hotels, primarily located in the states of Florida and California. The medical
transaction processing segment has developed, in conjunction with the Company's
intelligent "Debit Link" system, a communications and transaction processing
platform which allows pharmacies to access on-line credit card and medical
reimbursement approval and automated product ordering and payment. This segment
also includes the MedCard System, a comprehensive electronic processing system
that consolidates insurance eligibility verification and process medical claims
and approval of credit card/debit card payments within 30 seconds. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company's reportable segments
are strategic business units that offer different products and services.
Operating results and other financial data are presented for the four reportable
segments of the Company for the years ended June 30, 1999 and 1998. Net revenue
includes sales to external customers within that segment. There are no
significant transfers between segments. Cost of goods sold includes costs
associated with net revenue within the segments. Depreciation and amortization
includes expenses related to depreciation and amortization directly allocated to
the segment. Segment income (loss) does not include general and administrative
expenses, selling and marketing, other operating expenses, other income
(expense) items or income taxes. Identifiable assets are those assets used in
segment operations, which consist primarily of cash, receivables, inventory,
prepaid expenses, machinery, equipment, licensing rights and goodwill. Corporate
assets are principally patents.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Medical
Tele- Financial Automated Transaction Corporate
Communications Processing Movie Rental Processing And Other Consolidated
June 30, 1998:
Net revenues $ 446,524 $ 147,533 $ 371,416 $ 15,478 $ - $ 980,951
Cost of services $ 245,468 $ 128,133 $ 145,040 $ 4,838 $ - $ 523,479
Depreciation and
amortization $ 245,700 $ - $ 94,058 $ - $134,614 $ 474,372
Selling, General
& Administrative $ 7,029,111 $7,029,111
Loss from $ (44,644) $ 19,400 $ 132,318 $ 10,640 $(7,163,725) $(7,046,011)
continuing
operations
before income
taxes
Identifiable $2,224,685 $ 467,962 $1,450,122 $1,058,714 $401,268 $5,602,751
<PAGE>
Note 13 - Business Segments (cont'd)
June 30, 1999:
Net revenues $ 142,672 $ 625,801 $ 888,626 $ 583,777 $ - $2,240,876
Cost of services $ 86,252 $ 236,517 $ 243,512 $ 131,200 $ - $ 697,481
Depreciation and
amortization $ 504,686 $ 117,768 $ 223,839 $ 136,458 $ 75,157 $1,057,908
Selling, General
& Administrative $ 7,574,447 $7,574,447
Loss from $ (448,266) $ 271,516 $ 421,275 $ 316,119 $(7,649,604) $(7,088,960)
continuing
operations
before income
taxes
Identifiable $1,812,851 $ 573,362 $1,197,108 $2,464,242 $327,279 $ 6,374,862
</TABLE>
Product or Service Type Year Ended June 30, 1999 Year Ended June 30, 1998
- ----------------------- ------------------------ ------------------------
$ 0 $ 103,774
Rental of cellular
telephones
Activation fees for
cellular telephones 0 158,309
Sale of prepaid calling 89,635 144,457
cards
Sale of long distance
telephone service 0 39,984
Financial processing 625,801 147,533
revenue
Movie rentals 888,626 371,416
One medical revenues 156,712 15,478
MedCard system 427,065 0
Other 53,037 0
Total $ 2,240,876 $ 980,951
Note 14 - Commitments and Contingencies
Operating Leases
The Company leases administrative offices and warehouse locations under
noncancelable operating leases in California and Florida. The minimum annual
rent generally increases each year by an amount based in the Consumer Price
Index. The Company is also generally responsible for paying its portion of the
common area maintenance, real estate taxes and insurance expenses. Additionally,
the Company also leases various office equipment under noncancelable operating
leases with terms up to 5 years. Rental expense for the years ended June 30,
1999 and 1998 was $279,550 and $113,275, respectively.
<PAGE>
Note 14 - Commitments and Contingencies (cont'd)
Future minimum lease commitments at June 30, 1999 are as follows:
Year Ending June 30,
2000 $ 287,000
2001 238,000
2002 236,000
2003 192,000
2004 119,000
Thereafter 105,000
----------
$1,177,000
Employment Agreements
The Company has entered into three-year employment agreements with its two most
senior officers. The agreements entitle the officers to an annual salary of
$137,500 and $120,000, respectively. 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 such items
as an automobile allowance, health and life insurance, vacation and sick pay
benefits.
The Company has also entered into a three year employment agreement with an
officer of a subsidiary of the Company commencing on June 1, 1998. The officer
is entitled to a salary of $96,000 per year. As additional compensation, the
officer is entitled to receive incentive bonus stock options computed based upon
annual performance criteria and is entitled to other benefits, including such
items as an automobile allowance, health and life insurance, vacation and sick
pay benefits. As part of an Exclusive Licensing Agreement with an outside party
dated July 20, 1999, the Company and the executive terminated this employment
agreement (Note 17).
Additionally, the Company has entered into three year employment agreements with
another officer and two other employees. These agreements amount to a total of
$187,000 in annual base compensation. In connection with these agreements,
43,274 shares of the Company's common stock and options to purchase up to 34,000
shares of the Company's common stock at rates ranging from $1.00 to $2.00 were
issued. These agreements are automatically renewable for a period of two years
after the third anniversary date. As additional compensation, each individual is
entitled to receive an incentive bonus computed based upon annual performance
criteria as determined in the applicable agreements and is entitled to certain
other benefits, including such items as an automobile allowance, health and life
insurance, vacation and sick pay benefits. One of the agreements entitle the
individual to additional compensation of $92.50 for each POS
<PAGE>
Note 14 - Commitments and Contingencies (cont'd)
Employment Agreements (cont'd)
transaction automation terminal placed in service or sold. Effective June 10,
1999, the Company and this employee terminated the employment agreement.
Royalty Agreement
In connection with the acquisition of the licensing rights of MedCard (Note 3),
the Company entered into a royalty agreement with the licensor. The Company will
pay the licensor 25% of monthly revenues, less direct costs, generated by the
licensed software. Royalties on net revenues in excess of $1,000,000 per month
shall be paid at 10% instead of 25%. The agreement requires the Company to
advance $550,000 of royalty fees payable to the licensor and then retain as a
credit 40% of the future monthly royalty payments until the advance is offset in
full.
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, 1998, Cellex has remitted $22,818 in profit
participation payments to this individual. Effective December 1997, the Company
discontinued the operations of Cellex (Note 16). As of June 30, 1999, no monies
had been remitted for profit participation for the current year.
Consulting Agreements
The Company has entered into various consulting agreements with outside
consultants. These agreements entitle the consultant to issuances of common
stock and options as well as cash compensation in exchange for consulting
services relating to such things as raising additional debt and equity capital,
sales development, investor and public relations and general strategic business
consulting. For the year ended June 30, 1999, the Company issued 2,123,300
shares of common stock and options to acquire 360,000 shares of common stock at
rates ranging from $.82 to $2.00 per share in exchange for consulting services
valued at $2,134,296. As of June 30, 1999, 75,000 shares remained payable
pursuant to the terms of two of the consulting agreements. No other outstanding
obligations existed as of June 30, 1999 pursuant to the terms of the remaining
consulting agreements. For the year ended June 30, 1998, the Company has issued
483,551 shares of common stock and options to acquire 100,000 shares of common
stock at rates ranging from 1.00 to 5.00 per share in exchange for consulting
services valued at $ 1,029,412.
<PAGE>
Note 14 - Commitments and Contingencies (cont'd)
Litigation
During the year ended June 30, 1998, an action was brought against subsidiary,
Vector Vision, Inc. The litigation alleged the former employee was owed
approximately $80,000 in un-reimbursed expenses and monies advanced to the
company. The Company settled the matter for approximately $50,000. As security
for the settlement, the Company gave the individual a collateral assignment of
revenue generated from a location using the Company's automated movie rental
system as well as related equipment and agreed to have a judgment of $80,000
entered against them should they default in payment. As of June 30, 1999, the
Company owed $8,000 to the former employee under the settlement agreement; this
amount is included in accrued expenses.
During February 1998, the Company reached a settlement with a former master
license holder (the "license holder") for Holland, Belgium and Germany. The
Company issued 300,000 shares of common stock valued at $309,300 and agreed to
pay $135,000 in cash, resulting in a special charge of $424,300. At June 30,
1998, $90,000 was due to license holder and included in accrued expenses. During
the fiscal year ended June 30, 1999, the Company made $15,000 in payments to the
license holder in accordance with the settlement agreement. On April 7, 1999,
the license holder converted the balance of the amount due ($75,000) into 70,755
shares of the Company's common stock (see Note 11).
Additionally, in the fiscal year ended June 30, 1998, a franchisee demanded that
the Company repurchase his franchises for approximately $1,000,000 or a suit for
breach of the franchise agreement would be filed. On February 19, 1999, the
Company negotiated a settlement with the franchisee whereby the Company issued
571,429 shares of common stock to satisfy $500,000 of the franchisee's deposit
liability (see Note 11). In addition, the Company issued a 10% Promissory Note
for $317,619 in favor of the franchisee due October 31, 1999 (see Note 8).
A suit has been filed against the Company by a former employee for damages
totaling $269,000. Management believes the claim is without merit and has filed
a counterclaim against the plaintiff charging criminal wrongdoing.
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.
Note 15 - Statements of Cash Flows
During the year ended June 30, 1999:
The Company acquired $860,810 of fixed assets through capital leases,
satisfaction of notes receivable and for stock.
<PAGE>
Note 15 - Statements of Cash Flows (cont'd)
The Company accrued dividends payable of $58,025 on the Series C Preferred
Stock.
The Company incurred various noncash transactions in connection with the
acquisition of the MedCard licensing rights (Note 3).
The Company converted $500,000 of franchise deposits, $1,068,348 of convertible
notes and interest payable and $123,430 of accounts payable into 2,260,675
shares of common stock.
The Company converted $327,661 of franchise deposits into notes payable.
The Company converted 116,000 shares of Series A and B Preferred Stock into
21,950 shares of common stock.
The Company sold $635,237 of fixed assets by transferring the related capital
leases to the acquiring entity.
During the fiscal year ended June 30, 1998:
The Company acquired $44,096 of fixed assets through capital leases.
The Company converted $707,089 of convertible notes and interest payable to
506,791 shares of common stock.
The Company converted $419,197 of officer notes payable and salaries to 230,317
shares of common stock.
The Company incurred various noncash transactions related to their business
acquisitions (Note 3).
The Company transferred $603,652 of ACDC units and equipment from inventory to
fixed assets in anticipation of placing these units at Company owned sites.
The Company terminated a licensing and equipment agreement which resulted in the
return of $441,000 of ACDC units and equipment into fixed assets and the
reversal of $105,000 of deferred revenue.
Note 16 - Discontinued Operations
Effective December 1997, the Company decided to discontinue the operations of
Cellex communications Inc., which provided cellular activation and prepaid
cellular time services. The Company expects no additional revenues or expenses
<PAGE>
Note 16 - Discontinued Operations (cont'd)
and has no material remaining assets or liabilities. For the years ended June
30, 1999 and 1998, there was a loss on the disposal of the segment and the
discontinued operations resulted in a charge of $63,737.
Note 17 - Subsequent Event
On July 20, 1999, the Company entered into an agreement with a corporation for
the exclusive licensing rights to market the One Medical Service system. The
Company received $200,000 upon execution of the document and will receive an
additional $367,000 over the following six months. The Company also received a
7-year 8% unsecured note receivable, in the amount of $810,000, as part of the
transaction. The note shall be paid off by monthly royalty payments to the
Company and other scheduled payment amounts over its term. The Licensee can
convert the monies paid for royalty and licensing fees into an eighty-one
percent (81%) ownership in One Medical Service. It can also acquire the
remaining nineteen percent (19%) for the greater of $132,000 or the fair market
value of such interest. The Licensee also agreed to acquire the inventory, pay
$200,000 of accounts payable and assume the salaries and other overhead
associated with the One Medical operation.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(a) of the Exchange Act, the Registrant
has caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized on the 18th day of April 2000.
SIMS COMMUNICATIONS, INC.
By /s/ Mark Bennett
Mark Bennett, President
By /s/ Alan Ruben
Alan Ruben , Principal Financial Officer and
Chief Accounting Officer
In accordance with the Exchange Act, this Report has been signed by the
following persons on behalf of the Registrant in the capacities and on the dates
indicated.
Signature Title Date
/s/ Mark Bennett
Mark Bennett Director April 18, 2000
/s/ Michael Malet
Michael Malet Director April 18, 2000
/s/ David Breslow
David Breslow Director April 18, 2000
Julio Curra Director
<PAGE>
FORM 10-KSB/A
EXHIBITS
SIMS Communications, Inc.
18001 Cowan, Suites C&D
Irvine, CA 92614
July 20, 1999
Michael Malet
Executive Vice President
SIMS COMMUNICATIONS, INC.
18001 Cowan Street, Suite C-D
Irvine, CA 92614
Exclusive License Agreement
Whereas, SIMS COMMUNICATIONS, INC. (hereafter referred to as "Licensor" and
"SIMS"), is a software and hardware development company that has developed a
proprietary software platform for processing credit cards, ACH, and other
financial and medical verification functions,and other medical services.
Whereas, SIMS has assisted in the development of and is the owner of the One
Medical Service (OMS) program and platform and has an exclusive contract with
Bergen Brunswig to deliver a range of services through the Bergen Brunswig
distribution network, and ;
Whereas, Enhanced Information Services (hereafter referred to as "Licensee"), a
Nevada Corporation, is a communications and product development company in the
electronic information industry, and;
Whereas, EIS has been supporting the OMS program through its IVR and telephony
capabilities and EIS desires to exclusively license the OMS program and
associated components.;
NOW THEREFORE, EIS and SIMS agree to the following terms and conditions:
A. Term and Certain Conditions
a. This Agreement shall become effective as of this date and shall continue in
effect for seven (7) years from the date of the underlying license
agreement. subject to sections b and c below.
b. Licensee may terminate this Agreement (i) if Licensor files for bankruptcy
protection under Chapter 7 or 11. or (ii) if Licensor is in breach of this
Agreement.. (iii) In the event, the Bergen Brunswig ("Bergen") Strategic
Marketing Agreement, made reference to herein is terminated by Bergen,
provided Licensee has remitted in full to SIMS the amounts designated in
this L.O.I. sections: "B. 1. a." and "B.1.b." and "D. 2.".Licensor agrees
to give Licensee thirty (30) days notice in which to cure any default
hereunder. Any notice period given under this Subsection (b) shall be
without
<PAGE>
prejudice for any claim for damages or any other right of Licensor under
this Agreement at the time of such termination.
c. Licensor may terminate this Agreement (i) if Licensee files for bankruptcy
protection under Chapter 7 or 11.; or (ii) if Licensee is in breach of this
Agreement. . Licensee agrees to give Licensor thirty (30) days notice in
which to cure any default hereunder. Any notice period given under this
Subsection (b) shall be without prejudice for any claim for damages or any
other right of Licensee under this Agreement at the time of such
termination.
d. Upon termination of this Agreement for reasons found in section A(b) (i,
ii, iii, iv) of this agreement, any Customer receiving Service shall remain
a Customer of Licensee. Further, Licensor agrees not to solicit any
Customers of Licensee for a period of twelve (12) months from the date of
any termination under Section 2b. Likewise, upon termination of this
Agreement for reasons found in section A(c), EIS will turn over to SIMS any
and all business that EIS developed through and with the OMS contract as it
related to the implementation of programs through Bergen Brunswig. Both
parties agree that in the event the Bergen Agreement is extended, replaced
by any other agreement, renewed, supplemented and/or additional Licensee
products or services are offered or derived from the Bergen Agreement, then
they are automatically included within this letter of intent.
e. Licensor agrees to place 81% of its member interest in One Medical Service,
LLC into an escrow account so that in the event that Licensor files
bankruptcy (as stated above), Licensee still retains its rights to OMS.
B. Fees and Royalties
1. In return for the exclusive license to market OMS (licensing rights to be
defined further in the license agreement), EIS will pay a fee to SIMS of
$567,000 as follows:
a. $60,000 cash upon execution of this agreement (Tuesday, July 20, 1999)
b. $140,000 cash due on or before Friday, July 23, 1999
c. $367,000 note payable as follows:
i. $100,000 due August 1, 1999
ii. $100,000 due September 1, 1999
iii. $158,650 due September 15, 1999 (net of discount of $8,360)
d. As previously agreed upon between the parties, EIS will execute a long-term
unsecured interest-bearing note payable (84 months) in favor of SIMS for
$810,000 @ 8% per annum. Payment of the note payable as follows:
(1) Principal balance of the note payable to be reduced (over time)
by the royalty payment to SIMS and phone card time provided to
SIMS as discussed in section B. 3. and E.2., respectively.
(2) At the end of the 36th month, if no events have triggered payment
of this note payable in full-see (4) below-25% of the remaining
principal balance plus interest shall become due and payable.
<PAGE>
(3) At the end of the 84th month, if no events have triggered payment
of the note balance plus accrued interest shall become due and
payable.
(4) The following provisions shall override the regular payment
schedule above and provide for immediate payment of the remaining
principal balance and accrued interest to SIMS:
(a) Licensee's default with any provisions of the agreement;
which may be cured within a 30-day period.
(b) IPO of EIS; in which case Licensee has the option to make
payment in full of Note to Licensor in cash or stock.
2. EIS will assume accounts payable and ownership of current inventory of OMS
platforms and processors which is estimated at 600 units valued at
$200,000 in total inventory based on the following conditions:
a. SIMS will provide EIS with a detailed list of inventory items, location and
value.
b. EIS will have the right to determine through discussions with programmers
and vendors, functionality and usefulness of the hardware and/or software
not only for current use but also for future applications that were
included in the OMS business plan.
c. EIS will also have the right to assume this inventory liability structured
over a timeframe to be mutually agreed upon by and between SIMS, EIS and
the vendor(s).
d. SIMS will cooperate with EIS in getting IVI to agree to acceptable terms on
the accounts payable.
3. EIS will pay SIMS an $8.00 per member platform royalty on each OMS
platform deployed in the OMS network subject to an overriding $1,000
monthly minimum and $6,000 monthly maximum .
4. EIS agrees to take full responsibility (financial and/or otherwise) for
all on-going day-to-day commitments of OMS.
5. Any employees of SIMS that have "overlapping" roles (i.e. between SIMS and
OMS) will be billed weekly to EIS by SIMS at cost (employees to be defined
in the actual agreement).
<PAGE>
6. This represents all fees, royalties and other payments to SIMS by EIS or OMS.
C. Usage Rights and Associated Benefits
1. Licensor agrees to give Licensee the sole and full rights to the use,
representation, sales, distribution and deployment of OMS, its program and
all associated services, products, materials, contacts, vendors,
suppliers, and contracts; including the right to use, deploy, present,
publish and modify any and all patents, copyrights, trademarks, service
marks and other intellectual property presently held by One Medical
Services and/or SIMS on behalf of One Medical Services (Schedule to be
included in underlying contract to this Letter of Intent.)
2. Licensee will have the right to service and fulfill all contracts and
agreements held by OMS between all and any parties, including those
contracts held by Licensor on behalf of OMS. (Schedule to be included in
underlying contract to this Letter of Intent.)
3. By issuing this license to EIS, SIMS agrees not to sell, represent,
license, distribute, assign or rent any part, portion or component of the
OMS program to a third party without the expressed written permission of
EIS. (Schedule to be included in underlying contract to this Letter of
Intent.) Licensor retains rights to include OMS as part of its business
plans, projections, etc.
4. SIMS agrees to place its software for the processors and any software
developed to support the OMS program presently or in the future in an
escrow account.
5. SIMS will provide EIS with documentation and a non-exclusive source code
maintenance, modification and distribution license for software and
hardware contained in the operation and maintenance of the Debit Link
system and all the software that had been planned to be used by OMS.
6. Licensor will provide Licensee with software support including software
upgrades, manuals, tools, development, fixes, technical support during
business hours, replacement of faulty equipment and/or software that
SIMS/OMS may develop.
D. EIS Option to Acquire OMS
1. EIS shall have the option to convert the funds that it has paid to SIMS
for royalty and licensing fees into 81% ownership in OMS.
2. EIS shall have the option to acquire the remaining 19% of OMS, the value
of which will be based on independent valuations by either or both parties
or $132,000, whichever is greater.
E. Additional Options
1. EIS shall have the option to acquire and/or purchase additional equipment
from SIMS as SIMS agrees to make it available.
2. EIS will provide SIMS with $3,000.00 per month in prepaid phone card
services at EIS' sole cost. plus a 10% markup.
3. SIMS will provide EIS with first bid on providing SIMS with telecom
support and services for its MedCard program, where practical.
F. It is agreed between the parties hereto that they will not disclose either
directly or indirectly to any third person any confidential information
relating to the business, properties or financial conditions which any other
party disclosed in connection with the negotiation of this transaction.
<PAGE>
G. As soon as reasonably possible after the formal acceptance of this agreement,
the parties agree to negotiate and prepare the final license agreement to
consummate this transaction.
AGREED AND ACCEPTED: AGREED AND ACCEPTED:
SIMS Communications, Inc. Enhanced Information Services
By: ___________________________ By:_________________________________
Michael Malet, Jeffrey Flannery, CEO&President
Executive Vice President
Date ________ Date __________
ACKNOWLEDGED BY:
By: ____________________________________
Ian Hart, Chief Financial Officer
Date __________
<PAGE>
September 1, 1999
Amendment #1 to Exclusive License Agreement dated July 20, 1999
Whereas, SIMS COMMUNICATIONS, INC. (hereafter referred to as "Licensor" and
"SIMS"), is a software and hardware development company that has developed a
proprietary software platform for processing credit cards, ACH, and other
financial and medical verification functions,and other medical services.
Whereas, SIMS has assisted in the development of and is the owner of the One
Medical Service ("OMS") program and platform and has an exclusive contract with
Bergen Brunswig to deliver a range of services through the Bergen Brunswig
distribution network, and ;
Whereas, Enhanced Information Services (hereafter referred to as "Licensee"), a
Nevada Corporation, is a communications and product development company in the
electronic information industry, and;
Whereas, EIS has been supporting the OMS program through its IVR and telephony
capabilities and EIS desires to exclusively license the OMS program and
associated components.;
NOW THEREFORE, EIS and SIMS agree to the following additional terms:
Paragraph B.1.c. be amended as follows:
The balance of $367,000 owed by EIS (excludes the note payable) to SIMS for the
licensing rights to OMS will now become due in the following manner:
(1) $100,000 cash to be deposited into SIMS' bank account by close of
business, Tuesday, September 7th, 1999
(2) $83,500 cash to be deposited into SIMS' bank account by close of
business, Wednesday, October 20, 1999
(3) $91,750 cash to be deposited into SIMS' bank account by close of
business, Tuesday, November 30, 1999
(4) $91,750 cash to be deposited into SIMS' bank account by close of
business, Wednesday, January 5, 2000
<PAGE>
AGREED AND ACCEPTED: AGREED AND ACCEPTED:
SIMS Communications, Inc. Enhanced Information Services
By: ________________________ By:_________________________________
Mark E. Bennett, President Jeffrey Flannery, CEO& President
Date:______________ Date:____________
ACKNOWLEDGED BY:
By: ____________________________________
Ian Hart, Chief Financial Officer, Date
SIMS COMMUNICATIONS, INC.
1998 INCENTIVE STOCK OPTION PLAN
1. Purpose. The purpose of the Incentive Stock Option Plan (the "Plan")
is to advance the interests of SIMS Communications, Inc. and any subsidiary
corporation (hereinafter referred to as the "Company") and all of its
shareholders, by strengthening the Company's ability to attract and retain in
its employ individuals of training, experience, and ability, and to furnish
additional incentive to officers and valued employees upon whose judgment,
initiative, and efforts the successful conduct and development of its business
largely depends, by encouraging such officers and employees to become owners of
capital stock of the Company.
This will be effected through the granting of stock options as
herein provided, which options are intended to qualify as "Incentive Stock
Options" within the meaning of Section 422 of the Internal Revenue Code, as
amended (the "Code").
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the directors duly appointed to administer
the Plan.
(c) "Common Stock" means the Company's Common Stock.
(d) "Date of Grant" means the date on which an Option is granted
under the Plan.
(e) "Option" means an Option granted under the Plan.
(f) "Optionee" means a person to whom an Option, which has not
expired, has been granted under the Plan.
(g) "Successor" means the legal representative of the estate of a
deceased optionee or the person or persons who acquire the right to exercise an
Option by bequest or inheritance or by reason of the death of any Optionee.
3. Administration of Plan. The Plan shall be administered by the
Company's Board of Directors or in the alternative, by a committee of two or
more directors appointed by the Board (the "Committee"). If a Committee should
be appointed, the Committee shall report all action taken by it to the Board.
The Committee shall have full and final authority in its discretion, subject to
the provisions of the Plan, to determine the individuals to whom and the time or
times at which Options shall be granted and the number of shares and purchase
price of Common Stock covered by each Option; to construe and interpret the
Plan; to determine the terms and provisions of the respective Option agreements,
which need not be identical, including, but without limitation, terms covering
the payment of the Option Price; and to make all other determinations
<PAGE>
and take all other actions deemed necessary or advisable for the proper
administration of the Plan. All such actions and determinations shall be
conclusively binding for all purposes and upon all persons.
4. Common Stock Subject to Options. The aggregate number of shares of
the Company's Common Stock which may be issued upon the exercise of Options
granted under the Plan shall not exceed 1,500,000. The shares of Common Stock to
be issued upon the exercise of Options may be authorized but unissued shares,
shares issued and reacquired by the Company or shares bought on the market for
the purposes of the Plan. In the event any Option shall, for any reason,
terminate or expire or be surrendered without having been exercised in full, the
shares subject to such Option but not purchased thereunder shall again be
available for Options to be granted under the Plan.
The aggregate fair market value (determined as of the time any
option is granted) of the stock for which any employee may be granted options
which are first exercisable in any single calendar year under this Plan (and any
other plan of the Company meeting the requirements for Incentive Stock Option
Plans) shall not exceed $100,000.
5. Participants. Options will be granted only to persons who are
employees of the Company and only in connection with any such person's
employment. The term "employees" shall include officers as well as other
employees, and the officers and other employees who are directors of the
Company. The Committee will determine the employees to be granted options and
the number of shares subject to each option.
6. Terms and Conditions of Options. Any Option granted under the Plan
shall be evidenced by an agreement executed by the Company and the recipient and
shall contain such terms and be in such form as the Committee may from time to
time approve, subject to the following limitations and conditions:
(a) Option Price. The purchase price of each option shall not be
less than 100% of the fair market value of the Company's common stock at the
time of the granting of the option provided, however, if the optionee, at the
time the option is granted, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, the purchase price
of the option shall not be less than 110% of the fair market value of the stock
at the time of the granting of the option.
(b) Period of Option. The maximum period for exercising an option
shall be 10 years from the date upon which the option is granted, provided,
however, if the optionee, at the time the option is granted, owns stock
possessing more than l0% of the total combined voting power of all classes of
stock of the Company, the maximum period for exercising an option shall be five
years from the date upon which the option is granted and provided further,
however, that these periods may be shortened in accordance with the provisions
of Paragraphs 6 or 7 below.
Subject to the foregoing, the period during which each option may be
exercised, and the expiration date of each Option shall be fixed by the
Committee.
<PAGE>
If an optionee shall cease to be employed by the Company due to
disability, as defined in Section 22(e)(3) of the Code, he may, but only within
the one year next succeeding such cessation of employment, exercise his option
to the extent that he was entitled to exercise it on the date of such cessation.
The Plan will not confer upon any optionee any right with respect to continuance
of employment by the Company, nor will it interfere in any way with his right,
or his employer's right, to terminate his employment at any time.
(c) Vesting of Shareholder Rights. Neither an Optionee nor his
successor shall have any rights as a shareholder of the Company until the
certificates evidencing the shares purchased are properly delivered to such
Optionee or his successor.
(d) Exercise of Option. Each Option shall be exercisable from time
to time during a period (or periods) determined by the Committee and ending upon
the expiration or termination of the Option; provided, however, the Committee
may, by the provisions of any Option Agreement, limit the number of shares
purchaseable thereunder in any period or periods of time during which the Option
is exercisable. An Option shall not be exercisable in whole or in part prior to
the date of shareholder approval of the Plan.
Options may be exercised in part from time to time during the option
period. The exercise of any option will be contingent upon compliance by the
Optionee (or purchaser acting pursuant to Section 6(b)) with the provisions of
Section 10 below and upon receipt by the Company of either (i) cash or certified
bank check payable to its order in the amount of the purchase price of such
shares (ii) shares of Company stock having a fair market value equal to the
purchase price of such shares, or (iii) a combination of (i) and (ii). If any
law or regulation requires the Company to take any action with respect to the
shares to be issued upon exercise of any option, then the date for delivery of
such stock shall be extended for the period necessary to take such action.
(e) Nontransferability of Option. No Option shall be transferable
or assignable by an Optionee, otherwise than by will or the laws of descent and
distribution and each Option shall be exercisable, during the Optionee's
lifetime, only by him. No Option shall be pledged or hypothecated in any way and
no Option shall be subject to execution, attachment, or similar process except
with the express consent of the Committee.
(f) Death of Optionee. In the event of the death of an optionee
while in the employ of the Company, the option theretofore granted to him shall
be exercisable only within the three months succeeding such death and then only
(i) by the person or persons to whom the optionee's rights under the option
shall pass by the optionee's will or by the laws of descent and distribution,
and (ii) if and to the extent that he was entitled to exercise the option at the
date of his death.
7. Assumed Options. In connection with any transaction to which Section
424(a) of the Code is applicable, options may be granted pursuant hereto in
substitution of existing options or existing options may be assumed as
<PAGE>
prescribed by that Section and any regulationsissued thereunder. Notwithstanding
anything to the contrary contained in this Plan, options granted pursuant to
this Paragraph shall be at prices and shall contain such terms, provisions, and
conditions as may be determined by the Committee and shall include such
provisions and conditions as may be necessary to meet the requirements of
Section 424(a) of the Code.
8. Certain Dispositions of Shares. Any options granted pursuant to this
Plan shall be conditioned such that if, within the earlier of (i) the two-year
period beginning on the date of grant of an option or (ii) the one-year period
beginning on the date after which any share of stock is transferred to an
individual pursuant to his exercise of an option, such an individual makes a
disposition of such share of stock by way of sale, exchange, gift, transfer of
legal title, or otherwise, such individual shall promptly report such
disposition to the Company in writing and shall furnish to the Company such
details concerning such disposition as the Company may reasonably request.
9. Reclassification, Consolidation, or Merger. If and to the extent
that the number of issued shares of Common Stock of the Corporaton shall be
increased or reduced by change in par value, split up, reclassification,
distribution of a dividend payable in stock, or the like, the number of shares
subject to Option and the Option price per share shall be proportionately
adjusted by the Committee, whose determination shall be conclusive. If the
Corporation is reorganized or consolidated or merged with another corporation,
an Optionee granted an Option hereunder shall be entitled to receive Options
covering shares of such reorganized, consolidated, or merged company in the same
proportion, at an equivalent price, and subject to the same conditions. The new
Option or assumption of the old Option shall not give Optionee additional
benefits which he did not have under the old Option, or deprive him of benefits
which he had under the old Option.
10. Restrictions on Issuing Shares. The exercise of each Option shall
be subject to the condition that if at any time the Company shall determine in
its discretion that the satisfaction of withholding tax or other withholding
liabilities, or that the listing, registration, or qualification of any shares
otherwise deliverable upon such exercise upon any securities exchange or under
any state or federal law, or that the consent or approval of any regulatory
body, is necessary or desirable as a condition of, or in connection with, such
exercise or the delivery or purchase of shares purchased thereto, then in any
such event, such exercise shall not be effective unless such withholding,
listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
Unless the shares of stock covered by the Plan have been registered
with the Securities and Exchange Commission pursuant to Section 5 of the
Securities Act of l933, each optionee shall, by accepting an option, represent
and agree, for himself and his transferrees by will or the laws of descent and
distribution, that all shares of stock purchased upon the exercise of the option
will be acquired for investment and not for resale or distribution. Upon such
exercise of any portion of an option, the person entitled to exercise the same
shall, upon request of the Company, furnish evidence satisfactory to the Company
(including a written and signed representation) to the effect that the shares of
stock are being acquired in good faith for investment and not for resale or
distribution. Furthermore, the Company may, if it deems appropriate, affix a
<PAGE>
legend to certificates representing shares of stock purchased upon exercise of
options indicating that such shares have not been registered with the Securities
and Exchange Commission and may so notify its transfer agent. Such shares may be
disposed of by an optionee in the following manner only: (l) pursuant to an
effective registration statement covering such resale or reoffer, (2) pursuant
to an applicable exemption from registration as indicated in a written opinion
of counsel acceptable to the Company, or (3) in a transaction that meets all the
requirements of Rule l44 of the Securities and Exchange Commission. If shares of
stock covered by the Plan have been registered with the Securities and Exchange
Commission, no such restrictions on resale shall apply, except in the case of
optionees who are directors, officers, or principal shareholders of the Company.
Such persons may dispose of shares only by one of the three aforesaid methods.
11. Use of Proceeds. The proceeds received by the Company from the sale
of Common Stock pursuant to the exercise of Options granted under the Plan shall
be added to the Company's general funds and used for general corporate purposes.
l2. Amendment, Suspension, and Termination of Plan. The Board of
Directors may alter, suspend, or discontinue the Plan, but may not, without the
approval of a majority of those holders of the Company's Common Stock voting in
person or by proxy at any meeting of the Company's shareholders, make any
alteration or amendment thereof which operates to (a) make any material change
in the class of eligible employees as defined in Section 5, (b) extend the term
of the Plan or the maximum option periods provided in paragraph 6, (c) decrease
the minimum option price provided in paragraph 6, except as provided in
paragraph 9, or (d) materially increase the benefits accruing to employees
participating under this Plan.
Unless the Plan shall theretofore have been terminated by the Board,
the Plan shall terminate ten years after the effective date of the Plan. No
Option may be granted during any suspension or after the termination of the
Plan. No amendment, suspension, or termination of the Plan shall, without an
Optionee's consent, alter or impair any of the rights or obligations under any
Option theretofore granted to such Optionee under the Plan.
13. Limitations. Every right of action by any person receiving options
pursuant to this Plan against any past, present or future member of the Board,
or any officer or employee of the Company arising out of or in connection with
this Plan shall, irrespective of the place where such action may be brought and
irrespective of the place of residence of any such director, officer or employee
cease and be barred by the expiration of one year from the date of the act or
omission in respect of which such right of action arises.
14. Governing Law. The Plan shall be governed by the laws of the State
of Delaware.
l5. Expenses of Administration. All costs and expenses incurred in
the operation and adminstration of this Plan shall be borne by the Company.
SIMS COMMUNICATIONS, INC.
NON-QUALIFIED STOCK OPTION PLAN
(as amended)
l. Purpose. This Non-Qualified Stock Option Plan (the "Plan") is intended to
advance the interests of SIMS Communications, Inc. (the "Company") and its
shareholders, by encouraging and enabling selected officers, directors,
consultants and key employees upon whose judgment, initiative and effort
the Company is largely dependent for the successful conduct of its
business, to acquire and retain a proprietary interest in the Company by
ownership of its stock. Options granted under the Plan are intended to be
Options which do not meet the requirements of Section 422 of the Internal
Revenue Code of 1954, as amended (the "Code").
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the directors duly appointed to administer the
Plan.
(c) "Common Stock" means the Company's Common Stock.
(d) "Date of Grant" means the date on which an Option is granted under
the Plan.
(e) "Option" means an Option granted under the Plan.
(f) "Optionee" means a person to whom an Option, which has not expired,
has been granted under the Plan.
(g) "Successor" means the legal representative of the estate of a
deceased optionee or the person or persons who acquire the right to exercise an
Option by bequest or inheritance or by reason of the death of any Optionee.
3. Administration of Plan. The Plan shall be administered by the
Company's Board of Directors or in the alternative, by a committee of two or
more directors appointed by the Board (the "Committee"). If a Committee should
be appointed, the Committee shall report all action taken by it to the Board.
The Committee shall have full and final authority in its discretion, subject to
the provisions of the Plan, to determine the individuals to whom and the time or
times at which Options shall be granted and the number of shares and purchase
price of Common Stock covered by each Option; to construe and interpret the
Plan; to determine the terms and provisions of the respective Option agreements,
which need not be identical, including, but without limitation, terms covering
the payment of the Option Price; and to make all other determinations and take
all other actions deemed necessary or advisable for the proper administration of
the Plan. All such actions and determinations shall be conclusively binding for
all purposes and upon all persons.
<PAGE>
4. Common Stock Subject to Options. The aggregate number of shares of
the Company's Common Stock which may be issued upon the exercise of Options
granted under the Plan shall not exceed 1,500,000. The shares of Common Stock to
be issued upon the exercise of Options may be authorized but unissued shares,
shares issued and reacquired by the Company or shares bought on the market for
the purposes of the Plan. In the event any Option shall, for any reason,
terminate or expire or be surrendered without having been exercised in full, the
shares subject to such Option but not purchased thereunder shall again be
available for Options to be granted under the Plan.
5. Participants. Options may be granted under the Plan the Company's
employees, directors and officers, and consultants or advisors to the Company,
provided however that bona fide services shall 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.
6. Terms and Conditions of Options. Any Option granted under the Plan
shall be evidenced by an agreement executed by the Company and the recipient and
shall contain such terms and be in such form as the Committee may from time to
time approve, subject to the following limitations and conditions:
(a) Option Price. The Option Price per share with respect to each
Option shall be determined by the Committee but shall in no instance be less
than the par value of the Common Stock.
(b) Period of Option. The period during which each option may be
exercised, and the expiration date of each Option shall be fixed by the
Committee, but, notwithstanding any provision of the Plan to the contrary, such
expiration date shall not be more than ten years from the date of Grant.
(c) Vesting of Shareholder Rights. Neither an Optionee nor his
successor shall have any rights as a shareholder of the Company until the
certificates evidencing the shares purchased are properly delivered to such
Optionee or his successor.
(d) Exercise of Option. Each Option shall be exercisable from time
to time during a period (or periods) determined by the Committee and ending upon
the expiration or termination of the Option; provided, however, the Committee
may, by the provisions of any Option Agreement, limit the number of shares
purchaseable thereunder in any period or periods of time during which the Option
is exercisable.
(e) Nontransferability of Option. No Option shall be transferable
or assignable by an Optionee, otherwise than by will or the laws of descent and
distribution and each Option shall be exercisable, during the Opionee's
lifetime, only by him. No Option shall be pledged or hypothecated in any way and
no Option shall be subject to execution, attachment, or similar process except
with the express consent of the Committee.
<PAGE>
(f) Death of Optionee. If an Optionee dies while holding an Option
granted hereunder, his Option privileges shall be limited to the shares which
were immediately purchasable by him at the date of death and such Option
privileges shall expire unless exercised by his successor within four months
after the date of death.
7. Reclassification, Consolidation, or Merger. If and to the extent
that the number of issued shares of Common Stock of the Corporaton shall be
increased or reduced by change in par value, split up, reclassification,
distribution of a dividend payable in stock, or the like, the number of shares
subject to Option and the Option price per share shall be proportionately
adjusted by the Committee, whose determination shall be conclusive. If the
Corporation is reorganized or consolidated or merged with another corporation,
an Optionee granted an Option hereunder shall be entitled to receive Options
covering shares of such reorganized, consolidated, or merged company in the same
proportion, at an equivalent price, and subject to the same conditions. The new
Option or assumption of the old Option shall not give Optionee additional
benefits which he did not have under the old Option, or deprive him of benefits
which he had under the old Option.
8. Restrictions on Issuing Shares. The exercise of each Option shall be
subject to the condition that if at any time the Company shall determine in its
discretion that the satisfaction of withholding tax or other withholding
liabilities, or that the listing, registration, or qualification of any shares
otherwise deliverable upon such exercise upon any securities exchange or under
any state or federal law, or that the consent or approval of any regulatory
body, is necessary or desirable as a condition of, or in connection with, such
exercise or the delivery or purchase of shares purchased thereto, then in any
such event, such exercise shall not be effective unless such withholding,
listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
Unless the shares of stock covered by the Plan have been
registered with the Securities and Exchange Commission pursuant to Section 5 of
the Securities Act of l933, each optionee shall, by accepting an option,
represent and agree, for himself and his transferrees by will or the laws of
descent and distribution, that all shares of stock purchased upon the exercise
of the option will be acquired for investment and not for resale or
distribution. Upon such exercise of any portion of an option, the person
entitled to exercise the same shall, upon request of the Company, furnish
evidence satisfactory to the Company (including a written and signed
representation) to the effect that the shares of stock are being acquired in
good faith for investment and not for resale or distribution. Furthermore, the
Company may, if it deems appropriate, affix a legend to certificates
representing shares of stock purchased upon exercise of options indicating that
such shares have not been registered with the Securities and Exchange Commission
and may so notify the Company's transfer agent. Such shares may be disposed of
by an optionee in the following manner only: (l) pursuant to an effective
registration statement covering such resale or reoffer, (2) pursuant to an
applicable exemption from registration as indicated in a written opinion of
counsel acceptable to the Company, or (3) in a transaction that meets all the
requirements of Rule l44 of the Securities and Exchange Commission. If shares of
stock covered by the Plan have been registered with the Securities and Exchange
<PAGE>
Commission, no such restrictions on resale shall apply, except in the case of
optionees who are directors, officers, or principal shareholders of the Company.
Such persons may dispose of shares only by one of the three aforesaid methods.
9. Use of Proceeds. The proceeds received by the Company from the sale
of Common Stock pursuant to the exercise of Options granted under the Plan shall
be added to the Company's general funds and used for general corporate purposes.
l0. Amendment, Suspension, and Termination of Plan. The Board of
Directors may alter, suspend, or discontinue the Plan, but may not, without the
approval of a majority of those holders of the Company's Common Stock voting in
person or by proxy at any meeting of the Company's shareholders, make any
alteration or amendment thereof which operates to (a) abolish the Committee,
change the qualification of its members, or withdraw the administration of the
Plan from its supervision, (b) make any material change in the class of eligible
employees as defined in paragraph 5, (c) increase the total number of shares
reserved for purposes of this Plan except as provided in paragraph 7, (d)
increase the total number of shares for which an option or options may be
granted to any one employee, (e) extend the term of the Plan or the maximum
option periods provided in paragraph 6, (f) decrease the minimum option price
provided in paragraph 6, except as provided in paragraph 7, or (g) materially
increase the benefits accruing to employees participating under this Plan.
Unless the Plan shall theretofore have been terminated by the
Board, the Plan shall terminate ten years after the effective date of the Plan.
No Option may be granted during any suspension or after the termination of the
Plan. No amendment, suspension, or termination of the Plan shall, without an
Optionee's consent, alter or impair any of the rights or obligations under any
Option theretofore granted to such Optionee under the Plan.
11. Limitations. Every right of action by any person receiving options
pursuant to this Plan against any past, present or future member of the Board,
or any officer or employee of the Company arising out of or in connection with
this Plan shall, irrespective of the place where such action may be brought and
irrespective of the place of residence of any such director, officer or employee
cease and be barred by the expiration of one year from the date of the act or
omission in respect of which such right of action arises.
l2. Governing Law. The Plan shall be governed by the laws of the State of
Delaware.
13. Expenses of Administration. All costs and expenses incurred in the
operation and adminstration of this Plan shall be borne by the Company.
<PAGE>
SIMS COMMUNICATIONS, INC.
1998 NON-QUALIFIED STOCK OPTION PLAN
l. Purpose. This Non-Qualified Stock Option Plan (the "Plan") is intended to
advance the interests of SIMS Communications, Inc. (the "Company") and its
shareholders, by encouraging and enabling selected officers, directors,
consultants and key employees upon whose judgment, initiative and effort
the Company is largely dependent for the successful conduct of its
business, to acquire and retain a proprietary interest in the Company by
ownership of its stock. Options granted under the Plan are intended to be
Options which do not meet the requirements of Section 422 of the Internal
Revenue Code of 1954, as amended (the "Code").
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the directors duly appointed to administer the
Plan.
(c) "Common Stock" means the Company's Common Stock.
(d) "Date of Grant" means the date on which an Option is granted under
the Plan.
(e) "Option" means an Option granted under the Plan.
(f) "Optionee" means a person to whom an Option, which has not expired,
has been granted under the Plan.
(g) "Successor" means the legal representative of the estate of a
deceased optionee or the person or persons who acquire the right to exercise an
Option by bequest or inheritance or by reason of the death of any Optionee.
3. Administration of Plan. The Plan shall be administered by the
Company's Board of Directors or in the alternative, by a committee of two or
more directors appointed by the Board (the "Committee"). If a Committee should
be appointed, the Committee shall report all action taken by it to the Board.
The Committee shall have full and final authority in its discretion, subject to
the provisions of the Plan, to determine the individuals to whom and the time or
times at which Options shall be granted and the number of shares and purchase
price of Common Stock covered by each Option; to construe and interpret the
Plan; to determine the terms and provisions of the respective Option agreements,
which need not be identical, including, but without limitation, terms covering
the payment of the Option Price; and to make all other determinations and take
all other actions deemed necessary or advisable for the proper administration of
the Plan. All such actions and determinations shall be conclusively binding for
all purposes and upon all persons.
<PAGE>
4. Common Stock Subject to Options. The aggregate number of shares of
the Company's Common Stock which may be issued upon the exercise of Options
granted under the Plan shall not exceed 1,500,000. The shares of Common Stock to
be issued upon the exercise of Options may be authorized but unissued shares,
shares issued and reacquired by the Company or shares bought on the market for
the purposes of the Plan. In the event any Option shall, for any reason,
terminate or expire or be surrendered without having been exercised in full, the
shares subject to such Option but not purchased thereunder shall again be
available for Options to be granted under the Plan.
5. Participants. Options may be granted under the Plan the Company's
employees, directors and officers, and consultants or advisors to the Company,
provided however that bona fide services shall 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.
6. Terms and Conditions of Options. Any Option granted under the Plan
shall be evidenced by an agreement executed by the Company and the recipient and
shall contain such terms and be in such form as the Committee may from time to
time approve, subject to the following limitations and conditions:
(a) Option Price. The Option Price per share with respect to each
Option shall be determined by the Committee but shall in no instance be less
than the par value of the Common Stock.
(b) Period of Option. The period during which each option may be
exercised, and the expiration date of each Option shall be fixed by the
Committee, but, notwithstanding any provision of the Plan to the contrary, such
expiration date shall not be more than ten years from the date of Grant.
(c) Vesting of Shareholder Rights. Neither an Optionee nor his
successor shall have any rights as a shareholder of the Company until the
certificates evidencing the shares purchased are properly delivered to such
Optionee or his successor.
(d) Exercise of Option. Each Option shall be exercisable from time
to time during a period (or periods) determined by the Committee and ending upon
the expiration or termination of the Option; provided, however, the Committee
may, by the provisions of any Option Agreement, limit the number of shares
purchaseable thereunder in any period or periods of time during which the Option
is exercisable.
(e) Nontransferability of Option. No Option shall be transferable
or assignable by an Optionee, otherwise than by will or the laws of descent and
distribution and each Option shall be exercisable, during the Opionee's
lifetime, only by him. No Option shall be pledged or hypothecated in any way and
no Option shall be subject to execution, attachment, or similar process except
with the express consent of the Committee.
<PAGE>
(f) Death of Optionee. If an Optionee dies while holding an Option
granted hereunder, his Option privileges shall be limited to the shares which
were immediately purchasable by him at the date of death and such Option
privileges shall expire unless exercised by his successor within four months
after the date of death.
7. Reclassification, Consolidation, or Merger. If and to the extent
that the number of issued shares of Common Stock of the Corporaton shall be
increased or reduced by change in par value, split up, reclassification,
distribution of a dividend payable in stock, or the like, the number of shares
subject to Option and the Option price per share shall be proportionately
adjusted by the Committee, whose determination shall be conclusive. If the
Corporation is reorganized or consolidated or merged with another corporation,
an Optionee granted an Option hereunder shall be entitled to receive Options
covering shares of such reorganized, consolidated, or merged company in the same
proportion, at an equivalent price, and subject to the same conditions. The new
Option or assumption of the old Option shall not give Optionee additional
benefits which he did not have under the old Option, or deprive him of benefits
which he had under the old Option.
8. Restrictions on Issuing Shares. The exercise of each Option shall be
subject to the condition that if at any time the Company shall determine in its
discretion that the satisfaction of withholding tax or other withholding
liabilities, or that the listing, registration, or qualification of any shares
otherwise deliverable upon such exercise upon any securities exchange or under
any state or federal law, or that the consent or approval of any regulatory
body, is necessary or desirable as a condition of, or in connection with, such
exercise or the delivery or purchase of shares purchased thereto, then in any
such event, such exercise shall not be effective unless such withholding,
listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
Unless the shares of stock covered by the Plan have been
registered with the Securities and Exchange Commission pursuant to Section 5 of
the Securities Act of l933, each optionee shall, by accepting an option,
represent and agree, for himself and his transferrees by will or the laws of
descent and distribution, that all shares of stock purchased upon the exercise
of the option will be acquired for investment and not for resale or
distribution. Upon such exercise of any portion of an option, the person
entitled to exercise the same shall, upon request of the Company, furnish
evidence satisfactory to the Company (including a written and signed
representation) to the effect that the shares of stock are being acquired in
good faith for investment and not for resale or distribution. Furthermore, the
Company may, if it deems appropriate, affix a legend to certificates
representing shares of stock purchased upon exercise of options indicating that
such shares have not been registered with the Securities and Exchange Commission
and may so notify the Company's transfer agent. Such shares may be disposed of
by an optionee in the following manner only: (l) pursuant to an effective
registration statement covering such resale or reoffer, (2) pursuant to an
applicable exemption from registration as indicated in a written opinion of
counsel acceptable to the Company, or (3) in a transaction that meets all the
requirements of Rule l44 of the Securities and Exchange Commission. If shares of
stock covered by the Plan have been registered with the Securities and Exchange
<PAGE>
Commission, no such restrictions on resale shall apply, except in the case of
optionees who are directors, officers, or principal shareholders of the Company.
Such persons may dispose of shares only by one of the three aforesaid methods.
9. Use of Proceeds. The proceeds received by the Company from the sale
of Common Stock pursuant to the exercise of Options granted under the Plan shall
be added to the Company's general funds and used for general corporate purposes.
l0. Amendment, Suspension, and Termination of Plan. The Board of Directors may
alter, suspend, or discontinue the Plan at any time.
Unless the Plan shall theretofore have been terminated by the
Board, the Plan shall terminate ten years after the effective date of the Plan.
No Option may be granted during any suspension or after the termination of the
Plan. No amendment, suspension, or termination of the Plan shall, without an
Optionee's consent, alter or impair any of the rights or obligations under any
Option theretofore granted to such Optionee under the Plan.
11. Limitations. Every right of action by any person receiving options
pursuant to this Plan against any past, present or future member of the Board,
or any officer or employee of the Company arising out of or in connection with
this Plan shall, irrespective of the place where such action may be brought and
irrespective of the place of residence of any such director, officer or employee
cease and be barred by the expiration of one year from the date of the act or
omission in respect of which such right of action arises.
l2. Governing Law. The Plan shall be governed by the laws of the State of
Delaware.
13. Expenses of Administration. All costs and expenses incurred in the
operation and adminstration of this Plan shall be borne by the Company.
SIMS COMMUNICATIONS, INC.
1996 STOCK BONUS PLAN
l. Purpose. The purpose of this Stock Bonus Plan is to advance the
interests of SIMS Communications, Inc. (the "Company") and its shareholders, by
encouraging and enabling selected officers, directors, consultants and key
employees upon whose judgment, initiative and effort the Company is largely
dependent for the successful conduct of its business, to acquire and retain a
proprietary interest in the Company by ownership of its stock, to keep personnel
of experience and ability in the employ of the Company and to compensate them
for their contributions to the growth and profits of the Company and thereby
induce them to continue to make such contributions in the future.
2. Definitions.
A. "Board" shall mean the board of directors of the Company.
B. "Committee" means the directors duly appointed to administer the Plan.
C. "Plan" shall mean this Stock Bonus Plan.
D. "Bonus Share" shall mean the shares of common stock of the
Company reserved pursuant to Section 4 hereof and any such shares issued to a
Recipient pursuant to this Plan.
E. "Recipient" shall mean any individual rendering services for the Company to
whom shares are granted pursuant to this Plan.
3. Administration of Plan. The Plan shall be administered by a
committee of two or more directors appointed by the Board (the "Committee"). The
Committee shall report all action taken by it to the Board. The Committee shall
have full and final authority in its discretion, subject to the provisions of
the Plan, to determine the individuals to whom and the time or times at which
Bonus Shares shall be granted and the number of Bonus Shares; to construe and
interpret the Plan; and to make all other determinations and take all other
actions deemed necessary or advisable for the proper administration of the Plan.
All such actions and determinations shall be conclusively binding for all
purposes and upon all persons.
4. Bonus Share Reserve. There shall be established a Bonus Share
Reserve to which shall be credited 3,000,000 shares of the Company's common
stock. In the event that the shares of common stock of the Company should, as a
result of a stock split or stock dividend or combination of shares or any other
change, or exchange for other securities by reclassification, reorganization,
merger, consolidation, recapitalization or otherwise, be increased or decreased
or changed into or exchanged for, a different number or kind of shares of stock
or other securities of the Company or of another corporation, the number of
shares then remaining in the Bonus Share Reserve shall be appropriately adjusted
to reflect such action. Upon the grant of shares hereunder, this reserve shall
be reduced by the number of shares so granted. Distributions of Bonus Shares
<PAGE>
may, as the Committee shall in its sole discretion determine, be made from
authorized but unissued shares or from treasury shares. All authorized and
unissued shares issued as Bonus Shares in accordance with the Plan shall be
fully paid and nonassessable and free from preemptive rights.
5. Eligibility, and Granting and Vesting of Bonus Shares. Bonus Shares
may be granted under the Plan to the Company's employees, directors and
officers, and consultants or advisors to the Company, provided however that bona
fide services shall 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 Committee, in its sole discretion, is empowered to grant to an
eligible Participant a number of Bonus Shares as it shall determine from time to
time. Each grant of these Bonus Shares shall become vested according to a
schedule to be established by the Committee directors at the time of the grant.
For purposes of this plan, vesting shall mean the period during which the
recipient must remain an employee or provide services for the Company. At such
time as the employment of the Recipient ceases, any shares not fully vested
shall be forfeited by the Recipient and shall be returned to the Bonus Share
Reserve. The Committee, in its sole discretion, may also impose restrictions on
the future transferability of the bonus shares, which restrictions shall be set
forth on the notification to the Recipient of the grant.
The aggregate number of Bonus Shares which may be granted pursuant
to this Plan shall not exceed the amount available therefore in the Bonus Share
Reserve.
6. Form of Grants. Each grant shall specify the number of Bonus Shares
subject thereto, subject to the provisions of Section 5 hereof.
At the time of making any grant, the Committee shall advise the
Recipient by delivery of written notice, in the form of Exhibit A hereto
annexed.
7. Recipients' Representations.
A. The Committee may require that, in acquiring any Bonus Shares,
the Recipient agree with, and represent to, the Company that the Recipient is
acquiring such Bonus Shares for the purpose of investment and with no present
intention to transfer, sell or otherwise dispose of shares except such
distribution by a legal representative as shall be required by will or the laws
of any jurisdiction in winding-up the estate of any Recipient. Such shares shall
be transferrable thereafter only if the proposed transfer shall be permissable
pursuant to the Plan and if, in the opinion of counsel (who shall be
satisfactory to the Committee), such transfer shall at such time be in
compliance with applicable securities laws.
B. To effectuate Paragraph A above, the Recipient shall deliver to
the Committee, in duplicate, an agreement in writing, signed by the Recipient,
in form and substance as set forth in Exhibit B hereto annexed, and the
Committee shall forthwith acknowledge its receipt thereof.
<PAGE>
8. Restrictions Upon Issuance. A. Bonus Shares shall forthwith after
the making of any representations required by Section 6 hereof, or if no
representations are required then within thirty (30) days of the date of grant,
be duly issued and transferred and a certificate or certificates for such shares
shall be issued in the Recipient's name. The Recipient shall thereupon be a
shareholder with respect to all the shares represented by such certificate or
certificates, shall have all the rights of a shareholder with respect to all
such shares, including the right to vote such shares and to receive all
dividends and other distributions (subject to the provisions of Section 7(B)
hereof) paid with respect to such shares. Certificates of stock representing
Bonus Shares shall be imprinted with a legend to the effect that the shares
represented thereby are subject to the provisions of this Agreement, and to the
vesting and transfer limitations established by the Committee, and each transfer
agent for the common stock shall be instructed to like effect with respect of
such shares.
B. In the event that, as the result of a stock split or stock
dividend or combination of shares or any other change, or exchange for other
securities, by reclassification, reorganization, merger, consolidation,
recapitalization or otherwise, the Recipient shall, as owner of the Bonus Shares
subject to restrictions hereunder, be entitled to new or additional or different
shares of stock or securities, the certificate or certificates for, or other
evidences of, such new or additional or different shares or securities, together
with a stock power or other instrument of transfer appropriately endorsed, shall
also be imprinted with a legend as provided in Section 7(A), and all provisions
of the Plan relating to restrictions herein set forth shall thereupon be
applicable to such new or additional or different shares or securities to the
extent applicable to the shares with respect to which they were distributed.
C. The grant of any Bonus Shares shall be subject to the condition
that if at any time the Company shall determine in its discretion that the
satisfaction of withholding tax or other withholding liabilities, or that the
listing, registration, or qualification of any Bonus Shares upon such exercise
upon any securities exchange or under any state or federal law, or that the
consent or approval of any regulatory body, is necessary or desirable as a
condition of, or in connection with, the issuance of any Bonus Shares, then in
any such event, such exercise shall not be effective unless such withholding,
listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
D. Unless the Bonus Shares covered by the Plan have been
registered with the Securities and Exchange Commission pursuant to Section 5 of
the Securities Act of l933, each Recipient shall, by accepting a Bonus Share,
represent and agree, for himself and his transferrees by will or the laws of
descent and distribution, that all Bonus Shares were acquired for investment and
not for resale or distribution. The person entitled to receive Bonus Shares
shall, upon request of the Committee, furnish evidence satisfactory to the
Committee (including a written and signed representation) to the effect that the
shares of stock are being acquired in good faith for investment and not for
resale or distribution. Furthermore, the Committee may, if it deems appropriate,
affix a legend to certificates representing Bonus Shares indicating that such
Bonus Shares have not been registered with the Securities and Exchange
Commission and may so notify the Company's transfer agent. Such shares may be
disposed of by a Recipient in the following manner only: (l) pursuant to an
<PAGE>
effective registration statement covering such resale or reoffer, (2) pursuant
to an applicable exemption from registration as indicated in a written opinion
of counsel acceptable to the Company, or (3) in a transaction that meets all the
requirements of Rule l44 of the Securities and Exchange Commission. If Bonus
Shares covered by the Plan have been registered with the Securities and Exchange
Commission, no such restrictions on resale shall apply, except in the case of
Recipients who are directors, officers, or principal shareholders of the
Company. Such persons may dispose of shares only by one of the three aforesaid
methods.
9. Limitations. Neither the action of the Company in establishing the
Plan, nor any action taken by it nor by the Committee under the Plan, nor any
provision of the Plan, shall be construed as giving to any person the right to
be retained in the employ of the Company.
Every right of action by any person receiving shares of common
stock pursuant to this Plan against any past, present or future member of the
Board, or any officer or employee of the Company arising out of or in connection
with this Plan shall, irrespective of the place where action may be brought and
irrespective of the place of residence of any such director, officer or employee
cease and be barred by the expiration of one year from the date of the act or
omission in respect of which such right of action arises.
l0. Amendment, Suspension or Termination of the Plan. The Board of Directors
may alter, suspend, or discontinue the Plan at any time.
Unless the Plan shall theretofore have been terminated by the Board,
the Plan shall terminate ten years after the effective date of the Plan. No
Bonus Share may be granted during any suspension or after the termination of the
Plan. No amendment, suspension, or termination of the Plan shall, without a
recipient's consent, alter or impair any of the rights or obligations under any
Bonus Share theretofore granted to such recipient under the Plan.
ll. Governing Law. The Plan shall be governed by the laws of the State of
Delaware.
l2. Expenses of Administration. All costs and expenses incurred in the
operation and adminstration of this Plan shall be borne by the Company.
<PAGE>
- EXHIBIT A -
SIMS COMMUNICATIONS, INC.
STOCK BONUS PLAN
TO: Recipient:
PLEASE BE ADVISED that SIMS Communications, Inc. has on the date
hereof granted to the Recipient the number of Bonus Shares as set forth under
and pursuant to the Stock Bonus Plan. Before these shares are to be issued, the
Recipient must deliver to the Committee that administers the Stock Bonus Plan an
agreement in duplicate, in the form as Exhibit B hereto. The Bonus Shares are
issued subject to the following vesting and transfer limitations.
Vesting:
Number of Shares Date of Vesting
Transfer Limitations:
SIMS COMMUNICATIONS, INC.
By____________________________
Date ___________
<PAGE>
- EXHIBIT B -
SIMS Communications, Inc.
17821 Skypark Circle
Suite G
Irvine, CA 92614
Gentlemen:
I represent and agree that said Bonus Shares are being acquired by me
for investment and that I have no present intention to transfer, sell or
otherwise dispose of such shares, except as permitted pursuant to the Plan and
in compliance with applicable securities laws, and agree further that said
shares are being acquired by me in accordance with and subject to the terms,
provisions and conditions of said Plan, to all of which I hereby expressly
assent. These agreements shall bind and inure to the benefit of my heirs, legal
representatives, successors and assigns.
My address of record is:
and my social security number: .
Very truly yours,
Receipt of the above is hereby acknowledged.
SIMS COMMUNICATIONS, INC.
By _____________________
its __________________
Date_______________
<PAGE>
SIMS COMMUNICATIONS, INC.
1998 STOCK BONUS PLAN
l. Purpose. The purpose of this Stock Bonus Plan is to advance the
interests of SIMS Communications, Inc. (the "Company") and its shareholders, by
encouraging and enabling selected officers, directors, consultants and key
employees upon whose judgment, initiative and effort the Company is largely
dependent for the successful conduct of its business, to acquire and retain a
proprietary interest in the Company by ownership of its stock, to keep personnel
of experience and ability in the employ of the Company and to compensate them
for their contributions to the growth and profits of the Company and thereby
induce them to continue to make such contributions in the future.
2. Definitions.
A. "Board" shall mean the board of directors of the Company.
B. "Committee" means the directors duly appointed to administer
the Plan.
C. "Plan" shall mean this Stock Bonus Plan.
D. "Bonus Share" shall mean the shares of common stock of the
Company reserved pursuant to Section 4 hereof and any such shares issued to a
Recipient pursuant to this Plan.
E. "Recipient" shall mean any individual rendering services for the Company to
whom shares are granted pursuant to this Plan.
3. Administration of Plan. The Plan shall be administered by a
committee of two or more directors appointed by the Board (the "Committee"). The
Committee shall report all action taken by it to the Board. The Committee shall
have full and final authority in its discretion, subject to the provisions of
the Plan, to determine the individuals to whom and the time or times at which
Bonus Shares shall be granted and the number of Bonus Shares; to construe and
interpret the Plan; and to make all other determinations and take all other
actions deemed necessary or advisable for the proper administration of the Plan.
All such actions and determinations shall be conclusively binding for all
purposes and upon all persons.
4. Bonus Share Reserve. There shall be established a Bonus Share
Reserve to which shall be credited 750,000 shares of the Company's common stock.
In the event that the shares of common stock of the Company should, as a result
of a stock split or stock dividend or combination of shares or any other change,
or exchange for other securities by reclassification, reorganization, merger,
consolidation, recapitalization or otherwise, be increased or decreased or
changed into or exchanged for, a different number or kind of shares of stock or
other securities of the Company or of another corporation, the number of shares
then remaining in the Bonus Share Reserve shall be appropriately adjusted to
<PAGE>
reflect such action. Upon the grant of shares hereunder, this reserve shall be
reduced by the number of shares so granted. Distributions of Bonus Shares may,
as the Committee shall in its sole discretion determine, be made from authorized
but unissued shares or from treasury shares. All authorized and unissued shares
issued as Bonus Shares in accordance with the Plan shall be fully paid and
nonassessable and free from preemptive rights.
5. Eligibility, and Granting and Vesting of Bonus Shares. Bonus Shares
may be granted under the Plan to the Company's employees, directors and
officers, and consultants or advisors to the Company, provided however that bona
fide services shall 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 Committee, in its sole discretion, is empowered to grant to an
eligible Participant a number of Bonus Shares as it shall determine from time to
time. Each grant of these Bonus Shares shall become vested according to a
schedule to be established by the Committee directors at the time of the grant.
For purposes of this plan, vesting shall mean the period during which the
recipient must remain an employee or provide services for the Company. At such
time as the employment of the Recipient ceases, any shares not fully vested
shall be forfeited by the Recipient and shall be returned to the Bonus Share
Reserve. The Committee, in its sole discretion, may also impose restrictions on
the future transferability of the bonus shares, which restrictions shall be set
forth on the notification to the Recipient of the grant.
The aggregate number of Bonus Shares which may be granted pursuant
to this Plan shall not exceed the amount available therefore in the Bonus Share
Reserve.
6. Form of Grants. Each grant shall specify the number of Bonus Shares
subject thereto, subject to the provisions of Section 5 hereof.
At the time of making any grant, the Committee shall advise the
Recipient by delivery of written notice, in the form of Exhibit A hereto
annexed.
7. Recipients' Representations.
A. The Committee may require that, in acquiring any Bonus Shares,
the Recipient agree with, and represent to, the Company that the Recipient is
acquiring such Bonus Shares for the purpose of investment and with no present
intention to transfer, sell or otherwise dispose of shares except such
distribution by a legal representative as shall be required by will or the laws
of any jurisdiction in winding-up the estate of any Recipient. Such shares shall
be transferrable thereafter only if the proposed transfer shall be permissable
pursuant to the Plan and if, in the opinion of counsel (who shall be
satisfactory to the Committee), such transfer shall at such time be in
compliance with applicable securities laws.
B. To effectuate Paragraph A above, the Recipient shall deliver to
the Committee, in duplicate, an agreement in writing, signed by the Recipient,
in form and substance as set forth in Exhibit B hereto annexed, and the
Committee shall forthwith acknowledge its receipt thereof.
<PAGE>
8. Restrictions Upon Issuance. A. Bonus Shares shall forthwith after
the making of any representations required by Section 6 hereof, or if no
representations are required then within thirty (30) days of the date of grant,
be duly issued and transferred and a certificate or certificates for such shares
shall be issued in the Recipient's name. The Recipient shall thereupon be a
shareholder with respect to all the shares represented by such certificate or
certificates, shall have all the rights of a shareholder with respect to all
such shares, including the right to vote such shares and to receive all
dividends and other distributions (subject to the provisions of Section 7(B)
hereof) paid with respect to such shares. Certificates of stock representing
Bonus Shares shall be imprinted with a legend to the effect that the shares
represented thereby are subject to the provisions of this Agreement, and to the
vesting and transfer limitations established by the Committee, and each transfer
agent for the common stock shall be instructed to like effect with respect of
such shares.
B. In the event that, as the result of a stock split or stock
dividend or combination of shares or any other change, or exchange for other
securities, by reclassification, reorganization, merger, consolidation,
recapitalization or otherwise, the Recipient shall, as owner of the Bonus Shares
subject to restrictions hereunder, be entitled to new or additional or different
shares of stock or securities, the certificate or certificates for, or other
evidences of, such new or additional or different shares or securities, together
with a stock power or other instrument of transfer appropriately endorsed, shall
also be imprinted with a legend as provided in Section 7(A), and all provisions
of the Plan relating to restrictions herein set forth shall thereupon be
applicable to such new or additional or different shares or securities to the
extent applicable to the shares with respect to which they were distributed.
C. The grant of any Bonus Shares shall be subject to the condition
that if at any time the Company shall determine in its discretion that the
satisfaction of withholding tax or other withholding liabilities, or that the
listing, registration, or qualification of any Bonus Shares upon such exercise
upon any securities exchange or under any state or federal law, or that the
consent or approval of any regulatory body, is necessary or desirable as a
condition of, or in connection with, the issuance of any Bonus Shares, then in
any such event, such exercise shall not be effective unless such withholding,
listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
D. Unless the Bonus Shares covered by the Plan have been
registered with the Securities and Exchange Commission pursuant to Section 5 of
the Securities Act of l933, each Recipient shall, by accepting a Bonus Share,
represent and agree, for himself and his transferrees by will or the laws of
descent and distribution, that all Bonus Shares were acquired for investment and
not for resale or distribution. The person entitled to receive Bonus Shares
shall, upon request of the Committee, furnish evidence satisfactory to the
Committee (including a written and signed representation) to the effect that the
shares of stock are being acquired in good faith for investment and not for
resale or distribution. Furthermore, the Committee may, if it deems appropriate,
affix a legend to certificates representing Bonus Shares indicating that such
<PAGE>
Bonus Shares have not been registered with the Securities and Exchange
Commission and may so notify the Company's transfer agent. Such shares may be
disposed of by a Recipient in the following manner only: (l) pursuant to an
effective registration statement covering such resale or reoffer, (2) pursuant
to an applicable exemption from registration as indicated in a written opinion
of counsel acceptable to the Company, or (3) in a transaction that meets all the
requirements of Rule l44 of the Securities and Exchange Commission. If Bonus
Shares covered by the Plan have been registered with the Securities and Exchange
Commission, no such restrictions on resale shall apply, except in the case of
Recipients who are directors, officers, or principal shareholders of the
Company. Such persons may dispose of shares only by one of the three aforesaid
methods.
9. Limitations. Neither the action of the Company in establishing the
Plan, nor any action taken by it nor by the Committee under the Plan, nor any
provision of the Plan, shall be construed as giving to any person the right to
be retained in the employ of the Company.
Every right of action by any person receiving shares of common
stock pursuant to this Plan against any past, present or future member of the
Board, or any officer or employee of the Company arising out of or in connection
with this Plan shall, irrespective of the place where action may be brought and
irrespective of the place of residence of any such director, officer or employee
cease and be barred by the expiration of one year from the date of the act or
omission in respect of which such right of action arises.
l0. Amendment, Suspension or Termination of the Plan. The Board of Directors
may alter, suspend, or discontinue the Plan at any time.
Unless the Plan shall theretofore have been terminated by the Board,
the Plan shall terminate ten years after the effective date of the Plan. No
Bonus Share may be granted during any suspension or after the termination of the
Plan. No amendment, suspension, or termination of the Plan shall, without a
recipient's consent, alter or impair any of the rights or obligations under any
Bonus Share theretofore granted to such recipient under the Plan.
ll. Governing Law. The Plan shall be governed by the laws of the State of
Delaware.
l2. Expenses of Administration. All costs and expenses incurred in the
operation and adminstration of this Plan shall be borne by the Company.
<PAGE>
- EXHIBIT A -
SIMS COMMUNICATIONS, INC.
STOCK BONUS PLAN
TO: Recipient:
PLEASE BE ADVISED that SIMS Communications, Inc. has on the date
hereof granted to the Recipient the number of Bonus Shares as set forth under
and pursuant to the Stock Bonus Plan. Before these shares are to be issued, the
Recipient must deliver to the Committee that administers the Stock Bonus Plan an
agreement in duplicate, in the form as Exhibit B hereto. The Bonus Shares are
issued subject to the following vesting and transfer limitations.
Vesting:
Number of Shares Date of Vesting
Transfer Limitations:
SIMS COMMUNICATIONS, INC.
By ___________________
Date ________________
<PAGE>
- EXHIBIT B -
SIMS Communications, Inc.
17821 Skypark Circle
Suite G
Irvine, CA 92614
Gentlemen:
I represent and agree that said Bonus Shares are being acquired by me
for investment and that I have no present intention to transfer, sell or
otherwise dispose of such shares, except as permitted pursuant to the Plan and
in compliance with applicable securities laws, and agree further that said
shares are being acquired by me in accordance with and subject to the terms,
provisions and conditions of said Plan, to all of which I hereby expressly
assent. These agreements shall bind and inure to the benefit of my heirs, legal
representatives, successors and assigns.
My address of record is:
and my social security number: .
Very truly yours,
Receipt of the above is hereby acknowledged.
SIMS COMMUNICATIONS, INC.
By _______________________
Date_________ its _________________
<PAGE>
SIMS COMMUNICATIONS, INC.
1999 STOCK BONUS PLAN
l. Purpose. The purpose of this Stock Bonus Plan is to advance the
interests of Sims Communications, Inc. (the "Company") and its shareholders, by
encouraging and enabling selected officers, directors, consultants and key
employees upon whose judgment, initiative and effort the Company is largely
dependent for the successful conduct of its business, to acquire and retain a
proprietary interest in the Company by ownership of its stock, to keep personnel
of experience and ability in the employ of the Company and to compensate them
for their contributions to the growth and profits of the Company and thereby
induce them to continue to make such contributions in the future.
2. Definitions.
A. "Board" shall mean the board of directors of the Company.
B. "Committee" means the directors duly appointed to administer
the Plan.
C. "Plan" shall mean this Stock Bonus Plan.
D. "Bonus Share" shall mean the shares of common stock of the
Company reserved pursuant to Section 4 hereof and any such shares issued to a
Recipient pursuant to this Plan.
E. "Recipient" shall mean any individual rendering services for the Company to
whom shares are granted pursuant to this Plan.
3. Administration of Plan. The Plan shall be administered by a
committee of two or more directors appointed by the Board (the "Committee"). The
Committee shall report all action taken by it to the Board. The Committee shall
have full and final authority in its discretion, subject to the provisions of
the Plan, to determine the individuals to whom and the time or times at which
Bonus Shares shall be granted and the number of Bonus Shares; to construe and
interpret the Plan; and to make all other determinations and take all other
actions deemed necessary or advisable for the proper administration of the Plan.
All such actions and determinations shall be conclusively binding for all
purposes and upon all persons.
4. Bonus Share Reserve. There shall be established a Bonus Share
Reserve to which shall be credited 900,000 shares of the Company's common stock.
In the event that the shares of common stock of the Company should, as a result
of a stock split or stock dividend or combination of shares or any other change,
or exchange for other securities by reclassification, reorganization, merger,
consolidation, recapitalization or otherwise, be increased or decreased or
changed into or exchanged for, a different number or kind of shares of stock or
other securities of the Company or of another corporation, the number of shares
then remaining in the Bonus Share Reserve shall be appropriately adjusted to
reflect such action. Upon the grant of shares hereunder, this reserve shall be
<PAGE>
reduced by the number of shares so granted. Distributions of Bonus Shares may,
as the Committee shall in its sole discretion determine, be made from authorized
but unissued shares or from treasury shares. All authorized and unissued shares
issued as Bonus Shares in accordance with the Plan shall be fully paid and
nonassessable and free from preemptive rights.
5. Eligibility, and Granting and Vesting of Bonus Shares. Bonus Shares
may be granted under the Plan to the Company's employees, directors and
officers, and consultants or advisors to the Company, provided however that bona
fide services shall 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 Committee, in its sole discretion, is empowered to grant to an
eligible Participant a number of Bonus Shares as it shall determine from time to
time. Each grant of these Bonus Shares shall become vested according to a
schedule to be established by the Committee directors at the time of the grant.
For purposes of this plan, vesting shall mean the period during which the
recipient must remain an employee or provide services for the Company. At such
time as the employment of the Recipient ceases, any shares not fully vested
shall be forfeited by the Recipient and shall be returned to the Bonus Share
Reserve. The Committee, in its sole discretion, may also impose restrictions on
the future transferability of the bonus shares, which restrictions shall be set
forth on the notification to the Recipient of the grant.
The aggregate number of Bonus Shares which may be granted pursuant
to this Plan shall not exceed the amount available therefore in the Bonus Share
Reserve.
6. Form of Grants. Each grant shall specify the number of Bonus Shares
subject thereto, subject to the provisions of Section 5 hereof.
At the time of making any grant, the Committee shall advise the
Recipient by delivery of written notice, in the form of Exhibit A hereto
annexed.
7. Recipients' Representations.
A. The Committee may require that, in acquiring any Bonus Shares,
the Recipient agree with, and represent to, the Company that the Recipient is
acquiring such Bonus Shares for the purpose of investment and with no present
intention to transfer, sell or otherwise dispose of shares except such
distribution by a legal representative as shall be required by will or the laws
of any jurisdiction in winding-up the estate of any Recipient. Such shares shall
be transferrable thereafter only if the proposed transfer shall be permissable
pursuant to the Plan and if, in the opinion of counsel (who shall be
satisfactory to the Committee), such transfer shall at such time be in
compliance with applicable securities laws.
B. To effectuate Paragraph A above, the Recipient shall deliver to
the Committee, in duplicate, an agreement in writing, signed by the Recipient,
in form and substance as set forth in Exhibit B hereto annexed, and the
Committee shall forthwith acknowledge its receipt thereof.
<PAGE>
8. Restrictions Upon Issuance. A. Bonus Shares shall forthwith after
the making of any representations required by Section 6 hereof, or if no
representations are required then within thirty (30) days of the date of grant,
be duly issued and transferred and a certificate or certificates for such shares
shall be issued in the Recipient's name. The Recipient shall thereupon be a
shareholder with respect to all the shares represented by such certificate or
certificates, shall have all the rights of a shareholder with respect to all
such shares, including the right to vote such shares and to receive all
dividends and other distributions (subject to the provisions of Section 7(B)
hereof) paid with respect to such shares. Certificates of stock representing
Bonus Shares shall be imprinted with a legend to the effect that the shares
represented thereby are subject to the provisions of this Agreement, and to the
vesting and transfer limitations established by the Committee, and each transfer
agent for the common stock shall be instructed to like effect with respect of
such shares.
B. In the event that, as the result of a stock split or stock
dividend or combination of shares or any other change, or exchange for other
securities, by reclassification, reorganization, merger, consolidation,
recapitalization or otherwise, the Recipient shall, as owner of the Bonus Shares
subject to restrictions hereunder, be entitled to new or additional or different
shares of stock or securities, the certificate or certificates for, or other
evidences of, such new or additional or different shares or securities, together
with a stock power or other instrument of transfer appropriately endorsed, shall
also be imprinted with a legend as provided in Section 7(A), and all provisions
of the Plan relating to restrictions herein set forth shall thereupon be
applicable to such new or additional or different shares or securities to the
extent applicable to the shares with respect to which they were distributed.
C. The grant of any Bonus Shares shall be subject to the condition
that if at any time the Company shall determine in its discretion that the
satisfaction of withholding tax or other withholding liabilities, or that the
listing, registration, or qualification of any Bonus Shares upon such exercise
upon any securities exchange or under any state or federal law, or that the
consent or approval of any regulatory body, is necessary or desirable as a
condition of, or in connection with, the issuance of any Bonus Shares, then in
any such event, such exercise shall not be effective unless such withholding,
listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
D. Unless the Bonus Shares covered by the Plan have been
registered with the Securities and Exchange Commission pursuant to Section 5 of
the Securities Act of l933, each Recipient shall, by accepting a Bonus Share,
represent and agree, for himself and his transferrees by will or the laws of
descent and distribution, that all Bonus Shares were acquired for investment and
not for resale or distribution. The person entitled to receive Bonus Shares
shall, upon request of the Committee, furnish evidence satisfactory to the
Committee (including a written and signed representation) to the effect that the
shares of stock are being acquired in good faith for investment and not for
resale or distribution. Furthermore, the Committee may, if it deems appropriate,
affix a legend to certificates representing Bonus Shares indicating that such
Bonus Shares have not been registered with the Securities and Exchange
Commission and may so notify the Company's transfer agent. Such shares may be
disposed of by a Recipient in the following manner only: (l) pursuant to an
effective registration statement covering such resale or reoffer, (2) pursuant
to an applicable exemption from registration as indicated in a written opinion
of counsel acceptable to the Company, or (3) in a transaction that meets all the
requirements of Rule l44 of the Securities and Exchange Commission. If Bonus
Shares covered by the Plan have been registered with the Securities and Exchange
Commission, no such restrictions on resale shall apply, except in the case of
Recipients who are directors, officers, or principal shareholders of the
Company. Such persons may dispose of shares only by one of the three aforesaid
methods.
<PAGE>
9. Limitations. Neither the action of the Company in establishing the
Plan, nor any action taken by it nor by the Committee under the Plan, nor any
provision of the Plan, shall be construed as giving to any person the right to
be retained in the employ of the Company.
Every right of action by any person receiving shares of common
stock pursuant to this Plan against any past, present or future member of the
Board, or any officer or employee of the Company arising out of or in connection
with this Plan shall, irrespective of the place where action may be brought and
irrespective of the place of residence of any such director, officer or employee
cease and be barred by the expiration of one year from the date of the act or
omission in respect of which such right of action arises.
l0. Amendment, Suspension or Termination of the Plan. The Board of Directors
may alter, suspend, or discontinue the Plan at any time.
Unless the Plan shall theretofore have been terminated by the Board,
the Plan shall terminate ten years after the effective date of the Plan. No
Bonus Share may be granted during any suspension or after the termination of the
Plan. No amendment, suspension, or termination of the Plan shall, without a
recipient's consent, alter or impair any of the rights or obligations under any
Bonus Share theretofore granted to such recipient under the Plan.
ll. Governing Law. The Plan shall be governed by the laws of the State of
Delaware.
l2. Expenses of Administration. All costs and expenses incurred in the
operation and adminstration of this Plan shall be borne by the Company.
