FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-26668
SYSTEMS COMMUNICATIONS, INC.
- -------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
FLORIDA 65-0036344
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(State or other jurisdiction of incorporation or organization) (I.R.S.
Employer Identification No.)
2575 ULMERTON ROAD, SUITE 300, CLEARWATER, FLORIDA 34622
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(Address of principal executive offices) (ZIP Code)
</TABLE>
Registrant's telephone number, including area code 813-571-1185
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Indicate by check mark whether the registrant (1) had filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes__X___ No_____
Number of shares outstanding of the issuer's Common Stock, par value .001
per share, as of October 14, 1996 10,817,094 shares.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SYSTEMS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ ----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ -- $ 964,714
Accounts receivable, less allowance for doubtful
accounts of $570,973 in 1996, and $510,000 in 1995 1,582,626 1,322,469
Notes receivable from officers and employees 102,000 52,000
Equipment inventories -- 228,344
Deferred expenses 428,360 481,897
Deferred income taxes 608,277 608,277
Other current assets 575,961 499,167
--------- ---------
Total current assets 3,297,224 4,156,868
--------- ---------
Furniture and equipment 1,727,622 693,046
Less accumulated depreciation (438,837) (220,524)
---------- ---------
Net furniture and equipment 1,288,785 472,522
Deferred compensation 972,025 1,190,374
Intangible assets, net of accumulated amortization of
$718,334 in 1996 and $253,333 in 1995 11,831,666 12,296,667
Excess of cost over fair value of net assets acquired,
net of accumulated amortization of $287,987 in 1996
and $38,638 in 1996 4,818,046 3,125,675
Other noncurrent assets 496,373 303,548
----------- ---------
$ 22,704,119 $ 21,545,654
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
SYSTEMS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
<S> <C> <C>
Current liabilities:
Borrowings under lines of credit 122,234 $ 45,151
Current portion of related party notes and debentures 2,328,517 1,579,395
10.75% demand note payable, secured by certain
accounts receivable 100,000 100,000
Current portion of obligations under capital leases 217,939 29,328
Accounts payable 1,782,173 1,260,990
Accrued expenses and other current liabilities 585,640 187,334
Accrued compensation and employee benefits 1,442,035 1,358,947
Deferred revenue 1,098,502 856,719
--------- ----------
Total current liabilities 7,677,040 5,417,864
Long-term portion of related party notes and debentures -- 46,005
Long-term portion of obligations under capital leases 476,991 129,190
Deferred compensation 990,802 1,150,827
Deferred income taxes 1,283,828 3,271,649
Other long term liabilities 72,578 --
---------- ----------
Total liabilities 10,501,239 10,015,535
---------- ----------
Common stock subject to rescission 789,624 789,624
--------- ----------
Stockholders' equity:
Class A convertible preferred stock, stated value and
liquidation preference $1.00 per share; authorized
5,000,000 shares, issued and outstanding 902,000
shares in 1996,and 4,800,000 shares in 1995 158,280 178,125
Class B convertible preferred stock, stated value and
liquidation preference - $1.00 per share; authorized
10,000,000 shares, issued and outstanding 4,550,000
shares in 1996 and 4,690,000 shares in 1995 2,491,745 2,728,345
Common stock - $.001 par value; authorized 50,000,000
shares, issued and outstanding 10,343,000 shares
in 1996, and 7,426,000 shares in 1995 10,343 7,426
Common stock to be issued 2,000,000 2,000,000
Additional paid in capital 16,519,132 11,873,909
Accumulated deficit (9,766,244) (6,047,310)
--------- ---------
Total stockholders' equity 11,413,256 10,740,495
---------- ---------
22,704,119 $21,545,654
========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
SYSTEMS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------- --------------------
1996 1995 1996 1995
------- ------- ------ -----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues:
Healthcare 1,166,465 $ -- $ 456,602 $ --
Telecommunications 1,715,674 1,862,625 447,197 1,554,901
---------- --------- ---------- --------
2,882,139 1,862,625 903,799 1,554,901
---------- --------- ---------- --------
Costs and expenses:
Cost of healthcare revenues 200,342 -- 44,620 --
Cost of telecommunication revenues 1,107,982 1,252,439 254,918 1,196,362
Selling and administrative expenses 6,037,790 1,844,087 1,874,592 1,252,895
Depreciation and amortization 996,343 127,959 335,863 94,849
---------- --------- --------- ---------
8,342,457 3,224,485 2,509,993 2,544,106
---------- --------- ---------- ---------
Income (loss) from operations (5,460,318) (1,361,860) (1,606,194) (989,205)
Interest income 14,426 556 2,969 93
Interest expense (258,779) (2,900) (94,613) 3563
Other income (expense), net (2,089) (4,288) (2,089) (4,088)
---------- --------- --------- --------
Income (loss) before income taxes (5,706,760) (1,368,492) (1,699,927) (989,637)
Income tax benefit (1,987,821) -- (670,821) --
----------- ------- ----------- -------
Net income (loss) $(3,718,939) $(1,368,492) $(1,029,106) $(989,637)
=========== ========= ============ =========
Earnings (loss) per share $ (.46) $ (.47) $ (.12) $ (.26)
=========== ========= ========== =========
Weighted average number of
common shares outstanding 8,077,218 2,942,415 8,727,554 3,784,662
=========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
SYSTEMS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------------
1996 1995
--------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net cash used in operating activities (3,746,364) (1,336,831)
----------- ---------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired 90,890 (132,905)
Expenditures for furniture and equipment (307,289) (100,845)
Loan to officer (50,000) --
----------- ---------
Net cash used in investing activities (266,399) (233,750)
----------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 2,391,695 1,213,813
Proceeds from notes payable 798,397 527,331
Payments on notes payable and capital leases (129,543) (197,110)
Payments on borrowings under line of credit (12,500) (423)
---------- ---------
Net cash provided by financing activities 3,048,049 1,543,611
----------- ---------
Net increase (decrease) in cash 964,714 (26,970)
Cash and cash equivalents at beginning of the period 964,714 81,522
--------- --------
Cash and cash equivalents at end of the period $ -- $ 54,551
========= ========
</TABLE>
See Notes to Consolidated Financial Statements
SYSTEMS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. The unaudited consolidated balance sheet at September 30, 1996, the
unaudited consolidated statements of operations for the nine and three
months ended September 30, 1996 and 1995 and unaudited consolidated
statements of cashflows for the nine months ended September 30, 1996 and
1995 have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting of normal and recurring accruals
considered necessary for a fair presentation, have been included. Results of
operations for the nine months ended September 30, 1996 are not necessarily
indicative of the results for the full fiscal year.
2. In June 1995, the Company completed the acquisition of all of the
outstanding stock of LCI from a person designated as a promoter/
shareholder of the Company in exchange for 1,075,000 shares of the
Company's Class A preferred stock. The net assets acquired were recorded
at the promoter/shareholder's historical cost. The cost basis of the
promoter/shareholder was diminimis.
In June 1995, the Company acquired all of the outstanding stock of
Comstar in exchange for 200,000 shares of the Company's common stock,
valued at $126,000, and 500,000 shares of its Class A convertible
preferred stock, valued at $157,500. The total purchase price was $283,500.
Each share of preferred stock issued in connection with this acquisition
is convertible into one-half share of the Company's common stock at the
election of the holder at any time prior to a public offering of the
Company's common stock and are automatically converted at the time of
such public offering. The excess of the purchase price over the fair
value of net assets acquired ($273,250) was allocated to goodwill and
is being amortized over 5 years.
In July 1995, the Company acquired all of the outstanding stock of TNI in
exchange for 4,550,000 shares of the Company's Class B convertible
preferred stock, valued at $2,492,000, $450,000 of 10% convertible
debentures and $50,000 in cash. Holders of the convertible debentures
are also entitled to receive an aggregate of 225,000 stock purchase
warrants, valued and recorded at $141,750, exercisible at any time prior
to a public offering of the Company's common stock for an exercise price
of $1.50 per share. Each share of preferred stock issued in connection
with this acquisition is convertible into .36 shares of the Company's
common stock at the election of the holder at any time prior to a public
offering of the Company's common stock and are automatically converted at
the time of such public offering. The 10% convertible debentures, plus
accrued interest, are due at the time of a public offering of the Company's
common stock and are convertible, at the election of the holder, into the
Company's common stock at the public offering price in such public
offering. The total purchase price for TNI was $3,138,450. The excess of
the purchase price over the fair value of the net assets acquired was
$2,758,779. This amount was written off, with no associated tax benefit
in the fourth quarter of 1995.
In October 1995, the Company acquired all of the outstanding stock of NSC
in exchange for 2,000,000 shares of the Company's common stock valued at
$6,916,000, cash of $1,000,000 and $250,000 in notes payable. The purchase
price also included shares of the Company's common stock, valued at
$2,000,000, to be issued to the former shareholders of NSC no later than
November 30, 1996. The dollar amount of the shares to be issued($2,000,000)
is shown as common stock to be issued in the accompanying consolidated
financial statements. The number of additional shares to be issued is to be
determined at the date of issuance based upon a formula and upon issuance
will be valued at $2,000,000 in the aggregate. The formula to determine
the number of additional shares to be issued is $5,000,000 minus outstanding
advances made to NSC by the Company divided by the quoted market value of the
Company's common stock. The $250,000 in notes payable are non-interest bearing
and are due in equal monthly installments of $20,000. The total purchase price
for NSC was $10.5 million, including the $2,000,000 in additional shares to be
issued in November 1996 pursuant to the acquisition agreement. The excess of
the purchase price over the fair value of the net assets acquired ($2,891,063)
is being amortized over 20 years. The net assets acquired include $12,400,000
for healthcare management information software technology that is being
amortized over 20 years.
In March 1996, the Company acquired all of the outstanding stock of Health
Management Technologies, Inc. ("HMT"), whose principal business is the
development, sale and maintenance of medical management computer software, for
309,837 shares of its common stock valued at $2,000,000. The Company has
tentatively allocated all of the HMT excess purchase price ($2,080,000) to
goodwill pending final analysis by the Company.
The following unaudited pro forma summary operating results for the nine months
ended September 30, 1996 and 1995 includes the results of operations of
companies acquired in 1996 and 1995. The pro forma operating results for the
nine months ended September 30, 1996 and 1995 reflects the operating results of
companies acquired with pro forma adjustments (primarily goodwill and
intangible amortization) as if the acquisitions were consummated as of the
beginning of the respective periods. The pro forma summary is provided for
information purposes only. It is based on historical information and does not
necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future operating results of the combined companies.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30,
-------------------------------
1996 1995
--------- ---------
<S> <C> <C>
Net revenues $ 3,085,211 $ 5,760,355
----------- ---------
Net loss (3,751,073) (2,675,825)
----------- ---------
Net loss per share $ (.46) $ (.49)
----------- ---------
</TABLE>
3. During the period from July 1, 1996 to September 30, 1996, the Company
issued 50,700 shares of its common stock for an aggregate cash consideration of
approximately $230,000, 1,949,000 shares upon conversion of class A preferred
stock and 50,910 upon conversion of class B preferred stock. The Company
also issued 15,000 shares of its common stock, valued at $58,200, in
consideration of services rendered.
SYSTEMS COMMUNICATIONS,INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following table sets forth certain information derived from the
Consolidated Financial Statements of the Company for the nine months
and three months ended September 30, 1996 and 1995. The following
discussion should be read in conjunction with the Consolidated Financial
Statements and notes thereto.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------ --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues:
Healthcare $1,166,465 -- 456,602 $ --
Telecommunications 1,715,674 1,862,625 447,197 1,554,901
--------- ------- ------- ---------
2,882,139 1,862,625 903,799 1,554,901
Cost of healthcare revenues 200,342 -- 44,620 --
Cost of telecommunication revenues 1,107,982 1,252,439 254,918 1,196,362
Selling and administrative expenses 6,037,790 1,844,087 1,874,592 1,252,895
Depreciation and amortization 996,343 127,959 335,863 94,849
Income (loss) from operations (5,460,318) (1,361,860) (1,606,194) (989,205)
</TABLE>
Operations of Businesses Acquired
In 1995, the Company acquired various businesses, the most significant of
which were Telecom, acquired July 1995, and NSC, acquired October 1995;
and in March 1996, the Company acquired HMT.
The Company's consolidated operating results for the nine months and three
months ended September 30, 1996 and 1995 include the results of operations
of businesses acquired from their respective dates of acquisition, as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------ ---------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues:
Healthcare $1,166,465 -- 456,602 $ --
Telecommunications 1,284,014 1,315,242 259,783 1,315,242
--------- ------- ------- ---------
2,450,479 1,315,242 716,385 1,315,242
Cost of healthcare revenues 200,342 -- 44,620 --
Cost of telecommunication revenues 1,099,908 1,128,116 254,918 1,128,116
Selling and administrative expenses 3,512,226 289,219 1,072,941 289,219
Depreciation and amortization 917,968 58,360 341,819 58,360
Income (loss) from operations $(3,279,964) (119,003) (997,910) $ (119,003)
</TABLE>
The net revenues and loss from operations of Telecom for the period from the
date of acquisition (July 7, 1995) to September 30, 1995 were $1,315,242 and
$104,990, respectively. For the three months ended September 30, 1996 the net
revenues and operating loss of Telecom were $259,783 and $202,914, respectively,
and for the nine months ended September 30,1996 were $1,284,014 and $793,725,
respectively. Telecom's operating results for the period subsequent to the
date of acquisition were adversely affected by (i) the failure of GE Capital
Communications Services Corporation ("GECCS") and New Enterprises Wholesale
Services Limited Partnership ("News") to, among other things, provision
customer accounts for telecommunications products offered by GECCS/News and
sold by Telecom pursuant to a contractual agreement among Telecom, GECCS and
News, (ii) the cancellation of Telecom customers by GECCS and News, (iii) the
failure of GECCS/News to properly bill and collect revenues due to Telecom and
(iv) a diminution of Telecom's marketing and distribution organization as a
result of such failures and other actions taken by GECCS and News. The
diminution in Telecom's marketing and distribution organization that occurred
as a result of such failures and other actions taken by GECCS and News,
together with limitations on the ability of the Company to provide additional
working capital to Telecom, continues to adversely affect Telecom's operations.
See "Liquidity and Capital Resources".
The net revenues and loss from operations of NSC (acquired in October 1995)
were $321,384 and $2,123,529 for the
nine months ended September 30,1996, respectively, and $76,168 and $598,295 for
the three months ended September 30, 1996, respectively. Negatively impacting
NSC's operating results during these periods were lower than expected revenues
from retroactive healthcare claims analysis and recovery services, the cost of
software development activities and costs related to sales and marketing of
NSC's healthcare management information technology.
The net revenues and loss from operations of HMT for the period from the
date of acquisition (March 12, 1996) to September 30, 1996 were $845,081
and $307,799 respectively, and $379,921 and $183,301, respectively, for
the three months ended September 30, 1996. The loss from operations during
these periods principally reflect costs related to the enhancement of
existing products, development of new products and marketing and sales
activities.
NET REVENUES
The increase in net revenues for the nine months ended September 30, 1996
versus 1995 principally reflects the net revenues of businesses acquired.
For the three months ended September 30, 1996, net revenues declined by
approximately $650,000 as compared to the corresponding period of the previous
year. This decline was due to the loss of telecommunication revenues as
a result of the matter between Telecom and GECCS/News offset by revenues of
acquired companies.. See "Operations of Businesses Acquired".
COST OF HEALTHCARE REVENUES
The changes in the cost of healthcare revenues from period to period are the
result of acquisitions of businesses. See "Operations of Businesses Acquired".
COST OF TELECOMMUNICATION REVENUES
The changes from period-to-period in the cost of telecommunication services
reflects the effects of acquisitions and changes in product mix. Product mix
changes included a decrease in long-distance resale revenues, principally as
a result of the matter between Telecom and GECCS/News. See "operations of
Businesses acquired".
SELLING AND ADMINISTRATIVE EXPENSES
The period-to-period increases in selling and administrative expenses
are the result of businesses acquired, costs related to the GECCS/News
matter, costs associated with the Company's growth and acquisition strategy
and costs related to sales and marketing of the Company's healthcare
management information products/technology.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the nine and three months ended September
30, 1996 increased over the comparable period of 1995 principally due to the
amortization of intangibles and goodwill arising from business acquisitions
and from higher investments in furniture and equipment.
INTEREST EXPENSE
The increases from period-to-period in interest expense are principally due
to higher levels of borrowings outstanding, principally from related parties,
and interest accrued on common stock subject to rescission.
INCOME TAXES
For the nine months and three months ended September 30, 1996 the Company
recorded deferred income tax benefits of $1,987,821 and $670,821,
respectively, attributable primarily to the operating loss for the periods.
For the corresponding periods of the previous year no income tax benefits
were recorded due to the Company having net deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company has continued to use cash in its operations and has relied on
borrowings, principally from related parties, and proceeds from the private
placement of its common stock to fund its operations.
The Company anticipates that it will continue to consume cash in its business
operations until such time as it is able to arrange financing (i) to expand
the commercialization and marketing of NSC's healthcare information systems
technology, (ii) further develop and enhance HMT's PC based software products
for managed care and occupational health and (iii) fund the capital
requirements of its OSP and PPV business. As of September 30, 1996,
the Company and its subsidiaries have no material used or unused lines of
credit.
The Company is pursuing numerous avenues to finance its businesses and is
currently in discussion with various institutional investors and lenders and
potential strategic alliance healthcare related business partners, which may
result in financing commitments to fund its healthcare activities but there is
no assurance that any of these discussions will result in a financing
commitment. The Company is also pursuing collection of the arbitration award
from the GECCS/News proceeding. The award was for $1,253,364. After the
payment of legal fees and other costs, the Company expects to receive
approximately $650,000.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company continues to believe that it will require approximately $4-6
million, including the obligations described in the following paragraph, to(i)
further expand the commercialization and marketing of NSC's healthcare
information systems technology, (ii) further develop and enhance HMT's PC
based software products for managed care and occupational health and (iii)
continue to develop its PPV and OSP business in Mexico. Without additional
financing, it is unlikely that the Company would be able to achieve profitable
operations, in which case the viability of the Company as a going concern is
in doubt. In such event, the Company would be required to divest assets or
businesses or seek other alternatives in order to maintain operations.
In connection with certain of its business acquisitions, the Company is
obligated, over the next two years, to provide or arrange working capital and
equipment financing transactions totaling approximately $2.7 million. While
the Company believes that it will be able to arrange such financing in one or
more debt or equity financing transactions there is no assurance that the
Company will in fact be able to do so, in which case the acquired companies
could seek to enforce such financing commitments. In that event, it is
uncertain whether or not the Company would be able to fulfill such financing
commitments in which case the Company would be required to seek other
available alternatives.
Additionally, the Company has been notified by the Michigan Department of
Commerce, Securities Bureau, that it has offered and sold securities in the
State of Michigan without an exemption from registration under the Michigan
Uniform Securities Act. As part of the proposed consent order from the State
of Michigan, the Company is expected to be required to offer a right of
rescission to Michigan purchasers of its securities. Enforcement sanctions
relative to the sale of unregistered, non-exempt securities may also include
fines and restrictions on the Company's ability to sell securities in Michigan.
As of September 30, 1996, the Company estimates its maximum potential exposure
as a result of the proposed rescission offer in the State of Michigan to be
approximately $789,624 including interest of approximately $37,635.
The Company is seeking a change to the proposed Michigan order which
would postpone any required rescission until after the Michigan purchasers
have been afforded an opportunity to resell their shares pursuant to
registration under the Securities Act of 1933. It is unlikely that the
Company would be able to complete a rescission offer in Michigan without
additional financing commitments.
Based on the foregoing factors, it is uncertain whether or not the Company
will be able to meet its short-term or long-term liquidity needs in the
absence of additional financing or a strategic alliance which would provide
the funds required to further commercialize and market NSC's healthcare
information software technology and HMT's product development and marketing
efforts. Collection of the GECCS/News arbitration award, however, would
provide the Company with the ability to meet certain of its immediate and
short-term liquidity needs. Such needs include amounts due trade and other
creditors of the Company and its subsidiaries, a substantial portion of which
are currently past due. As discussed above, the Company is currently seeking
additional financing from institutional investors and lenders and from
strategic alliance partners in the healthcare industry but, there is no
assurance that such financing will be obtained and, if obtained, whether or not
such financing will be sufficient to carry-out the objectives of the Company
and its subsidiaries and satisfy existing obligations or obligations arising
from rescission offers the Company may be required to make to previous
purchasers of its common stock.
SYSTEMS COMMUNICATIONS,INC.AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The matter between Coast Communications, Inc. ("CCI") and SCI has been referred
by court order to mandatory arbitration in the State of Florida. As of this
date, no arbitration proceedings have been initiated.
The Company has not yet received the award granted to the Company by the
American Arbitration Association in the matter of Telecom versus GECC/News.
The award was for the amount of approximately $1,250,000. The Company
intends to vigorously pursue the collection of the amount awarded.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.3 Financial Data Schedule (Nine Months Ended September 30, 1996).
( b) Reports on Form 8-K
The Company filed a Form 8-K on October 29, 1996 regarding the matter of
the arbitration between Telecom Network, Inc. and GE Capital Communication
Services Corp. and New Enterprises Wholesale Services, Ltd.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SYSTEMS COMMUNICATIONS, INC. Date: November 15,1996
By /s/ EDWIN B. SALMON, JR.
-----------------------------
EDWIN B. SALMON, JR.
Chairman of the Board of Directors
By /s/ STEPHEN E. WILLIAMS
----------------------------
STEPHEN E. WILLIAMS
Chief Executive Officer
By /s/ ROBERT A. THOMPSON
----------------------------
ROBERT A. THOMPSON
Chief Financial and Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
Exhibit Index
Exhibit No.27.3 Financial Data Schedule (Nine Months Ended September 30, 1996)
<LEGEND>
Exhibit 27.3
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SYSTEMS COMMUNICATIONS, INC. FOR THE FISCAL PERIOD
ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,582,626
<ALLOWANCES> (570,973)
<INVENTORY> 0
<CURRENT-ASSETS> 3,297,224
<PP&E> 1,727,622
<DEPRECIATION> (438,837)
<TOTAL-ASSETS> 22,704,119
<CURRENT-LIABILITIES> 7,677,040
<BONDS> 479,991
0
2,650,025
<COMMON> 10,343
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 22,704,119
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<CGS> 0
<TOTAL-COSTS> (8,342,457)
<OTHER-EXPENSES> (2,089)
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<INTEREST-EXPENSE> (258,779)
<INCOME-PRETAX> (5,706,760)
<INCOME-TAX> 1,987,821
<INCOME-CONTINUING> (3,718,939)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,718,939)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> 0
</TABLE>
