SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES


                            SECURITIES AND EXCHANGE COMMISSION
                                  WASHINGTON, D.C. 20549

                                        FORM 10-KSB
(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, 1998
                                            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) 724-9094  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 $980,951.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Company,  (8,876,755  shares) based upon the average bid and asked prices of the
Company's Common Stock on September 25, 1998, was approximately $14,380,000.

As of September 25, 1998 the Company had 9,417,957 issued and outstanding shares
of common stock.

<PAGE>


ITEM 1.  DESCRIPTION OF BUSINESS SIMS  Communications,  Inc. (the "Company") was
incorporated  in Delaware on August 15, 1991 to design and market a computerized
system  which  provides  unattended  rental  of  cellular  telephones  through a
stand-alone  dispensing  station.  The Company's  system,  known as an Automated
Communications  Distribution Center ("ACDC"), was designed to serve the needs of
traveling sales people, convention and seminar participants, and anyone else who
is temporarily away from normal communications  facilities and needs to maintain
contact  with an office or home  while  traveling.  An ACDC unit is  capable  of
dispensing from 1 to 12 cellular phones on an automated  basis.  The system uses
electronic  funds  transfer  and accepts  American  Express,  Visa,  MasterCard,
Discover and Diner's Club credit cards for payment in advance by the customer.

        Prior to 1996 the  Company  operated  ACDC units for its own account and
also sold  franchises  which  provided  third  parties the right to operate ACDC
units at various franchised ions.

        The Company's first ACDC units became  operational in September l993. In
August  l995,  the  Company  had 50 ACDC units in  operation  and the  Company's
franchisees  (13 in total) had 28 ACDC's in  operation.  During 1995 the Company
discontinued the sale of new franchises.  At September 15, 1998, the Company was
not operating any ACDC units and the Company's  only  remaining  franchisee  had
four ACDC units in operation.

        In 1996 the Company  introduced  four programs in an effort to diversify
and  broaden the  Company's  product and service  mix:  (i)  cellular  telephone
activations,  (ii) sale of pre-paid  calling cards,  (iii) sale of long distance
telephone service and (iv) rental of cellular telephones using overnight courier
service.  With the exception of the sale of pre-paid  calling cards,  these four
programs were discontinued in December 1997.

        Effective  December  31,  1996 the Company  acquired  all the issued and
outstanding shares of Link International,  Inc. ("Link").  Link manufactures and
distributes  machines which dispense  prepaid  calling cards and terminals which
are used by merchants to perform a variety of transactions,  including accepting
credit  cards and bank  debit  cards in  payment  for sales of  merchandise  and
services.  Unless otherwise  indicted,  all references to the Company's business
and operations included the business and operations of Link.

        Effective  January  30, 1998 the Company  issued  550,000  shares of its
common stock to the  shareholders of Moviebar,  Incorporated  and  Vectorvision,
Incorporated in consideration  for the acquisition of a business known as "Movie
Vision."  Movie  Vision  rents   videocassettes,   primarily  containing  motion
pictures,  through automated  dispensing units in hotels. Movie Vision currently
has video cassette dispensing machines in approximately 140 hotels in the United
States.
 
<PAGE>

        Effective  May 30, 1998 the Company  acquired One Medical  Service Inc.
The One Medical  Service  technology  is used in the  pharmaceutical  market and
allows the pharmacy and its customers to  communicate  with medical  vendors and
suppliers  and  directly  order home  medical  equipment  through a  proprietary
point-of-sale terminal.

        All  historical  share data in this 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.

        The Company's  executive offices are located at 18001 Cowan,  Suite C&D,
Irvine, California 92614. The Company's telephone number is (949) 724-9094.

Link International Technologies, Inc.

        Effective  December 31, 1996,  the Company  acquired Link  International
Technologies,  Inc. ("Link") in consideration for the issuance of 168,539 shares
of the Company's Common Stock. For financial  statement purposes the acquisition
was  accounted for under the purchase  method and the assets  acquired from Link
(net of liabilities) were valued by the Company at approximately $600,000.

        Link has developed a series of  state-of-the  art pre-paid long distance
telephone  card  dispensing  machines  which allow for  payment  with bank debit
cards, credit cards or cash.

        Link has  developed  and patented  certain  technologies  which  provide
unique  features  for its  phone  card  vending  machines.  The  first  and most
important  feature is that  LINK's  machine is the only  vending  machine in the
market  which can  individually  activate  prepaid  phone cards (or other "value
stored" cards, including  chip-embedded "smart" cards) at the point of sale. All
prepaid phone cards stored in LINK's machines are "dead" (i.e. "inactive") until
each one is individually  activated once cash is received or a customer's credit
or debit card has been accepted by the machine and successfully processed.  This
patented device, using a proprietary bar code technology, eliminates the risk of
fraud  or  theft  as well as the need  for  large  capital  investment  which is
required by other machines that dispense only  pre-activated  (or "live") cards.
The  machines  can be  operated  either by  direct  telephone  line or  wireless
technology,  at the option of the customer.  Second,  although  LINK's  machines
accept cash and credit cards,  Link's machines are the only vending devices that
requires  the  customer to use personal  identification  number when  purchasing
prepaid phones cards with a bank debit card. This  particular  feature serves to
eliminate  the expense  (ie.  "charge  backs") to the  merchant  for  mistakenly
accepting fraudulent or stolen credit cards.

         Link has designed two versions of its prepaid  telephone  card machine.
Its first  product  (introduced  in 1995) is a full  sized  stand-alone  vending
machine  which is used in locations  where size is not  important  and where the
machine's  lighted  billboard  signage  is  desired  for  advertising.   Typical

<PAGE>


locations  include check  cashing  locations,  office  product  stores,  motels,
airports, universities, and other high traffic locations. This machine, with six
vending slots and a thermal graphic printer, offers other sales opportunities to
the merchant  such as recharging  cellular  phone time,  dispensing  promotional
coupons,  dispensing  prepaid gas cards for service station chains,  and selling
and dispensing tickets for concerts,  sporting events, lotteries, ski lifts, and
the like. Although capable of dispensing a variety of products, Link has decided
to concentrate  heavily on the market for prepaid  telephone  cards and plans to
install this machine at large regional accounts and chains.

         All major  hardware is  subcontracted  and  virtually  snaps into place
allowing this miniature dispensing machine to be moved and installed in under 30
minutes by one  individual.  The location for the machine needs only  electrical
power and a telephone line. The machine requires very little maintenance and can
be connected to an on-line computer in order to monitor sales,  cash on hand and
inventory requirements.

         Link's  phone card  machines  can also be used to dispense  other items
such as:

    - pre-paid gasoline cards
    - smart chip cards
    - coupons
    - stamps
    - sporting, theatrical and other event tickets

         Link  has  also  developed  a  counter  top  point-of-sale  transaction
terminal, ("known as the "Debitlink" terminal), primarily for use in the sale of
goods and  services.  This  terminal,  which accepts bank debit cards as well as
major credit cards, includes the capability of pre-paid long distance phone card
activation,  customer frequency programs,  check guarantee and pre-paid cellular
time  activation.  The  Debitlink  terminal  uses the same  technology  and host
reporting  as Link's phone card  dispensing  machines.  The Company  markets its
Debitlink to smaller stores,  most of which do not have point-of-sale debit card
capability  and  to  retail  pharmacies.  The  Company  began  marketing  Link's
Debitlink terminals in August 1997.

         The Company receives revenues from sales of its Debitlink  terminal and
for all  transactions  processed  by the  terminal.  As of  September  15,  1998
approximately  70 Debitlink  terminals  were in operation and 50 terminals  were
awaiting installation.

         Link also markets its  proprietary  scrip  terminals  which provide the
same benefits as cash dispensing ATM machines  without the prohibitive  costs to
the  merchant.  A customer  using a bank debit  card  inserts  the card into the
terminal and selects a dollar  denomination  ($5,  $10,  $20,  etc.).  The scrip
terminal  dispenses  a  receipt  to the  customer  which  can be used to pay for
merchandise  and/or  services.  The customer  receives  cash for any  difference
between  the dollar  denomination  of the scrip and the amount of the  purchase.
Once the transaction is processed,  funds are electronically  transferred to the
merchant's bank account from the customer's bank account within 48 hours.
         
<PAGE>


Scrip terminals appeal to fast food  restaurants,  convenience  stores,
bars, pharmacies, arcades and other outlets where cash is needed for products or
services.  While occupying little store space, scrip terminals increase sales by
giving customers purchasing power, thereby, generating impulse buying and larger
purchases.  Similarly,  consumers find scrip terminals  beneficial due the their
convenience and the fact that they provide a safe alternative to isolated ATM's.
The Company  receives a transaction fee (charged to the customer rather than the
retailer) for each transaction processed by the scrip terminal.

As of September 15, 1998 approximately 540 scrip terminals were in operation.

Movie Vision

         Effective  January 30, 1998 the Company  issued  550,000  shares of its
common stock to the  shareholders of Moviebar,  Incorporated  and  Vectorvision,
Incorporated in consideration  for the acquisition of a business known as "Movie
Vision."  Movie  Vision  rents  video  cassettes,  primarily  containing  motion
pictures,  through automated  dispensing units in hotels. Movie Vision currently
has video cassette dispensing machines in approximately 140 hotels in the United
States.

One-Medical

         Effective May 30, 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.  Since the Company's  DebitLink
terminal has the ability to process  information  and verify  insurance  medical
cards,  this network can connect HME buyers with a network of HME vendors.  This
proprietary  network has been designated for the medical and managed  healthcare
market,  but the  Company's  primary  focus at the  present  time is the  retail
pharmacy industry.

         The retail  pharmacy  industry  has been one of the  casualties  of the
growing  influence  of managed  healthcare.  As  efforts  to control  healthcare
spending  increase,  pharmacies  have come under  increasing  pressure  to lower
prices.  As a result,  the era of the locally owned and operated  drugstores has
virtually ended as shrinking  margins have forced a rapid  consolidation  in the
industry.  Giant pharmacy chains now dominate the industry,  taking advantage of
economics of scale in  advertising,  purchasing,  and  distribution.  Thus,  the

<PAGE>


retail  pharmaceutical  industry is forced to look for other revenue streams and
efficiencies.  The current home healthcare market is estimated to be $20 billion
annually  and is expected to  mushroom  to $60 billion  within the next  several
years,  representing up to 100 million potential  customers.  The driving forces
behind this growth is the aging  population,  managed care pressures for earlier
hospital  discharges,  advance home medical equipment  technologies,  government
cost-cutting imperatives, and a more active elderly population.

      The One Medical network allows any pharmacy to be more  competitive in the
HME marketplace by being able to offer over 23,000 products through an automated
catalogue  process  and a  direct  connection  to  local  providers  of  oxygen,
appliance  repair,  nursing  care,  and other such  services.  Pharmacies in the
network are able to provide their customers with medical  supplies and equipment
along with product  information without sending the customer to another location
and thus losing  control of the  customer.  As a result,  the  network  provides
pharmacies with the  opportunity to capture a greater  percentage of the managed
healthcare market,  generate  additional  revenues,  and simultaneously  provide
greater service and convenience to their customers.

      The Company provides each pharmacy in the network with a compact, modular,
self contained kiosk that allows a customer to view, inspect, obtain information
and purchase a variety of HME equipment while at the local  pharmacy.  The kiosk
measures  approximately  24" by 15" by 17" and contains an HME catalogue of over
23,000 HME  products,  a directory of products  and services  offered by the HME
vendors,  a telephone handset and a key pad. This "one stop" shopping service is
helpful for older, less healthy, and less mobile customers.

      The One Medical network is comprised of the following components:

      Pharmacies.  In order to join the  network a pharmacy is required to pay a
monthly  membership fee of $25. The pharmacy is also required to purchase one of
the Company's  DebitLink  terminals  which,  together with  installation,  costs
approximately  $1,150. For each pharmacy within the network the Company installs
(free of  charge to the  pharmacy)  the One  Medical  kiosk.  To insure  quality
control  and  customer  satisfaction  a pharmacy  is  required  to contact  each
pharmacy customer that purchased  products or services through the network.  The
pharmacy  asks the  customer  certain  questions  concerning  the quality of the
products and/or services  purchased through the network.  For administering this
quality control  program,  the pharmacy  receives a fee for service from the HME
service center, the HME vendor, or the catalogue vendor which provided products,
equipment or services to the customer.  Using the Company's  DebitLink terminal,
the pharmacy also earns fees for activating pre-paid telephone cards and through
a computer link to the California Medi-Cal data base, the pharmacy can instantly
verify MEDI-CAL  eligibility for California  residents.  The Company charges the
pharmacy a monthly fee for the MEDI-CAL verification service.

<PAGE>



      HME Service Center.  The HME Service Center provides  customers with items
such  as  wheelchairs,  crutches,  hospital  beds,  bathroom  safety  equipment,
respiratory therapy equipment, and medical supplies. Delivery to the customer is
made  by  van or  truck.  The  typical  HME  Service  Center  supports  10 to 15
pharmacies and is located  within ten miles of each  pharmacy.  In order to join
the network the HME Service Center is required to pay an initial  membership fee
of $1,500 and a monthly fee of $150.

      HME Vendors The HME vendors  provide  customers  with items such as oxygen
concentrators,   portable  oxygen  tanks,  urological,  ostomy,  and  skin  care
products, home health supplies, wound care treatment, vascular support products,
breast pumps,  diagnostic testing kits,  orthopedic  equipment,  prosthesis,  IV
equipment,  and services  such as home nursing  care,  product  repair  services
construction of ramps or lifts and conversions of automobiles or vans.  Delivery
of  equipment  and  supplies  is made by van or truck.  The  typical  HME vendor
supports 10 to 15 pharmacies  and is located  within ten miles of each pharmacy.
In order to join the  network  the HME  vendor  is  required  to pay an  initial
membership  fee of $500 and a monthly  fee of $125.  The  Company  also  charges
vendors a  per-minute  fee for all calls made by  pharmacy  customers  using the
network.

      Catalogue Vendor The catalogue vendor allows the customer to purchase over
23,000  home  medical  products  such as  walkers,  canes,  pillows,  grab bars,
lotions,  and  dressings.  Delivery  is made by U.P.S.  or, at the option of the
customer,  overnight  courier  service.  The Company also charges the  catalogue
vendor a  per-minute  fee for all calls  made by  pharmacy  customers  using the
network.

      1 One Medical Service. The Company's One Medical Service division supplies
the kiosk and the DebitLink  terminal to the  pharmacy,  manages the network and
administers  the transfer of funds  between the members of the  network.  At the
present time, a major home medical equipment supplier pays for the kiosk.

      A customer  needing home medical  equipment or services is directed to the
pharmacy's kiosk. The customer picks up the kiosk's telephone handset and, using
the  keypad,  selects a number  which  corresponds  with the  product or service
needed by the customer. After making the selection, the customer is connected to
a  representative  at the nearest HME  service  center or HME vendor,  or with a
representative  at the  catalogue  vendor.  The customer then obtains any needed
information  relating to the product or service from the  representative  and if
desired,  orders the product or  service.  Billing for the product or service is
handled  directly  between the vendor and the customer.  Pharmacy  customers can
also  access  the One  Medical  network at home by  dialing a  toll-free  number
provided by the pharmacy.

      The Company's One Medical Service division receives revenue from a variety
of sources including initial  membership fees,  monthly membership dues, prepaid
phone-card  sales,  charges for calls made to HME service centers and vendors by
pharmacy customers,  Medi-Cal  verification fees,  advertising rebates, and fees
for all  transactions  processed by the  pharmacy's  Debitlink  terminal.

<PAGE>


As of September 15, 1998, 100 pharmacies, three HME service centers, fifteen HME
vendors and one catalogue vendor were members of the One Medical network.

Research and Development

         During the years  ending June 30,  l997,  and 1998,  the Company  spent
approximately  $35,000, and $33,000  respectively,  on research and development.
Research and development  expenditures pertained to the design,  development and
testing of enhancements  to Link's  DebitLink  transaction  terminals as well as
other  on-line  transaction  terminals  as well  as  other  on-line  transaction
terminals.

Franchise Operations

         Prior to 1996 the Company  operated  ACDC units for its own account and
also sold  franchises  which  provided  third  parties the right to operate ACDC
units at various franchised locations.

         As of April 15, 1998 only one Company  franchisee  was  operating  ACDC
units.  Instafone of California,  one of the Company's former  franchisees,  had
previously  paid  the  Company   $1,000,000  for  deposits  of  ACDC  units  and
franchises.  Instafone  of  California  is no longer in the  business of renting
cellular  telephones  and has advised the Company  that it wants a refund of the
deposits  paid  to the  Company.  The  Company  is  attempting  to  negotiate  a
settlement  with  Instafone of California  concerning  this matter.  The amounts
received by the Company for equipment and franchise deposits as of June 30, 1997
represented 90% of the total amounts  recorded by the Company as a liability for
franchise and customer deposits on such date. See Item 3 of this report.

Competition

         The Company competes with numerous other companies which are engaged in
the  Company's  lines  of  business.  Many of  these  competitors  have  greater
financial and marketing resources than those of the Company.

Employees and Offices

         As of  September  15,  1998,  the  Company  employed  38  persons  on a
full-time  basis.  Fifteen  employees  serve  in  management  or  administrative
capacities,  and the remainder are hourly  workers in the Company's  operations.
None  of  the  Company's  employees  are  covered  by  a  collective  bargaining
agreement. The Company has never experienced an organized work stoppage,  strike
or  labor  dispute.  Management  considers  the  Company's  relations  with  its
employees to be good.

         The Company leases a 7,000 square foot  production and office  facility
in Tampa,  Florida  at an annual  rent of  $35,000.  The lease on this  facility
expires in June 2002.  The  Company's  executive  offices are located in Irvine,

<PAGE>


California  and  consist of 4,900  square  feet of space  which are leased at an
annual  rent of $67,000.  This lease on the space  expires in August  2003.  The
Company's  offices in  Florida  consist  of 1,400  square  feet of space and are
leased for $15,000 per year pursuant to a lease which expires in December 2001.

ITEM 2.  DESCRIPTION OF PROPERTIES

See Item 1 of this report.

ITEM 3.  LEGAL PROCEEDINGS

         The  Company's  California  franchisee  has  demanded  that the Company
purchase  this  franchise,   as  well  as  the  franchisee's   ACDC  units,  for
approximately $1,000,000. The Company is currently negotiating the terms of this
acquisition with the franchisee.  If the Company and the franchisee cannot reach
an  agreement  as to  the  acquisition  of the  franchise,  the  franchisee  has
indicated  that it intends to file suit  against  the  Company for breach of the
franchise agreement. As of June 30, 1998 the Company had a liability of $724,000
for franchise and equipment deposits paid by this franchisee to the Company.

         Other than the foregoing,  there are no legal  proceedings to which the
Company is a party or to which its  properties  are subject,  other than routine
litigation  incident to the Company's  business which is covered by insurance or
which would not have a material adverse effect on the Company.

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  18, 1998,  there were  approximately  600  beneficial
owners of the Company's  Common Stock.  The Company's  Common Stock is traded on
the National  Association of Securities Dealers Automatic  Quotation  ("NASDAQ")
System.  Set forth  below are the range of high and low bid  quotations  for the
periods  indicated  as  reported  by  NASDAQ.   The  market  quotations  reflect
interdealer prices, without retail mark-up, mark-down or commissions and may not
necessarily  represent  actual  transactions.  The Company's  Common Stock began
trading in February 1995. The market  quotations have been adjusted to reflect a
two for one forward stock split, which was effective in June 1995, a one-for ten
reverse  stock  split which was  effective  in March  1996,  and a  one-for-four
reverse stock split which was effective in February 1998.



<PAGE>


      Quarter
      Ending                High      Low


       9/30/95             $95.00   $20.00
      12/31/95             $31.24   $ 7.48
       3/31/96             $18.72   $ 3.72
       6/30/96             $ 7.12   $ 4.00

       9/30/96             $ 5.36   $ 2.00
      12/3l/96             $ 4.48   $ 2.64
       3/31/97             $ 7.76   $ 3.44
       6/30/97             $11.24    $4.12

       9/30/97              $2.31    $1.25
      12/31/97              $5.00    $1.50
       3/31/98              $2.87    $1.09
       6/30/98              $2.75    $1.56

         Holders of Common Stock are  entitled to receive such  dividends as may
be declared by the Board of Directors  out of funds legally  available  therefor
and, in the event of liquidation,  to share pro rata in any  distribution of the
Company's  assets after  payment of  liabilities.  The Board of Directors is not
obligated to declare a dividend.  The Company has not paid any dividends on it's
Common Stock and the Company  does not have any current  plans to pay any Common
Stock dividends.

         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.

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.



<PAGE>


Statement of Operations Data:

                                    Years Ended June 30,
                                   1998                     1997

Revenues                        $980,951                $2,923,532
Cost of Sales                   (523,479)               (1,608,572)
Operating and other
Expenses                      (7,503,483)               (4,657,587)
(Loss Income from
  Discontinued Operations)        (63,737)                 553,731
Net (Loss)                   $(7,109,748)              $(2,788,896)

Balance Sheet Data:
                                           June 30,
Current Assets                $1,088,022                $2,006,289
Total Assets                   5,602,751                 5,544,173
Current Liabilities            2,785,015                 3,630,430
Total Liabilities              3,372,542                 3,716,349
Working Capital (Deficit)     (1,697,013)               (1,624,141)
Shareholders' Equity           2,230,209                 1,827,824

No Common Stock dividends have been declared by the Company since its inception.

Results of Operations

         The  following  table  shows  the  percentage  of the  Company's  gross
revenues  by  category  for the periods  indicated,  as well as the  anticipated
revenue percentage from each category for the year ending June 30, 1999.

                                 Percent  of  Gross Revenues
                                                            Year Ending
                                  Years Ending June 30,     June 30, 1999
                                 1997           1998        (Projected) (1)

        Rental of cellular
        telephones directly
        from Company and
        from ACDC Units.          19%            13%            --

        Sale of ACDC units,
         and related
         equipment.               25%            --             --



<PAGE>


                                     Percent  of Gross Revenues
                                                            Year Ending
                                  Years Ending June 30,     June 30, 1999
                                 1997           1998        (Projected) (1)

        Fees paid by cellular
        telephone companies for
        activation of cellular
        telephones                38%            37%            --

        Sale of prepaid calling cards.            5%            13%      4%

        Sale of long distance
        telephone service.         1%             3%            --

        Revenues from Link
        International             12%             9%            50%

        Revenues from Moviebar    --             23%            14%

         Revenues from One Medical
        Service                   --              1%            32%

        Miscellaneous Income                     --              1%      --

(l)  There  can  be  no  assurance  that  these   percentages  will  not  change
significantly  based upon events which may not be within the Company's  control.
Projected   revenues   for  the  year  ending  June  30,   l999   constitute   a
forward-looking  statement  which is  subject to risks and  uncertainties  which
could cause actual results to differ  materially from those  projected.  Factors
that could cause or  contribute  to such  differences  include  lack of adequate
funding,  loss of major customers and inability to meet sales  projections.  The
Company  undertakes  no  obligation  to publicly  release any  revision to these
forward-looking  statements which may be made to reflect events or circumstances
after the date of this  report or to reflect  the  occurrence  of  unanticipated
events.

        Prior to 1996 the  Company  operated  ACDC units for its own account and
also sold  franchises  which  provided  third  parties the right to operate ACDC
units at various  franchised  locations.  The Company's  first ACDC units became
operational in September  l993. In August 1995, the Company had 50 ACDC units in
operation  and  the  Company's  franchisees  (13  in  total)  had 28  ACDC's  in
operation.  At September 15, 1998,  the Company was not operating any ACDC units
and the Company's only remaining franchisee had four ACDC units in operation.

        In 1996 the Company  introduced  four programs in an effort to diversify
and  broaden the  Company's  product and service  mix:  (i)  cellular  telephone

<PAGE>


activations,  (ii) sale of pre-paid  calling cards,  (iii) sale of long distance
telephone service and (iv) rental of cellular telephones using overnight courier
service.  With  the  exception  of the sale of  pre-paid  calling  cards,  these
programs were discontinued in December 1997.

Effective   December  31,  1996,   the  Company   acquired  Link   International
Technologies,  Inc. in  consideration  for the issuance of 168,539 shares of the
Company's Common Stock.

        Effective  January  30, 1998 the Company  issued  550,000  shares of its
common stock to the  shareholders of Moviebar,  Incorporated  and  Vectorvision,
Incorporated in consideration  for the acquisition of a business known as "Movie
Vision."  Movie  Vision  rents   videocassettes,   primarily  containing  motion
pictures,  through automated  dispensing units in hotels. Movie Vision currently
has video cassette dispensing machines in approximately 140 hotels in the United
States. For financial  statement  purposes,  the acquisition of Movie Vision was
valued at $1,100,000.

         Effective May 30, 1998 the Company acquired One Medical Services,  Inc.
in  consideration  for  142,350  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.  Using terminals  developed by Link pharmacy  customers can communicate
with medical vendors and suppliers and directly order home medical equipment.

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
expanses 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.

<PAGE>


      The following  factors also  contributed  to the Company's loss during the
year ending June 30, 1998:

      A. An expense  of  $1,687,422  as the  result of issuing  shares of stock,
options and warrants for services rendered.

      B. In  February  1998,  the  Company  settled a lawsuit  filed by a former
Master  Licensee of ACDC units  resulting in a special  charge of $424,300.  The
terms of the  settlement  require the Company to pay $115,000 over 21 months and
issue 300,000 shares of common stock to the former master licensee.

      C. In March  1997,  the  Company  entered  into a License  Agreement  with
Cancall Cellular  Communications,  Inc. ("Cancall") whereby the Company provided
Cancall with a license to operate  and/or  distribute  the Company's ACDC units,
prepaid  calling  card  machines  and  point-of-sale  terminals.  The  Licensing
Agreement  also required  Cancall to purchase a certain number of ACDC units and
point-of-sale terminals from the Company.  Between March and September 1997, the
Company sold 30 ACDC units to Cancall for  $705,000.  In payment of the $500,000
licensing fee and the 30 ACDC units,  Cancall  issued  1,807,800  shares of it's
Class B Preferred Stock to the Company.  As of September 30,1997 the Company had
valued the Cancall  Preferred  Stock at $1,310,000.  Subsequent to September 30,
1997 the Company and Cancall ( i ) agreed to rescind the licensing agreement and
the sale of the ACDC units (ii) the  equipment  previously  sold to Cancall were
returned to the Company and (iii) an expense of ($764,000) was recorded.

      D. Between June through September 1996 the Company sold 30 ACDC units to a
master  licensee in  California  resulting in gross  revenues of  $664,000.  The
Company has not  received  payment for the units and a reserve of $374,980  (the
profit for the units sold) was recorded for uncollected receivables.

      E. The Company recorded a valuation  reserve  ($200,000) for the Company's
investment  in  Smartphone,  a non  consolidated  subsidiary  which sold prepaid
cellular telephones.

      F. An increase in the ACDC depreciation and patent  amortization rates due
to technological changes in the industry.

Year Ending June 30, l997

        Revenues  during  the year  ending  June  30,  1997  increased  from the
comparable  period in 1996 due to the  expansion  of four  programs  which  were
introduced in 1996 in an effort to diversify  and broaden the Company's  product
and service mix. These programs were (i) cellular  telephone  activations,  (ii)
sale of pre-paid calling cards,  (iii) sale of long distance  telephone  service

<PAGE>


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.

        Revenues  also  increased  as the  result of a  one-time  licensing  fee
($500,000)  received  pursuant  to a License  Agreement  between the Company and
Cancall Cellular Communications,  Inc. (Cancall). The License Agreement provided
Cancall with the right to operate and/or distribute the Company's ACDC units, as
well as Link's prepaid calling card machines and POS terminals (collectively the
"Products").  In consideration  for the rights granted pursuant to the Licensing
Agreement,  Cancall  agreed to pay the Company  $500,000 in shares of  Cancall's
Class B Preferred  stock.  The  Licensing  Agreement  also  required  Cancall to
purchase a certain  number of ACDC  units and POS  terminals  from the  Company.
During the year  ending  June 30,  1997 the  Company  sold  thirty ACDC units to
Cancall for  $705,000.  In payment of the $500,000  licensing fee and the thirty
ACDC units,  Cancall issued  1,807,800 shares of it's Class B Preferred Stock to
the Company.  Subsequent  to June 30, 1997 the Company and Cancall (i) agreed to
rescind  the  licensing  agreement  and the  sale of the  ACDC  units  (ii)  the
equipment  previously  sold to Cancall were returned to the Company and (iii) an
expense of ($764,000) was recorded.

        The  activation  program  of  cellular  telephones  for  members  of the
Florida,  Louisiana,  and  Mississippi  AAA clubs  began in January  1996.  This
program allowed a AAA member to receive a free cellular  telephone if the member
agreed to a one year cellular telephone service contract. The Company received a
commission for each activation.  The Company discontinued this program in fiscal
1988.

        Revenues  from the  rental of  cellular  telephones  through  ACDC units
decreased during the year ending June 30,1997 as the Company closed certain ACDC
locations that were not profitable.

        As an  alternative  to selling  ACDC units to  franchisees  the  Company
entered into various master  licensing  arrangements  with third parties.  These
arrangements normally involve the single sale of 10 or more ACDC units for (i) a
large location (such as an airport),  (ii) part or all of a foreign country,  or
(iii) a specific  region in the United  States.  As of June 30, 1997 the Company
had sold 30 ACDC units to third  parties  under master  licensing  arrangements,
resulting  in gross  revenues of  approximately  $664,000,  and had sold 10 ACDC
units to a corporation  affiliated with certain former officers and directors of
the Company for $150,000. Although all of these sales occurred prior to December
31,  1996,  as a result of credit  terms  extended by the Company  approximately
$793,000  was still owed to the Company as of June 30, 1997 for these  equipment
sales. The Company has not received payment for the units and subsequent to June
30, 1997 a reserve of $374,980  (the profit for the units sold) was recorded for
uncollected receivables.

        Effective  December  31,  1997 the Company  acquired  all the issued and
outstanding shares of Link International,  Inc. ("Link").  Link manufactures and
<PAGE>


distributes  machines which dispense  prepaid  calling cards and terminals which
are used by merchants to perform a variety of transactions,  including accepting
credit  cards and bank  debit  cards in  payment  for sales of  merchandise  and
services.  The terminals  manufactured by Link are sometimes referred to as "POS
terminals".  As a result of this  acquisition,  Link's revenue and expenses have
been  consolidated  with those of the Company for the six months ending June 30,
1997.  During this six month  period,  Link's  revenues from sales of equipment,
prepaid calling cards and technical service were  approximately  $60,000,  which
amount excludes  revenues  attributable to the Licensing  Agreement  between the
Company and  Cancall.  During the six month  period  ending June 30, 1997 Link's
cost of sales accounted for 0.4% of the Company's consolidated cost of sales and
Link's  other  expenses   accounted  for   approximately  1%  of  the  Company's
consolidated operating expenses.

        The  increase in Cost of Sales  during the year  period  ending June 30,
1997 reflects the  acquisition of Link, the expansion of the Company's  cellular
telephone rental, cellular telephone activation,  prepaid calling cards and long
distance telephone programs.

Liquidity and Sources of Capital

        During the year  ending  June 30,  1998 the  Company's  operations  used
approximately $2,800,000 of cash.

        In order to fund its  operating  losses,  the Company sold shares of its
common stock in private  placements and borrowed funds from private lenders.  In
July 1998, the Company issued  1,402,500 shares of its common stock at $1.00 per
share, raising $1,172,125 net of $230,375 in offering related expenses.

        The Company's scrip terminals are sold to a leasing Company which leases
the terminals back to the Company.  The leased scrip terminals are placed with a
merchant  free of  charge.  The  Company  receives  a fee for  each  transaction
processed by the scrip terminal. The Company uses a portion of these fees to pay
the monthly charges for the leased  terminals.  The funds received from the sale
of the  terminals  to the leasing  company are a source of cash to the  Company.
Other than the foregoing,  and any cash  generated by the Company's  operations,
the Company does not have any available credit, bank financing or other external
sources  of  liquidity.  Due  to  historical  operating  losses,  the  Company's
operations have not been a source of liquidity.  In order to obtain capital, the
Company may need to sell  additional  shares of its common stock or borrow funds
from  private  lenders.  During the next  twelve  months the  Company  will need
capital to fund its operations,  repay outstanding debt and fund receivables and
inventory balances.

        Although there can be no assurance in this regard,  the Company  expects
that  during  fiscal  1999  cash  generated  by  operations  and the sale of the
Company's  point-of-sale  and scrip  terminals  will satisfy the Company's  cash
requirements.  During the  twelve  months  ending  June 30,  1999 the  Company's
anticipated  capital  requirements are $700,000 for inventory,  and $150,000 for
equipment and fixed assests.


<PAGE>


        The Company may suffer  future  losses,  in which case the Company  will
need to obtain  additional  sources of capital in order to continue  operations.
There can be no  assurance,  however,  that the Company  will be  successful  in
obtaining additional funding.

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 Company is
conducting a review of its computer  systems to identify  those areas that could
be affected by the "Year 2000" issue and is developing an implementation plan to
ensure  compliance.  The Company  presently  believes that the Year 2000 problem
will not pose significant operational concerns nor have a material impact on the
financial  position or results of operation in any given year. The total cost of
modifications  and  conversions  is 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.

ITEM 7.  FINANCIAL STATEMENTS

See the financial statements attached to this report.

ITEM  8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING AND
FINANCIAL DISCLOSURENot 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              39                  President and a Director
Michael Malet             50                  Vice President and a Director
Bruce S. Schames          51                  Chief Financial  and   Accounting
                                              Officer
David Markowski           37                  Vice President of Finance
Marvin Berger             54                  Executive Vice President of Sales
                                              and Marketing
<PAGE>


Chet Howard               54                  Director
George Pursglove          46                  Director
Cornelia Eldridge         57                  Director

         Each  director  holds office until his successor is duly elected by the
stockholders.  Executive  officers  serve  at  the  pleasure  of  the  Board  of
Directors.
         The following  sets forth certain  information  concerning the past and
present principal occupations of the Company's officers and directors.

         Mark Bennett has been the Company's  President  since November 1997 and
has been a Director of the Company since  September  1997.  Mr. Bennett has been
the  President,  Chief  Executive  Officer and a Director of Link  International
Technologies, Inc., a subsidiary of the Company, since January 1996. Since April
1995 Mr. Bennett has also been the President of New View Technologies,  a wholly
owned  subsidiary of Link. From 1985 to 1987 Mr. Bennett was the General Manager
for  MovieBar,  a video  vending  company  servicing  the hotel and  hospitality
industry,  with installations in over 35,000 hotel rooms worldwide.  In 1987 Mr.
Bennett became Vice President of International Operations and General Manager of
MovieBar and was  subsequently  named as  President of MovieBar  Company USA. In
December 1995 Mr. Bennett resigned his position with MovieBar to co-found Link.

         Michael Malet has been the Company's Vice President since November 1997
and has been a director of the Company since  September 1997. Mr. Malet has been
the President of New View Technologies,  Inc., a wholly owned subsidiary of Link
International  Technologies,  Inc., since July 1995. From 1986 to 1987 Mr. Malet
was the President of Vending  Control  Systems,  a manufacturer of video vending
machines.  Mr.  Malet  was a  Sales  Manager  (1987-1990)  and  later  President
(1991-1995) of Keyosk  Corporation,  a Company  involved on the  development and
sale of  intelligent  on-line  vending  machines,  including the Company's  ACDC
Units.

     Bruce S. Schames has been the Company's Controller since December, 1993. In
April 1997 Mr. Schames became the Company's Chief Financial  Officer.  From 1991
to 1993 Mr. Schames was self-employed as a Certified Public Accountant.  Between
1983 and 1991,  Mr.  Schames was employed as Manager of Financial  Reporting for
the Dole Fresh Fruit Company.

         David  Markowski  joined the  Company as Vice  President  of Finance in
January 1998. Since 1991 he has served as a business consultant to various small
private and public companies seeking assistance in all aspects of growth.

     Marvin  S.  Berger  joined  the  Company  as Vice  President  of Sales  and
Marketing  in April 1998.  Prior to his joining the Company Mr.  Berger was Vice
President of Sales and Special Accounts with SmarTalk Telecommunications, Inc. a
company at which his involvement  began during the founding  stages.  Mr. Berger

<PAGE>


has held marketing and management positions at IBM, Data General Corporation and
Visage Corporation.

         Chet Howard has been a director of the Company  since  September  1997.
Since 1992 Mr. Howard has been a principal of  Consolidated  Business  Group,  a
company providing financial  consulting services for development stage business.
From 1988 to 1992 Mr. Howard was Executive  Vice  President and Chief  Financial
Officer of HQ Office Supplies, Inc.

         George  Pursglove  has been a Director of the Company  since  September
1997.  Since  November 1995 Mr.  Pursglove has been a principal of  Consolidated
Business Group, a company providing financial consulting services to development
stage  businesses.  Between  March 1993 and November  1995 Mr.  Pursglove  was a
Senior Divisional  Merchandise  Manager, and later Director of Merchandising for
Office  Depot.  Between April 1992 and March 1993 Mr.  Pursglove was  Divisional
Merchandise Manager for the Price Company, a retailer of home improvement goods.

         Cornelia  Eldridge has been a Director of the Company  since July 1998.
Since 1981 Ms. Eldridge has been the President of Eldridge  Associates,  Inc., a
management consulting firm.

     All of the Company's officers devote substantially all of their time on the
Company's  business.  Mr. Howard, Mr. Pursglove and Ms. Eldridge,  as directors,
devote only a minimal amount of time to the Company.

         Michael  Malet and Chet  Howard  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. Bruce Schames continued as an officer of the Company. Mark Bennett,
Michael  Malet,  Chet  Howard and George  Pursglove  remained  directors  of the
Company.

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 year ended June 30, 1998.



<PAGE>


                                            Other     Re-
                                            Annual    stricted
                                            Compen-   Stock      Options
      Name and   Fiscal   Salary   Bonus    sation    Awards     Granted
Principal Position          Year      (1)      (2)        (3)       (4)
      (5)

Mark Bennett     1998   $111,350      --       $8,400     93,750 560,500
President and
Chief Executive
Officer
Michael Malet    1998   $100,923      --       $8,400     81,250 457,000
Vice President

(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash)  received. 
(3) Any other annual compensation not properly categorized as salary or bonus,
    including perquisites and other personal  benefits,  securities or property.
    Amounts in the table represents automobile allowances.
(4)  During the year ending June 30, 1998,  the shares of the  Company's  common
     stock issued as compensation for services.

         The table  below  shows the  number of shares of the  Company's  Common
Stock owned by the  officers  listed  above,  and the value of such shares as of
June 30, 1998.

    Name                          Shares                    Value
 Mark Bennett                     224,900                   $393,575
    Michael Malet                 157,802                   $276,154

(5) The shares of Common Stock to be received upon the  exercise  of all stock
     options granted during the. year ending June 30, 1998.

Options Granted During Fiscal Year Ending June 30, l998

The  following  tables set forth  information  concerning  the options  granted,
during the fiscal year ended June 30, 1998, to the persons named below,  and the
fiscal  year-end value of all unexercised  options  (regardless of when granted)
held by these persons.

<PAGE>


                                                                Potential
                                                          Realizable Value at
                       % of Total                     Assumed Annual Rates
                         Options                           of Stock Price
                        Granted to    Exercise               Appreciation for
            Options     Employees in  Price Per  Expiration   Option  Term (1)
 Name       Granted (#) Fiscal Year   Share      Date          5%        10%

Mark Bennett 560,500     38.5%        $1.50        5/29/03  $233,168  $513,978
Michael Malet457,000     31.4%        $1.50        5/29/03  $190,112  $419,069

David Mark-
owski        439,000     30.2%        $1.50        5/29/03  $182,624  $402,563

 (1) The potential  realizable  value of the options shown in the table assuming
the market price of the  Company's  Common Stock  appreciates  in value from the
date of the grant to the end of the option term at 5% or 10%.

Long Term Incentive Plans - Awards in Last Fiscal Year

         None.

Employee Pension, Profit Sharing or Other Retirement Plans

         Except as  provided in the  Company's  employment  agreements  with its
executive officers,  the Company does not have a defined benefit,  pension plan,
profit sharing or other retirement  plan,  although the Company may adopt one or
more of such plans in the future.

Compensation of Directors

         Standard  Arrangements.  At  present  the  Company  does  not  pay  its
directors for attending meetings of the Board of Directors, although the Company
expects to adopt a director  compensation  policy in the future. The Company has
no  standard  arrangement  pursuant  to  which  directors  of  the  Company  are
compensated   for  any  services   provided  as  a  director  or  for  committee
participation or special assignments.

         Other  Arrangements.  During the year  ending June 30, 1998 the Company
issued  shares of  common  stock  and  options  to the  following  directors  in
consideration of services rendered to the Company:



<PAGE>


                              Shares
                              Issuable upon     Option           Option
                  Shares      exercise of       Exercise       Expiration
Name              Issued(1)   Options           Price             Date

Chet Howard       25,000      $50,000           $1.50            5/29/03

George Pursglove  37,500      $50,000           $1.50            5/29/03

(1) Certain of these shares were issued  pursuant to the  Company's  Stock Bonus
Plan. See "Stock Bonuses" below.

         See " Stock Option and Bonus Plans"  below for  information  concerning
stock  options and stock  bonuses  granted to the  Company's  former and present
officers.
         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, 1998.

Stock Option and Bonus Plans

         The Company has an Incentive Stock Option Plan, a  Non-Qualified  Stock
Option Plan and a Stock Bonus Plan. A summary  description of each Plan follows.
In some cases these three Plans are collectively referred to as the "Plans".

Incentive Stock Option Plan.

         The Incentive  Stock Option Plan  authorizes the issuance of options to
purchase up to 1,250,000 shares of the Company's  Common Stock,  less the number
of shares  already  optioned  under both this Plan and the  Non-Qualified  Stock
Option Plan. The Incentive Stock Option Plan became  effective on April 15, 1993
and will remain in effect  until April 15,  2001  unless  terminated  earlier by
action of the Board.  Only officers,  directors and key employees of the Company
may be granted options pursuant to the Incentive Stock Option Plan.

          In order to qualify for  incentive  stock option  treatment  under the
Internal Revenue Code, the following requirements must be complied with:

         1.  Options  granted  pursuant to the Plan must be  exercised  no later
than:

         (a) The  expiration  of  thirty  (30)  days  after the date on which an
option holder's employment by the Company is terminated.

         (b) The  expiration  of one year  after  the  date on  which an  option
holder's employment by the Company is terminated,  if such termination is due to
the Employee's disability or death.

 
<PAGE>


        2. In the event of an option  holder's death while in the employ of the
Company,  his  legatees or  distributees  may  exercise  (prior to the  option's
expiration) the option as to any of the shares not previously exercised.

         3.  The  total  fair  market  value  of  the  shares  of  Common  Stock
(determined  at the time of the grant of the option) for which any  employee may
be granted  options  which are first  exercisable  in any calendar  year may not
exceed $100,000.

         4. Options may not be exercised  until one year  following  the date of
grant.  Options  granted to an employee  then owning more than 10% of the Common
Stock of the Company may not be  exercisable  by its terms after five years from
the date of grant.

         5. The purchase  price per share of Common Stock  purchasable  under an
option is  determined  by the  Committee but cannot be less than the fair market
value of the Common Stock on the date of the grant of the option (or 110% of the
fair  market  value in the case of a person  owning the  Company's  stock  which
represents  more than 10% of the total  combined  voting power of all classes of
stock).

 Non-Qualified Stock Option Plan.

         The Non-Qualified  Stock Option Plan authorizes the issuance of options
to purchase up to 3,000,000 shares of the Company's Common Stock less the number
of shares already  optioned under both this Plan and the Incentive  Stock Option
Plan. The Non-Qualified Stock Option Plan became effective on April 15, 1993 and
will remain in effect  until April 15,  2001  unless  terminated  earlier by the
Board of Directors. The Company's employees,  directors,  officers,  consultants
and advisors are eligible to be granted options  pursuant to the Plan,  provided
however that bona fide services must be rendered by such consultants or advisors
and such services must not be in connection with the offer or sale of securities
in a capital-raising transaction. The option exercise price is determined by the
Committee but cannot be less than the market price of the Company's Common Stock
on the date the option is granted.

         Options granted pursuant to the Plan not previously exercised terminate
upon the first to occur of the following dates:

         (a) The  expiration  of one year  after  the  date on  which an  option
holder's employment by the Company is terminated (whether  termination is by the
Company, disability or death); or

         (b) The  expiration  of the option which occurs five (5) years from the
date the option was granted.

         In the event of an option  holder's  death  while in the  employ of the
Company,  his legatees or distributees  may exercise the option as to any of the
shares not previously exercised prior to the option's expiration.


<PAGE>


Stock Bonus Plan.

         Up to 1,500,000  shares of Common Stock may be granted  under the Stock
Bonus Plan.  Such shares may consist,  in whole or in part,  of  authorized  but
unissued shares,  or treasury shares.  Under the Stock Bonus Plan, the Company's
employees, directors, officers, consultants and advisors are eligible to receive
a grant of the Company's shares; provided, however, that bona fide services must
be  rendered  by  consultants  or  advisors  and  such  services  must not be in
connection   with  the  offer  or  sale  of  securities  in  a   capital-raising
transaction.

Other Information Regarding the Plans.

         The Plans are  administered  by the Company's  Board of Directors.  The
Board of Directors has the  authority to interpret  the  provisions of the Plans
and  supervise  the  administration  of the  Plans.  In  addition,  the Board of
Directors is empowered to select those  persons to whom shares or options are to
be granted,  to determine the number of shares  subject to each grant of a stock
bonus or an option and to determine  when, and upon what  conditions,  shares or
options  granted under the Plans will vest or otherwise be subject to forfeiture
and cancellation.

         In the  discretion  of the  Board  of  Directors,  any  option  granted
pursuant  to the Plans may  include  installment  exercise  terms  such that the
option becomes fully exercisable in a series of cumulating  portions.  The Board
of Directors may also  accelerate the date upon which any option (or any part of
any options) is first exercisable. Any shares issued pursuant to the Stock Bonus
Plan and any options granted  pursuant to the Incentive Stock Option Plan or the
Non-Qualified  Stock  Option Plan will be forfeited  if the  "vesting"  schedule
established  by the Board of  Directors at the time of the grant is not met. For
this purpose,  vesting means the period during which the employee must remain an
employee  of the  Company  or the  period of time a  non-employee  must  provide
services to the Company.  At the time an employee ceases working for the Company
(or at the time a non-employee ceases to perform services for the Company),  any
shares or options  not fully  vested will be  forfeited  and  cancelled.  In the
discretion  of the Board of  Directors  payment  for the shares of Common  Stock
underlying  options may be paid through the delivery of shares of the  Company's
Common Stock having an  aggregate  fair market value equal to the option  price,
provided  such shares have been owned by the option holder for at least one year
prior to such  exercise.  A  combination  of cash and shares of Common Stock may
also be permitted at the discretion of the Board of Directors.

         Options are generally  non-transferable except upon death of the option
holder.  Shares  issued  pursuant to the Stock Bonus Plan will  generally not be
transferable  until the  person  receiving  the  shares  satisfies  the  vesting
requirements imposed by the Board of Directors when the shares were issued.


<PAGE>


         The Board of Directors of the Company may at any time, and from time to
time,  amend,  terminate,  or suspend  one or more of the Plans in any manner it
deems  appropriate,  provided  that such  amendment,  termination  or suspension
cannot  adversely affect rights or obligations with respect to shares or options
previously  granted.  The  Board  of  Directors  may  not,  without  shareholder
approval:  make any  amendment  which would  materially  modify the  eligibility
requirements  for the Plans;  increase or decrease the total number of shares of
Common  Stock which may be issued  pursuant to the Plans except in the case of a
reclassification  of the Company's capital stock or a consolidation or merger of
the Company;  reduce the minimum  option price per share;  extend the period for
granting options;  or materially increase in any other way the benefits accruing
to employees who are eligible to participate in the Plans.

         Any  options  granted  under the  Incentive  Stock  Option  Plan or the
Non-Qualified  Stock  Option Plan must be granted  before  April 15,  2001.  Any
shares  granted  pursuant to the Stock Bonus Plan must be issued  prior to April
15,  2001.  The Plans are not  qualified  under  Section  401(a) of the Internal
Revenue Code, nor are they subject to any provisions of the Employee  Retirement
Income Security Act of 1974.

Summary.

         The following sets forth certain  information as of September 18, 1998,
concerning  the stock  options and stock  bonuses  granted by the Company.  Each
option represents the right to purchase one share of the Company's Common Stock.

                           Total          Shares               Remaining
                           Shares      Reserved for             Shares Options/
                            Reserved   Outstanding  Issued As     Shares
Name of Plan               Under Plan    Options    Stock Bonus  Under Plan

Incentive Stock Option Plan1,250,000      297,500       N/A     952,500
Non-Qualified Stock Option
  Plan                     3,000,000    1,866,500       N/A   1,113,500
Stock Bonus Plan           1,500,000          N/A   749,625         375

Stock Bonuses

         Between  May 1996 and June l998 the  Company,  in  accordance  with the
terms of its Stock Bonus Plan,  issued shares of Common Stock to certain Company
officers,  employees and consultants.  The following  persons  (including former
officers and directors)  received shares of the Company's  common stock as stock
bonuses:



<PAGE>


                                Shares Issued as Stock Bonus
    Name                   1996           1997            1998

Melvin Leiner *          62,500        12,500
Darren Marks *           62,500        12,500
James J. Caprio *        62,500
Donald Marks *           62,500
Bruce Schames            18,750
Mark Bennett                                           18,750
Michael Malet                           5,000          16,250
David Markoski                                          6,250
Chet Howard                                             6,250
George Pursglove                                       12,500
Other employees and
consultants as a group   192,500       86,875         111,250
                         -------       ------         -------
                          461,250      116,875        171,500
                         ========      =======        =======

* Former Officer and Director

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The  following table sets forth, as of September  15, 1998, information
with  respect  to  the  only  persons  owning  beneficially  5% or  more  of the
outstanding  Common Stock and the number and  percentage of  outstanding  shares
owned by each director and officer and by the officers and directors as a group.
Unless  otherwise  indicated,  each owner has sole voting and investment  powers
over his shares of Common Stock.

                                       Number of             Percent of
Name and Address                       Shares  (1)           Class (2)

Mark Bennett
18001  Cowan,
Suites C&D
Irvine, CA  92614                       224,900                3%

Michael Malet                           157,802                2%
18001 Cowan, Suites C&D
Irvine, CA  92614

Bruce S. Schames                         1,000                   *
4551 North Dixie Highway
Boca Raton, FL 33431



<PAGE>


                                       Number of             Percent of
Name and Address                         Shares  (1)         Class    (2)

David Markowski                          25,000                  *
18001 Cowan, Suites C&D
Irvine, CA  92614

Marvin Berger                            80,000                  1%
18001 Cowan, Suites C&D
Irvine, CA  92614

Chet Howard                             25,000                   *
1805 Apricot Glen Drive
Austin, TX  78746

George Pursglove                         27,500                  *
9380 N.W. 39 Court
Coral Springs, FL 33065

Cornelia Eldrige                            --                    --
4514 Elkhorn Road
Sun Valley, Idaho  83353

Officers and Directors as a
Group (8 persons)                       541,202                  7.2%

*  Less than 1%

(1) Excludes  shares  issuable  prior to November  30, 1998 upon the exercise of
    options or warrants granted to the following persons:

      Name                   Options exercisable prior to November 30, 1998

      Mark Bennett                           560,500
      Michael Malet                          457,000
      Bruce Schames                               --
      David Markowski                        439,000
      Chet Howard                             50,000
      George Pursglove                        50,000

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Transactions with Former Management.

Melvin  Leiner,  Donald  Marks,  James Caprio and Darren Marks were officers and

<PAGE>


directors of the Company  between  August 1991 and November 1997. See "Change in
Management" above.

         In December  1995 the Company  issued 10,945 shares of its Common Stock
to Melvin Leiner,  Donald Marks, James Caprio and Darren Marks (43,778 shares in
total) as  repayment  of loans,  each in the  amount  of  $90,500,  made by such
persons to the Company.

         In March 1996 the Company issued 6,250 shares of its Series B Preferred
Stock to Melvin  Leiner,  Donald  Marks,  James Caprio and Darren Marks  (25,000
shares in total) as repayment of loans,  each in the amount of $25,000,  made by
such persons to the Company.

         In June 1996 the Company  issued  62,500  shares of its Common Stock to
Melvin Leiner,  Donald Marks,  James Caprio and Darren Marks (250,000  shares in
total) as  repayment  of loans,  each in the  amount of  $125,000,  made by such
persons to the Company.

In June 1996 the  Company  issued  shares of its Common  Stock to the  following
former  officers and directors in repayment of loans made by such persons to the
Company:  Melvin Leiner:  25,922 shares in repayment of loan of $51,843;  Donald
Marks:  28,588  shares in repayment  of loan of $57,175;  James  Caprio:  28,616
shares in  repayment  of loan of $57,232;  and Darren  Marks:  21,860  shares in
repayment of loan of $43,720.

         In September  1996, the Company  acquired a 10% interest in Smartphone,
Inc. (a corporation  that sells a debit cellular  telephone) from Melvin Leiner,
Donald Marks,  James Caprio and Darren Marks in consideration for 100,000 shares
of the Company's  common  stock.  The  Company's  investment  in Smartphone  was
recorded at $200,000,  which was the original  cost of the former  officers' and
directors' investment in Smartphone.

         During the year ended June 30,  1996,  the Company sold five ACDC units
and related technology to Lonestar,  Inc., a corporation owned by Melvin Leiner,
Darren Marks,  James Caprio and Donald Marks for  $350,000.  The sales price for
these units was paid by  offsetting  advances of $350,000  which had  previously
been made to the Company by such officers. In December l996 the Company sold ten
additional ACDC units to Lonestar for $l50,000. Lonestar made an initial payment
of $15,000  for these  ACDC  units and has a balance  of $123,  859 owing to the
Company.

Transactions  with  Present  Management

Effective January 30, 1998 the Company issued 550,000 shares of its common stock
to the shareholders of Moviebar, Incorporated and Vectorvision,  Incorporated in
consideration  for the  acquisition of a business known as "Movie Vision." Movie

<PAGE>


Vision rents video cassettes,  primarily  containing  motion  pictures,  through
automated  dispensing units in hotels. Movie Vision currently has video cassette
dispensing  machines  in  approximately  140  hotels in the United  States.  For
financial  statement  purposes,  the  acquisition  of Movie Vision was valued at
$1,100,000.  Mark  Bennett,  the  President  and a director of the Company,  was
shareholder of both Moviebar,  Incorporated and  Vectorvision,  Incorporated and
received  55,000  shares of the Company's  common stock in connection  with this
transaction.
         During the fiscal 1998 the Company  issued  18,750 shares of its common
stock to David Markowski 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.

         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.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K
ExhibitsNumber                                         Exhibit    Page Number
3.1      Certificate of Incorporation                             (1)


3.1.1    Amendment to Articles of Incorporation                   (3)

3.2      Bylaws of the Company                                    (1)

28.1     Form of 1993 Incentive Stock Option Plan                 (1)
         and 1993 Non-Statutory Stock Option Plan

28.2     Stock Bonus Plan                                         (2)

____     Financial Data Schedule                       ______________


(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>

                                 Table of Contents


                                                                         Page

Independent Auditors' Report.............................................F - 1

Financial Statements

   Consolidated Balance Sheet............................................F - 2

   Consolidated Statements of Operations.................................F - 3

   Consolidated Statements of Stockholders' Equity.......................F - 4

   Consolidated Statements of Cash Flows.................................F - 5

Notes to Consolidated Financial Statements...............................F - 6

<PAGE>




F - 1



                           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,  1998  and the  related
consolidated statements of operations,  stockholders' equity, and cash flows for
the years  ended June 30,  1998 and 1997.  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, 1998 and the results of their  operations
and cash flows for the years  ended June 30,  1998 and 1997 in  conformity  with
generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements,  the Company has suffered recurring losses from operations
which raise  substantial doubt about its ability to continue as a going concern.
Management's  plan in regard to these  matters is also  described in Note 2. The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.


                                           Ehrhardt Keefe Steiner & Hottman PC
September 15, 1998
Denver, Colorado



<PAGE>


                    SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES


                See notes to consolidated financial statements.

                                     F - 3
                            Consolidated Balance Sheet
                                   June 30, 1998

                                        Assets
Current assets
   Cash and cash equivalents (Note 7)                               $  263,878
   Accounts receivables, less allowance for doubtful
    accounts of $27,584                                                128,984
   Inventories                                                         452,473
   Prepaid expenses                                                     92,667
   Notes receivable, current portion (Notes 5 and 10)                  150,000
                                                                    ----------
         Total current assets                                        1,088,002

Property and equipment (Note 4)                                      2,589,447
                                                                    ----------
Other assets
   Notes receivable less allowance of $400,902                         445,360
(Notes 5 and 10)
   Patents, net of accumulated amortization of                         401,121
$115,624
   Goodwill (Note 3)                                                   952,069
   Other                                                               126,752
                                                                    ----------
         Total other assets                                          1,925,302
                                                                    ----------
Total assets                                                        $5,602,751
                                                                    ==========
                         Liabilities and Stockholders' Equity
Current liabilities
   Accounts payable                                                 $  543,058
   Accrued expenses                                                    599,770
   Bank line of credit (Note 7)                                        250,000
   Franchise deposits                                                  827,661
   Current maturities of long-term debt (Note 8)                       547,794
   Current obligations under capital lease (Note 8)                     16,732
                                                                      ---------
         Total current liabilities                                   2,785,015

Long-term liabilities
   Long-term debt (Note 8)                                             500,853
   Obligations under capital lease (Note 8)                             86,674 
                                                                     ---------- 
         Total long-term liabilities                                   587,527
                                                                     ----------
Total liabilities                                                    3,372,542
                                                                     ----------
Commitments and contingencies (Notes 5 and 16)

Stockholders'  equity (Notes 11, 12 and 13) Preferred stock,  Series A, B and C,
   $.001 par
    value, 300,000 shares authorized - 50,000 (A),
    100,000 (B), 500 (C) and 149,500 (Undesignated),
    125,250 shares issued and outstanding                                   125
    (liquidation preference of $605,000)
   Common stock $.0001 par value 40,000,000 shares
    authorized, 7,959,033 issued and outstanding                            796
   Additional paid in capital                                        22,646,232
   Accumulated deficit                                              (20,416,944)
                                                                     -----------
         Total stockholders' equity                                   2,230,209
                                                                      ----------
Total liabilities and stockholders' equity                           $5,602,751
                                                                      =========

<PAGE>


                       Consolidated Statements of Operations
                                                            Year Ended June 30,
                                                          1998            1997
Revenue (Note 15)
   Telecommunications                               $   446,524      $ 2,923,532
   Financial processing                                 147,533               -
   Automated Movie Rentals                              371,416               -
   Medical transaction processing                        15,478               -
                                                       --------       ----------
        Total revenue                                   980,951        2,923,532
                                                       --------       ----------
Cost of goods sold                                      523,479        1,608,572
                                                       --------       ----------
Gross profit                                            457,472        1,314,960
                                                       --------       ----------
Operating expenses
   General and administrative                         2,718,064        1,774,162
   Depreciation and amortization                        474,372          247,990
   Selling expenses                                   1,058,252        1,128,395
   Equity based compensation                          1,687,422        1,431,741
   Loss on termination of licensing and equipment
   agreement (Note 6)                                   764,000               -
   Research and development                              32,760           34,686
   Litigation settlement (Note 16)                      444,300               -
                                                       --------       ----------
        Total expenses                                7,179,170        4,616,974
                                                       --------       ----------
Operating loss                                      (6,721,698)      (3,302,014)

Other income (expense)
   Interest expense                                   (158,263)         (71,537)
   Interest income                                       28,424          30,924
   Loss on write down of investment (Note 6)            (200,000)              -
   Other                                                   5,526               -
                                                       ---------      ----------
                                                      (324,313)         (40,613)
                                                       ---------      ----------
Loss from continuing operations before income taxes  7,046,011)      (3,342,627)

Income tax benefit (Note 9)                                  -                -
                                                       ---------      ----------
Net loss from continuing operations                 (7,046,011)      (3,342,627)
                                                       ---------      ----------
Net (loss) income from discontinued  operations    $   (63,737)     $   553,731
(Note 18)                                              =========      ==========

Net loss                                            (7,109,748)     $(2,788,896)
                                                    ==========      =========== 
Basic  and  diluted  loss per share  from  continuing $  (1.78)     $     (2.00)
operations                                          ===========     ============
Basic and diluted (loss) earnings per share from
 discontinued operations (Note 18)                 $      (.01)     $       .33
                                                       ========     ============
Basic and diluted net loss per share               $     (1.79)     $     (1.67)
                                                  =============     ============
Weighted average common shares  outstanding
(Notes 12                                             3,961,389        1,666,823
and 13)                                            ============     ============
<PAGE>


                         SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES


                      See notes to consolidated financial statements.

                                           F - 5
                          Consolidated Statements of Stockholders' Equity
                             Years Ended June 30, 1998 and 1997
<TABLE>

<S>                                    <C>             <C>           <C>           <C>               <C>        <C>
                                   Subscribed Preferred Stock        Preferred Stock              Preferred Stock 
                                    Subscribed                          Series A                       Series B                    
                                   Additional
                                    Number of                       Number of                    Number of          
                                    Shares           Amount         Shares        Amount           Shares     Amount


Balance - June 30, 1996                125,250   $ 365,000              -       $      -              -    $      -   

Issuance of common  stock issued
for  investments  (Notes 6                 -           -                -              -              -           -      
Issuance of common stock fo
 services (Note 12)                        -           -                -              -              -           -         

Issuance of common  stock for cash
  (ranging  from $2.00 to
 $2.80 per share),  net of $198,160 
in offering costs (Note                    -           -                -               -             -           -           
 12)

Issuance of common stock upon
  conversion  of notes payable
 (ranging from $2.00 to $2.80 per
 share) (Note 12)                          -           -                -               -             -           -            

Imputed  value  of stock  options 
 granted  for  consulting                  -           -                -               -             -           -            

Subscribed preferred stock issued       (125,250)   (365,000)        25,250            25         100,000        100        

Net loss                                  -           -                -                -            -            -       

Balance June 30, 1997                     -           -              25,250            25         100,000        100  

Issuance of common stock in
 connection  with  acquisitions           -           -                 -               -           -             - 
(Notes 3 and 12)

Issuance  of common  stock for cash 
 (ranging  from $.80 to
 $1.00) net offering costs of
$633,421 (Note 12)                        -           -                 -               -           -             - 

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)

Issuance of common stock in 
exchange for services (Note 12)           -           -                 -                -           -           -   

Unearned compensation expense 
(Note 12)                                 -           -                 -                -           -           -        

Issuance of common stock upon 
conversion  of notes payable              -           -                 -                -           -           -      
and interest (Note 12)

Issuance of common stock upon 
 conversion of former officer
 notes payable and accrued
salaries (Note 12)                        -           -                 -                -           -           -     

Issuance  of common  stock in
  connection  with  litigation            -           -                 -                -           -           -      
settlement (Notes 12 and 16)

Imputed  value of  stock  option 
 grants  in  exchange  for
 consulting and other services
 (Note 12)                                 -           -                -                 -           -           -          

Net loss                                   -           -                -                 -           -           -         
                                        -------     --------          --------         --------    -------      ------
Balance - June 30, 1998                    -       $   -              25,250         $   25       100,000      $ 100    
                                        =======   ==========          =======        ==========   ========     ======= 
             

</TABLE>


<PAGE>


                          Consolidated Statements of Stockholders' Equity
                             Years Ended June 30, 1998 and 1997
<TABLE>
 <S>                                                         <C>          <C>             <C>               <C>              <C>    
                                      

                                                          Number of                   Paid-in          Accumulated
                                                            Shares      Amount         Capital            Deficit         Total


Balance - June 30, 1996                                   1,007,477   $     101      $11,061,037         $(10,518,300)    $907,838

Issuance   of   common    stock   issued   for              268,539          27          799,973               -           800,000
investments (Notes 6 and 12)

Issuance of common  stock for  services  (Note              223,125          22          927,956               -           927,978
12)

Issuance  of common  stock  for cash  (ranging
 from $2.00 to $2.80                                        573,143          57        1,176,583               -         1,176,640
 per  share),  net  of  $198,160  in  offering
 costs (Note 12)

Issuance of common  stock upon  conversion  of
 notes payable                                               48,215           5          124,995               -          125,000
 (ranging  from  $2.00  to  $2.80  per  share)
 (Note 12)

Imputed  value of stock  options  granted  for                    -           -          679,264               -         679,264
consulting services and
 interest (Note 12)

Subscribed preferred stock issued                                 -           -           364,875              -           -

Net loss                                                          -           -              -           (2,788,896)   (2,788,896)
                                                            --------        ----         ---------       -----------   -----------  
Balance June 30, 1997                                      2,120,499         212       15,134,683       (13,307,196     1,827,824

Issuance of common  stock in  connection  with               692,350          69        1,327,691              -        1,327,760
acquisitions (Notes 3
 and 12)

Issuance  of common  stock  for cash  (ranging
 from $.80 to $1.00)                                       2,246,500         225        1,475,855              -        1,476,080
 net offering costs of $633,421 (Note 12)

Issuance  of common  stock for  conversion  of
 notes payable to                                            846,827          85          936,959              -          937,044
 investors in  connection  with a Regulation S
 offering, net of
expenses of $162,956 (Note 12)

Issuance  of  common  stock  in  exchange  for             1,015,749         102        1,696,134              -        1,696,236
services (Note 12)

Unearned compensation expense (Note 12)                          -           -          (136,475)              -        (136,475)

Issuance of common  stock upon  conversion  of               506,791          50         707,039               -         707,089
notes payable and
interest (Note 12)

Issuance of common  stock upon  conversion  of
 former officer notes                                        230,317          23         419,174               -         419,197
 payable and accrued salaries (Note 12)

Issuance of common  stock in  connection  with               300,000          30         309,270               -         309,300
litigation settlement
(Notes 12 and 16)

Imputed   value  of  stock  option  grants  in
 exchange for consulting                                        -             -          775,902               -         775,902
 and other services (Note 12)

Net loss                                                        -             -             -             (7,109,748)  7,109,748)
                                                            ---------       ----      -----------         -----------   ---------
Balance - June 30, 1998                                    7,959,033   $     796      $22,646,232       $(20,416,944) $2,230,209
                                                            =========       =====     ===========        ============ ===========   
</TABLE>


<PAGE>


                           Consolidated Statements of Cash Flows

                                                           Year Ended June 30,

                                                         1998             1997
Cash flows from operating activities
   Net loss                                         $(7,109,748)    $(2,788,896)
   Adjustments to reconcile net loss to net cash    -----------      ----------
    used in operating activities
     Depreciation                                      400,552         206,186
     Amortization                                       73,820          41,804
     Imputed value of options granted for services     127,661         503,763
      and interest
     Sales settled by receipt of notes receivable          -         (430,000)
     Impairment of investment                           200,000              -
     Termination of licensing and equipment agreement   764,000              -
     Provision for uncollectible notes receivable       400,902              -
     Officer salaries converted to equity               419,197              -
     Sales settled by receipt of investments                 -       (1,310,000)
     Stock issued for services and in connection
      with litigation settlement                      1,869,061         927,978
     Changes in assets and liabilities
       Accounts and other receivables                   167,832         116,737
       Inventories                                       51,574         662,655
       Prepaid expenses                                 113,193          28,545
       Accounts payable                                (147,349)        104,909
       Accrued expenses                                (103,339)         (5,002)
       Franchise deposits and customer deposits         (11,493)         88,391
                                                      ----------      ----------
                                                      4,325,611         935,966
                                                      ----------      ----------
         Net cash used in operating activities       (2,784,137)     (1,852,930)
                                                      ----------      ----------
Cash flows from investing activities
   (Advances) repayments on notes receivable, net       (54,372)          7,110
   Acquisition costs paid, net of cash acquired        (424,095)             -
   Capital expenditures                                 (34,122)        (13,522)
   Change in other assets                                62,664         (24,855)
                                                        -------         --------
         Net cash used in investing activities         (449,925)        (31,267)
                                                       ---------        --------
Cash flows from financing activities
   Proceeds from issuance of long-term debt             805,459         797,500
   (Payments on) proceeds from officer advances         (65,809)         50,209
   Payments under capital lease obligation              (10,200)         (7,565)
   Proceeds from issuance of common stock, net         2,820,781       1,176,640
   Payments on long-term debt                          (348,191)       (159,229)
                                                       ---------       ---------
         Net cash provided by financing activities     3,202,040       1,857,555
                                                       ---------       ---------
Net decrease in cash                                    (32,022)        (26,642)

Cash and cash equivalents at beginning of year          295,900         322,542
                                                        -------         --------
Cash and cash equivalents at end of year             $  263,878      $  295,900
                                                       ========         =======
Supplemental disclosure of cash flows information
     Cash paid during the year for interest was $169,345 (1998)
 and $70,710 (1997).
Non-cash investing and financing activities (Note 17)


<PAGE>


                         SIMS COMMUNICATIONS, INC. AND SUBSIDIARIES

                         Notes to Consolidated Financial Statements


                                           F - 31

Note 1 - Organization and Significant Accounting Policies

Organization

Sims  Communications,  Inc. and  Subsidiaries  was  incorporated in the state of
Delaware on August 15, 1991. The Company was initially formed as a communication
equipment company and had expanded its focus to include  telecommunications  and
cellular and prepaid telephone activities.  Currently,  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 and
cellular phones through automated dispensing units.

Principles of Consolidation

The   consolidated   financial   statements   include   the   accounts  of  SIMS
COMMUNICATIONS,  Inc. and its wholly owned  subsidiaries  SIMS  Franchise  Group
Inc., Cellex  Communications Inc. (Note 18), SIMS Communications  International,
Inc., Link  International  Technologies,  Inc. and its wholly owned subsidiaries
New View Technologies,  Inc., Link Dispensing Systems, Inc., and Southeast Phone
Card, 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  date  of  acquisition  (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.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a maturity of
three months or less to be cash equivalents.


<PAGE>



Note 1 - Organization and Significant Accounting Policies (continued)

Inventories

Inventories  consist  primarily  of  automated  video  dispensing  units,  video
cassette players,  movie video cassettes,  debitlink data transmission units 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 are recorded at cost and depreciated over their estimated
useful lives (5 to 7 years),  utilizing the straight-line  method.  Expenditures
for maintenance and repairs are charged to expense as incurred.

Organization Costs

Organization  costs  have been  capitalized  and are being  amortized  using the
straight-line method over a five year period.

Net loss Per Common Share

Net loss per common  share is based upon the weighted  average  number of common
shares outstanding during each of the respective periods. Common shares issuable
upon the exercise of convertible notes and common stock options and warrants are
excluded  from the  weighted  average  number of shares  since  their  effect is
anti-dilutive.

Advertising

Advertising costs are expensed as incurred.

Goodwill

The excess of the cost of the net tangible and identifiable intangible assets of
acquired businesses is stated at cost and will be amortized over seven years.

Patents

Patent  costs  are  those  costs  related  to filing  for  patents  and the cost
allocated  to the  patents  based upon  business  acquisitions.  These costs are
amortized  on a  straight-line  basis over the  estimated  useful  live of seven
years.


<PAGE>



Note 1 - Organization and Significant Accounting Policies (continued)

Fair Value of Financial Instruments

The  carrying  amounts  of  financial   instruments   including  cash  and  cash
equivalents,  receivables,  accounts payable, and accrued expenses  approximated
fair value as of June 30, 1998 because of the relatively short maturity of these
instruments.

The carrying  amounts of debt issued  approximate  fair value  because  interest
rates on these instruments  approximate  market interest rates and a significant
portion are classified as current maturities.

Income Taxes

The Company uses the asset and liability  method of accounting for income taxes.
Under the asset and liability  method,  deferred tax assets and  liabilities are
recognized for the future tax consequences  attributable to differences  between
the financial  statement carrying amounts of existing assets and liabilities and
their  respective tax basis.  Deferred tax assets and  liabilities  are measured
using  enacted tax rates  expected  to be  recovered  or settled.  The effect on
deferred tax assets and  liabilities  of a change in tax rates is  recognized in
income in the period that includes the enactment date.

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  the  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,  the assets are
adjusted to their fair values.

Revenue Recognition

Telecommunications revenue is recognized upon the sale and delivery of equipment
upon  activation  of a customers  cellular  account,  upon the  completion  of a
customer  phone rental and upon  delivery of prepaid  calling  cards.  Automated
movie rental  revenues are recognized at the time of rental and upon delivery of
prepaid calling cards. Financial and medical transaction processing revenues are
recognized at the time of transaction.


<PAGE>



Note 1 - Organization and Significant Accounting Policies (continued)

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.

Reclassifications

Certain   accounts  in  the  June  30,  1997  financial   statements  have  been
reclassified to conform to the June 30, 1998 presentation.

Note 2 - Continued Operations

The  accompanying  financial  statements  have been  prepared on a going concern
basis  which   contemplates   the  realization  of  assets  and  liquidation  of
liabilities in the ordinary  course of business.  During the year ended June 30,
1998, the Company continued to suffer recurring losses from operations in excess
of $7,100,000, resulting in an accumulated deficit of approximately $20,400,000.
However, in July 1998, the Company raised approximately  $1,170,000 in a private
placement  offering and is continuing  to look for  additional  equity  capital.
Additionally, the Company is in the process of negotiating the sale or placement
of a significant number of the point-of-sale  transaction  automation processing
units with retailers and pharmacies located throughout  California,  Florida and
New York. As of September 15, 1998, the Company has placed or sold approximately
600 of these  units.  The Company  also plans to place a  significant  number of
rental  cellular  telephone  dispensing  units  into  hotels  where the  Company
currently  has the automated  videocassette  dispensing  units.  There can be no
assurances  that the Company will be successful in obtaining  additional  equity
financing  or be  able to  generate  significant  profits  from  the  operations
described  above.  The  consolidated  financial  statements  do not  include any
adjustments  that might be  necessary  if the Company is unable to continue as a
going concern.


<PAGE>



Note 3 - 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 11 and 12).  The  acquired
Companies rent motion picture video cassettes through automated dispensing units
that are located in hotels  throughout the United States.  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:

      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 options to purchase  187,000 shares of
the  Company's  common  stock at $ 2.00 per share (Notes 11 and 12). 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.


<PAGE>



Note 3 - Acquisitions (continued)

One Medical Services, Inc. (continued)

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                                               $   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.

Note 4 - Property and Equipment

Property and equipment consist of the following:
                                                           June 30,
                                                             1998
Property and equipment
   Vehicles                                              $   20,608
   Furniture and fixtures                                   107,209
   Machinery and equipment                                3,350,437
   Software                                                  52,000
   Less accumulated depreciation                           (940,807)

                                                         $2,589,447



<PAGE>




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 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.

As of June 30,  1997,  the Company had sold  equipment to a customer for a total
sales  price of  $664,000.  During the year ended June 30,  1997,  a company was
contracted  to provide  services  necessary  to get the units  operational,  but
failed to  perform.  As such,  all  amounts  due  related to the sales have been
extended.  The total  amount of  $664,000  is payable  under the terms of a note
receivable  which bears  interest  at 8.5%.  Principal  and  interest is payable
commencing by December 31, 1997 in equal monthly  installments of  approximately
$14,000 through November 30, 2002. No payments have been received as of June 30,
1998. Accordingly, the Company has impaired the outstanding balance to $289,020,
which represents the value of the underlying  assets,  by recording a reserve of
$374,980.

Note 6 - Investments

Smartphone

During  the year ended  June 30,  1997,  the  Company  acquired  a 10%  minority
interest in  Smartphone,  Inc. (a company that sells prepaid  cellular air time)
from  certain  former  officers  and former  directors  of the  Company at their
original  cost basis of  $200,000.  This was effected by the issuance of 100,000
shares of common stock which were valued at $2.00 a share.  As of June 30, 1998,
in  accordance  with the  company's  policy  of  accounting  for  impairment  of
long-lived assets, the entire $200,000 has been impaired.

Cancall

During  the year  ended  June 30,  1997,  the  Company  sold 30 rental  cellular
telephone  dispensing units and 100 telephone debit card dispensers for $810,000
as well as  entering  into a  licensing  agreement  for  $500,000  with  Cancall
Cellular  Communications,  Inc., (Cancall) for a total price of $1,310,000.  The
licensing agreement entitles Cancall the right to market, distribute and operate
the  Company's  products  and  trademarks  on  an  exclusive  basis  within  the
territories  of Canada  and  Europe  and on a  non-exclusive  basis  within  the
territories  of the United  States and Asia.  The exclusive  license  within the
European  territory is subject to certain minimum purchase  commitments the must
be met by  Cancall  over a two  year  period.  In  consideration  for the  above
transaction,  the Company received  1,807,800 shares of Cancall's Class A $ 1.00
par value preferred  stock.  The preferred stock can be converted into 3,013,000
shares of Cancall's common stock at a rate of  $.60(Canadian)  per share after a
one year mandatory holding period. The transaction was valued at the cost of the
underlying goods sold.


<PAGE>



Note 6 - Investments (continued)

Cancall (continued)

During the year ended June 30, 1998,  the Company  terminated  the licensing and
equipment agreement and the equipment was returned to the Company, the preferred
stock was returned to Cancall and a loss provision for $764,000 was provided.

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,  1998  was  approximately  $250,000.  The
line-of-credit is secured by a restricted  certificate of deposit with a balance
at June 30, 1998 of approximately $250,000. The line-of-credit bears interest at
5.77% payable monthly. The line-of-credit expires June 5, 1999.

Note 8 - Notes Payable and Capital Leases
                                                                       June 30,
                                                                         1998
Promissory note payable at 10% interest payable monthly
 commencing September 15,  1995. Balance of principal is
payable in full by September, 1999. As additional
 consideration,  the Company  agrees to pay the note
 holder 13.0% of all profits  received through the
Company's agreements with Commonwealth
 Group International, Inc. (Note 5).                                $  310,348

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. Additionally,
 each note holder  was  issued  options  to  purchase
   shares  of  the Company's stock (Note 12                            325,000
 )

Note payable - corporation, bearing interest at bank prime 
plus 1% (9.5% at June  30, 1998), principal
 payments  of  $5,000  plus   interest   due  monthly                   20,000
 through September 1998.


<PAGE>



Note 8 - Notes Payable and Capital Leases (continued)
                                                                       June 30,
                                                                         1998
Non interest  bearing note payable -  individual, 
 principal  payable in monthly
 installments of $1,500
 through June 2000.                                                     45,000

Note  payable  -  bank,   bearing  interest  at  11%,
 principal   and   interest    payable   in   monthly
 installments   of  $541   through   June  14,  1998.                    1,191
 Collateralized by equipment.

Note payable -  corporation,  bearing  interest at 12%, 
 monthly  principal  and  interest  payments of $2,500,
  due August 2001.  Debt  includes  conversion  to
 common stock feature that provides for conversion at any
 time while the note is  outstanding at a conversion price
 based on the previous five day  average.  Collateralized 
 by  substantially  all the company's assets.                          182,108
 

Note payable - individuals,  bearing interest at 10%,
 principal and interest due  in full on September 20,
 1998. Debt includes conversion agreement that provides
 for conversion into the Company's common  stock at $1.00 
per share  from  September  13,  1998 until maturity.                  100,000
 

Note payable - individual,  principal and interest due in
 full July 1998, 10% of  principal balance
 borrowed interest charge.                                              65,000
                                                                     1,048,647
Less current maturities                                               (547,794)

Total                                                                $ 500,853

Principal  payment on notes payable subsequent to June 30, 1998
are as follows:

            Year Ending June 30,

                   1999                                  $  547,794
                   2000                                     335,359
                   2001                                      10,718
                   2002                                     154,776

                                                         $1,048,647


<PAGE>



Note 8 - Notes Payable and Capital Leases (continued)

Capital Leases

The  Company  leases  various  office   equipment  which  is  accounted  for  as
capitalized  leases. The following is a schedule of future minimum capital lease
payments  together with the net present value of the minimum lease obligation as
of June 30, 1998.

        Year Ending June 30,

              1999                                         $ 33,295
              2000                                           33,295
              2001                                           33,295
              2002                                           32,197
              2003                                           19,250
                                                            -------
              Total                                         151,332
              Less interest                                 (47,926)
                                                            --------
                                                            103,406
              Less current portion                          (16,732)
                                                            --------
                                                           $ 86,674
                                                            ========
The assets recorded under capital leases are as follows:

        Furniture, fixtures and equipment                  $105,531
        Less accumulated amortization                       (24,900)
                                                            ---------
                                                           $ 80,631
                                                            =========
Amortization  expense for  equipment  under capital lease was $14,679 and $2,271
for the years ended June 30, 1998 and 1997, 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 reduced, if necessary,  by
the  amount of any tax  benefits  that,  based on  available  evidence,  are not
expected to be realized.


<PAGE>



Note 9 - Income Taxes (continued)

The principal temporary  differences that will result in deferred tax assets and
liabilities  are certain  expenses and losses  accrued for  financial  reporting
purposes  not  deductible  for tax  purposes  until paid,  depreciation  for tax
purposes in excess of  depreciation  for  financial  reporting  purposes and the
deferral of franchise costs and franchise sales revenues for financial reporting
purposes which are recognized for tax purposes in the period paid. The effect of
the differences  outlined above generated a long-term deferred tax asset that is
fully  impaired  because of a lack of profitable  operating  history.  The fully
impaired  asset,  computed  at a 34  percent  tax  rate at  June  30,  1998  was
approximately  $6,500,000.  Accordingly,  there  is no net  deferred  tax  asset
reflected in the accompanying consolidated financial statements.

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,
                                                          1998           1997

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,
                                                                        1998

      Total long-term deferred tax asset                            $6,500,000
      Valuation allowance                                           (6,500,000)

                                                                    $       -
                                                                    ===========
At June 30, 1998,  the Company has  approximately  $19,000,000  of net operating
loss  carryforwards  for  income tax  reporting  purposes  which  expire in 2007
through 2013. During 1995 and 1998, there were transactions involving changes in
ownership   which  could   restrict  the   utilization  of  net  operating  loss
carryforwards in the future.


<PAGE>



Note 10 - Related Party

Sales

As of June 30,  1997,  the  Company  sold  equipment  and  other  technology  to
Lonestar,  Inc., an entity owned entirely by former officers of the Company. The
sales price was  $500,000  and was used to satisfy  $365,000  of former  officer
advances  payable and created a $135,000 note  receivable.  The note  receivable
bears  interest  at 8.25%  and is  payable  in  equal  monthly  installments  of
principal and interest of  approximately  $2,750  commencing  April 1997 through
March 2002. As of June 30, 1998, the  outstanding  balance was $96,340 net of an
allowance of $30,000.

During the fiscal year ended June 30, 1997, former officers sold telephone debit
card  dispensers  to the Company for a sales price of $30,600 which was recorded
as officer advances payable.

During the fiscal year ended June 30, 1997, the Company purchased a 10% interest
in Smartphone, Inc. from former officers of the Company (Note 16).

Officer Advances Payable

During the years ended June 30, 1998 and 1997,  former officers advanced amounts
to the Company to help fund  operations and meet  obligations.  At June 30, 1998
and 1997, $0 and $65,809,  respectively,  was  outstanding  and due on demand to
certain  former  officers and former  directors of the Company.  During the year
ended June 30, 1998, the Company  converted to common stock amounts  outstanding
to these former officers  related to advances and accrued  salaries.  A total of
$419,197 was converted to 230,317 shares of common stock.

Note 11 - Stock Option and Bonus Plans

The Company has an Incentive  Stock Option  Plan, a  Non-Qualified  Stock Option
Plan and a Stock Bonus Plan. A summary description of each Plan follows.

Incentive Stock Option Plan

The  Incentive  Stock  Option Plan  authorizes  the  issuance of up to 1,250,000
shares of the Company's  Common Stock to persons that exercise  options  granted
pursuant to the Plan.  It became  effective on April 15, 1993 and will remain in
effect  until April 15, 2001 unless  terminated  earlier by action of the Board.
Only officers, directors and key employees of the Company may be granted options
pursuant to the Incentive Stock Option Plan.


<PAGE>



Note 11 - Stock Option and Bonus Plans (continued)

Incentive Stock Option Plan (continued)

In order for the stock options to qualify for Incentive Stock Option treatment:

1. The total fair market value of the shares of Common Stock  (determined at the
   time of the  grant of the  option)  for  which any  employee  may be  granted
   options  which are first  exercisable  in any  calendar  year may not  exceed
   $100,000.

2. Options  may not be  exercised  until one year  following  the date of grant.
   Options  granted to an employee  owning more than 10% of the Common  Stock of
   the  Company  may not be  exercisable  by its terms after five years from the
   date of grant.

3. The purchase price per share of Common Stock  purchasable  under an option is
   determined  by a committee  but cannot be less than the fair market  value of
   the Common  Stock on the date of the grant of the option (or 110% of the fair
   market  value  in the case of a  person  owning  the  Company's  stock  which
   represents more than 10% of the total combined voting power of all classes of
   stock).

Non-Qualified Stock Option Plan

The  Non-Qualified  stock Option Plan authorizes the issuance of up to 3,000,000
shares of the Company's  Common Stock to persons that exercise  options  granted
pursuant  to the Plan.  It became  effective  April 15,  1993 and will remain in
effect until April 15, 2001 unless terminated earlier by the Board of Directors.
The  Company's  employees,  directors,  officers,  consultants  or advisors  are
eligible to be granted options pursuant to this Plan, provided however that bona
fide services must be rendered by such consultants or advisors and such services
must  not  be  in  connection  with  the  offer  of  sale  of  securities  in  a
capital-raising  transaction.  The  option  exercise  price is  determined  by a
Committee but cannot be less than the market price of the Company's Common Stock
on the date the option is granted.


<PAGE>



Note 11 - Stock Option and Bonus Plans (continued)

Non-Qualified Stock Option Plan (continued)

The following is a summary of options and warrants granted:
                                        Non-Qualified   Options        Exercise
                            Incentive     Stock        Issued Not       Price
                              Stock        Options      Related to       Per
                               Options                    a Plan         Share


Outstanding June 30, 1996       45,000         -            -      $22.00-$26.00
   Options expired                -            -            -             -
   Options exercised              -            -            -             -
   Options granted             692,250       10,000      202,313     4.00-13.00

Outstanding June 30, 1997      737,250       10,000      202,313     4.00-26.00
   Options expired             225,000         -            -             8.00
   Options exercised              -            -            -             -
   Options granted           1,556,500      250,000      676,500      .80-8.00

Outstanding June 30, 1998    2,068,750      260,000      878,813    $ .80-26.00

The Company has the following stock options outstanding as of June 30, 1998:

                                                                 Currently
   Options         Exercise                                     Exercisable
 Outstanding           Price            xpiration Date            Options


     22,500             22.00        September 1999                22,500
     22,500             26.00        September 1999                22,500
    275,000              4.00        December 2006                275,000
    161,000              4.00        December 2001                161,000
     22,500             13.00        September 1999                22,500
      8,750              5.00        December 2006                  8,750
      5,000              5.00        September 1999                 5,000
      5,000              8.00        September 1999                 5,000
     22,500             11.00        September 1999                22,500
     40,000              2.00        December 2001                 40,000
     25,000              5.00        December 2001                 25,000
     25,000              5.00        August 2001                   25,000
     12,500              7.00        December 2001                 12,500
     18,750              4.00        May 2000                      18,750
      9,375             10.00        May 2000                       9,375
     10,938              5.00        May 2000                      10,938


<PAGE>



Note 11 - Stock Option and Bonus Plans (continued)

Non-Qualified Stock Option Plan (continued)

The Company has the following stock options outstanding as of June 30, 1998:
                                                                 Currently
   Options         Exercise                                     Exercisable
 Outstanding           Price       Expiration Date               Options
  

     38,250              8.00    May 2000-July 2002                 38,250
  1,556,500              1.50    May 2003                        1,556,500
    372,500              2.00    January-June 2002                 372,500
    250,000              5.00    July 2002                         250,000
     16,500              8.00    May 2000                           16,500
    187,500              1.32    January 2002                      187,500
     50,000              1.00    February 2003                      50,000
     25,000               .80    December 2000                      25,000
     25,000              5.00    January 2003                       25,000
    -------              -----                                    --------
  3,207,563       $      2.91                                    3,207,563
  =========              ====                                    =========

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, 1998 and 1997, employees of the Company
were issued  options to purchase a total of 1,806,500 and 724,750  shares of the
Company's  common  stock,  respectively,  at rates ranging from $1.50 to $13 per
share expiring from September 1999 to December 2006.



<PAGE>



Note 11 - Stock Option and Bonus Plans (continued)

Non-Qualified Stock Option Plan (continued)

Had  compensation  cost for the Company's  issuances of stock options during the
years  ended June 30, 1998 and 1997 been  determined  based on the fair value at
the date of grant  consistent with the provisions of FAS 123, the Company's 1998
and 1997 net loss and loss per share would have been  increased to the pro forma
amounts indicated below:
                                                                June 30,
                                                         1998            1997
       Net loss - as reported                       $(7,109,748)    $(2,788,896)
       Net loss - pro forma                         $(9,227,346)    $(6,429,498)
       Net loss per share - as reported             $    (1.79)     $    (1.67)
       Net loss per share - pro forma               $    (2.33)     $    (3.86)

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, 1998; dividends yield
of 0.0%; expected average annual volatility of 133.86%; average annual risk-free
interest rate of 5.5%; and expected terms averaging 2 years.

Stock Bonus Plan

Up to  1,500,000  shares of Common  Stock may be granted  under the Stock  Bonus
Plan.  Such shares may consist,  in whole or in part, of authorized but unissued
shares, or treasury shares. Under the Stock Bonus Plan, the Company's employees,
directors, officers, consultants and advisors are eligible to receive a grant of
the  Company's  shares;  provided,  however,  that  bona fide  services  must be
rendered by  consultants or advisors and such services must not be in connection
with the offer or sale of securities  in a  capital-raising  transaction.  As of
June 30, 1998,  749,625  shares of the  Company's  common stock have been issued
under the Stock Bonus Plan.

Note 12 - Stockholders' Equity

Common Stock

The Company is authorized to issue 40,000,000  shares of $.0001 par value Common
Stock.



<PAGE>



Note 12 - Stockholders' Equity (continued)

Preferred Stock

The  Company  is  authorized  to issue up to  300,000  shares of $.001 par value
Preferred  Stock.  The  Board of  Directors  has the  authority  to  divide  the
Preferred  Stock into series and,  within the  certain  limitations,  to set the
relevant terms of such series created.

In April 1995, the Company's former directors established the Company's Series A
Preferred  Stock and authorized the issuance of up to 50,000 shares.  Each share
of series A  Preferred  Stock is entitled to a dividend at the rate of $1.60 per
share when, as and if declared by the Board of Directors. Dividends not declared
do not  cumulate.  Additionally,  each  share  of  Series A  Preferred  Stock is
convertible into .80 shares of the Company's Common Stock at any time after July
1, 1999.  Upon any liquidation or dissolution of the Company,  each  outstanding
share of Series A Preferred  Stock is entitled to  distribution of $20 per share
prior to any  distribution  to the holders of the Company's  common stock. As of
June 30, 1998, the Company has 25,250 shares of Series A Preferred  Stock issued
and outstanding.

In March 1996, the Company's former directors established the Company's Series B
Preferred Stock and authorized the issuance of up to 100,000 shares.  Each share
of series B  Preferred  Stock is  entitled to a dividend at the rate of $.15 per
share when, as and if declared by the Board of Directors. Dividends not declared
do not  cumulate.  Additionally,  each  share  of  Series B  Preferred  Stock is
convertible into one share of the Company's  Common Stock.  Upon any liquidation
or  dissolution  of the Company,  each  outstanding  share of Series B Preferred
Stock is entitled to distribution  of $1.00 per share prior to any  distribution
to the holders of the Company's  common stock.  As of June 30, 1998, the Company
has 100,000 shares of Series B Preferred Stock issued and outstanding.

In December  1997,  the Company's  former  directors  established  the Company's
Series C 8% Cumulative  Convertible Preferred Stock ("Series C Preferred Stock")
and  authorized  the  issuance of up to 500  shares.  Each share of the Series C
Preferred  Stock is entitled to a dividend at the rate of $.08 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  cumulate  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,  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. As of June 30,
1998, there were no shares of Series C Preferred Stock issued and outstanding.

For the years  ended June 30,  1998 and 1997,  the  Company  did not declare any
dividends payable.



<PAGE>



Note 12 - Stockholders' Equity (continued)

Warrants

In conjunction with the Company's  February,  1995 Public Offering,  the Company
issued 1,811,250 Series A Warrants and 1,811,250 Series B Warrants.  Every block
of five  Series A  warrants  entitles  the holder to  purchase  one share of the
Company's  Common Stock at a price of $ 35.00 per share until February 10, 1998.
Every block of five Series B warrants  entitles the holder to purchase one share
of the  Company's  Common  Stock for $ 45.00 per share until  February 10, 1998.
Under specific conditions, the Company may redeem both the Series A and Series B
Warrants. During the year ended June 30, 1998, these warrants expired.

Equity Transactions

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 $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 $.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.



<PAGE>



Note 12 - Stockholders' Equity (continued)

Equity Transactions (continued)

During the year ended June 30, 1998, the following equity transactions  occurred
(continued):

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 has 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).

During the year ended June 30, 1997, the following equity transactions occurred:

The Company  acquired a 10% minority  interest in Smartphone  valued at $200,000
for 100,000 shares of the Company's common stock (Note 5).

The Company acquired Link Technologies, Inc. and Subsidiaries for 168,539 shares
of the Company's common stock with a value of $600,000 (Note 17).
The Company issued 223,150 shares of the Company's  common stock for $927,978 of
professional services received.

The Company  issued  200,000  shares and  348,143  shares at $2.00 per share and
$2.80 per share in private placements,  respectively,  raising $1,176,640 net of
$198,160  in  offering  costs.  The Company  also  issued  25,000  shares to the
underwriter in connection with these offerings.

The Company  converted  $125,000  of  convertible  debt to 48,215  shares of the
Company's stock at rates ranging from $2.00 to $2.80 per share.

The Company  issued  options to purchase  62,500 shares of the Company's  Common
Stock  at  rates  ranging  from  $5.00  to  $7.00  per  share  in  exchange  for
professional  consulting  services.  $325,578 of expense has been  recognized at
imputed values ranging from $1.23 to $1.38 per option. These options expire from
August 2001 to December 2001.


<PAGE>



Note 12 - Stockholders' Equity (continued)

Equity Transactions (continued)

During the year ended June 30, 1997, the following equity transactions  occurred
(continued):

The Company  issued  options to purchase  77,313 shares of the Company's  common
stock at rates ranging from $4.00 to $10.00 per share in connection  with the 8%
convertible notes payable. These options have an imputed value of $353,686 based
on rates  ranging from $1.01 to $1.29.  The amount was recorded as deferred loan
costs and is being  amortized  over the life of the loans.  As of June 30, 1998,
$353,686 has been expensed. These options expire from May 2000 to July 2002.

Note 13 - Stock Splits

In March 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 14 - Significant Customers

As of June 30, 1998, a franchise and stockholder  accounts for $724,264 (89%) of
the franchise and customer deposits liability.

As of June 30, 1997, one corporation accounted for approximately $500,000 (100%)
of licensing revenue. One Corporation  accounted for $985,000 (79%) of equipment
and other  revenue.  Another  franchisee and  stockholder  accounts for $724,264
(85%) of the franchise and customer deposits.



<PAGE>



Note 15 - 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 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.  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.  They are managed separately because each
business requires different technology and marketing strategies.

Operating results and other financial data are presented for the four reportable
segments of the Company for the years ended June 30, 1998 and 1997.  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, 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 and goodwill.
Corporate assets are principally patents and other assets.


                                                                             
                Tele-               Automated     Medical    Corporate
               Communi-   Financial   Movie     Transaction    And     Consoli-
               cation    Processing  Rental     Processing     Other     dated

 June 30,1998:

 Net revenues $446,524  $ 147,533   $ 371,416  $ 15,478   $   -    $  980,951

 Cost of      $245,468  $ 128,133   $ 145,040  $  4,838  $    -    $  523,479
goods sold                                                                 

 Depreciation
  and         $245,700  $    -      $  94,058  $     -   $  34,614  $ 474,372
  amortization

 Segment
profit        $(44,644) $  19,400   $ 132,318  $ 10,640  $(134,614) $ 16,900)
  (loss)

 Identi-
fiable      $ 2,224,685  $467,962   $1,450,122 $1,058,714  $401,268 $5,602,751
  assets


<PAGE>




Note 15 - Business Segments (continued)
                Tele-               Automated     Medical    Corporate
               Communi-   Financial   Movie     Transaction    And     Consoli-
               cation    Processing  Rental     Processing     Other     dated

                                                             Medical
                   

 June 30, 1997:

 Net revenues $ 2,923,532  $   -     $    -     $    -     $     -   $2,923,532

 Cost of good $ 1,608,572  $   -     $    -     $    -     $     -   $1,608,572
  sold

 Depreciation
  and         $   190,612  $   -     $    -     $    -     $ 57,378  $ 247,990
  amortization

 Segment profit $1,124,348  $  -     $    -     $    -   $ (57,378) $1,066,970
  (loss)

 Identifiable  $ 5,069,232  $        $          $        $  474,941 $5,544,173
  assets


Note 16 - Commitments and Contingencies

Operating Leases

The  Company  leases  administrative   offices  and  warehouse  locations  under
noncancelable  operating  leases in  California,  Florida  and New  Jersey.  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, 1998 and 1997 was $113,275 and $101,039, respectively.

Future minimum lease commitments at June 30, 1998 are as follows:

        Year Ending June 30,

              1999                                       $  287,000
              2000                                          238,000
              2001                                          236,000
              2002                                          192,000
              2003                                          119,000
              Thereafter                                    105,000

                                                         $1,177,000



<PAGE>



Note 16 - Commitments and Contingencies (continued)

Employment Agreements

The Company has entered into two year  employment  agreements  with its two most
senior  officers.  The agreements  entitle the officers to an annual salary of $
144,000 and $ 120,000,  respectively and options to purchase 560,500 and 457,000
shares of the  Company's  common  stock,  respectively.  The options have stated
exercise  prices  of $1.50  per share  and are  exercisable  until May 2003.  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.

Additionally, the Company has entered into three year employment agreements with
another officer and three key employees.  These agreements  amount to a total of
$259,000 in base  compensation.  In  connection  with these  agreements,  43,274
shares of the Company's common stock and options to purchase up to 44,000 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.  Two of the  agreements  entitle the
individual  to  additional  compensation  of $ 92.50  for each  POS  transaction
automation terminal placed in service or sold.

Royalty Agreement

The Company has entered into an agreement  with Telemac,  Inc., the developer of
the software for real time billing.  This agreement  provides for the Company to
pay Telemac 7% of gross receipts based on cellular telephone rentals.

Additionally, the Company has an agreement with an individual requiring payments
based  upon the net  profits of Cellex  Communications,  Inc.  (Cellex).  20% of
Cellex's net profits are to be remitted to this individual pursuant to the terms
of the  agreement.  As of June 30, 1998,  Cellex has remitted  $22,818 in profit
participation payments to this individual.  Effective December 1997, the Company
discontinued the operations of Cellex (Note 18).


<PAGE>



Note 16 - Commitments and Contingencies (continued)

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,  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.  As of June 30, 1998, $ 20,000 remained  payable pursuant
to the  terms  of  one  of  the  consulting  agreements.  No  other  outstanding
obligations  existed as of June 30, 1998  pursuant to the terms of the remaining
consulting agreements.

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. The Company has the $50,000
liability accrued in accounts payable at June 30, 1998.

During  February  1998,  the Company  reached a settlement  with a former master
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. As
of June 30,  1998,  the  remaining  cash  payment  due of $90,000 is recorded in
accrued expenses.

Additionally,  a  franchisee  has  demanded  that  the  Company  repurchase  his
franchises  for  approximately  $1,000,000 or a suit for breach of the franchise
agreement  will be filed.  The Company is  currently  attempting  to negotiate a
settlement and has approximately $724,000 accrued relating to this obligation.

The Company is also involved in various claims and legal actions  arising in the
ordinary  course  of  business.  In the  opinion  of  management,  the  ultimate
disposition  of these  matters  will not have a material  adverse  effect on the
Company's financial position, results of operations, or liquidity.


<PAGE>



Note 17 - Statements of Cash Flows

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.

During the fiscal year ended June 30, 1997:

The Company bought back franchisees by entering into debt  obligations  totaling
$135,000 and $147,000, respectively, equal amounts of inventory and other assets
were received by the Company.

The  Company  issued  100,000  shares of  common  stock  for a 10%  interest  in
Smartphone  which was  valued at  $200,000.  The  Company  converted  an account
receivable to a note receivable in the amount of $150,000.

The Company  acquired Link  Technologies,  Inc.,  and  Subsidiaries  for 168,539
shares of common stock, with a value of $600,000.

The Company acquired fixed assets of $45,535 through a capital lease.

The Company converted  $125,000 of convertible notes payable to 48,215 shares of
common stock.

The Company purchased  $30,600 of prepaid calling card dispensing  machines from
officers of the Company and was recorded as a notes payable to officers.



<PAGE>



Note 17 - Statements of Cash Flows (continued)

During the fiscal year ended June 30, 1997 (continued):

The Company  issued stock  options to  individuals  as an  inducement to provide
financing  pursuant  to the 8%  convertible  notes  payable.  The options had an
imputed value of $353,686.  As of June 30, 1997,  $178,185 has been amortized to
expense with the remaining $175,501 recorded as deferred loan costs and included
in prepaids and other current assets (Note 12).

Note 18 - 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
and has no material remaining assets or liabilities. For the year ended June 30,
1997,  there was no loss on the  disposal of the  segment  and the  discontinued
operations resulted in a loss of $63,737. The prior year statement of operations
has been reclassified to present the operating results of Cellex Communications,
Inc. as a  discontinued  operation with income from  discontinued  operations of
$553,731 for the year ended June 30, 1997.

Note 19 - Subsequent Event

In July 1998, the Company issued  1,402,500  shares of its common stock at $1.00
per share raising $1,172,125 net of $230,375 in offering related expenses.




<PAGE>


3









                                    November 6, 1996




Mr. William T. Hart
Hart & Trinen
1624 Washington
Denver, Colorado 80203

Dear Mr. Hart:

Please  find  enclosed  1  unbound  copy of the  financial  statements  for SIMS
Communications,  Inc. and Subsidiaries for June 30, 1996. I have also enclosed a
disk of the financial  statements.  The document is entitled  FS9606.doc  and is
done in Microsoft Word 7.0.

If you have any questions regarding the format of the document, please feel free
to call to Anne Baumann. Thank you.

                                    Sincerely,



                                    Robert B. Hottman
                                    Ehrhardt Keefe Steiner & Hottman PC

RBH/acb
Enclosures



<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 25th day of September, 1998.

                                  SIMS COMMUNICATIONS, INC.

                                  By /s/ Mark Bennett
                                     -----------------------------
                                      Mark Bennett, President

                                  By/s/ Bruce Schames
                                     =-----------------------------   
                                     Bruce Schames,  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          September 25, 1998

 /s/ Michael Malet
---------------------
Michael Malet                       Director          September 25, 1998

------------------------
Chet Howard                         Director          September __, 1998

------------------------
George Pursglove                    Director          September __, 1998

 /s/ Cornelia Eldridge
-----------------------
Cornelia Eldridge                   Director          September 25, 1998




<PAGE>
















                              FORM 10-KSB

                               (EXHIBITS)

                       SIMS Communications, Inc.
                        18001 Cowan, Suites C&D
                            Irvine, CA 92614