Page 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
-----------
(Mark One)
__X__ Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2001
____ Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period from ______________ to _______________
Commission file number: 1-11686
CYCOMM INTERNATIONAL INC.
(Exact name of small business issuer as specified in its charter)
Wyoming 54-1779046
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1420 Springhill Road, Suite 420
McLean, Virginia 22102
(Address of principal executive offices)
(703) 903-9548
(Registrant's telephone number, including area code)
Check whether the issuer (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. Yes x No ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes___ No___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of August 1, 2001, the Registrant had 47,845,425 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format: Yes No X
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
PART I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets................. 3
Condensed Consolidated Statements of Operations....... 4
Condensed Consolidated Statements of Cash Flows....... 5
Condensed Consolidated Statement of Stockholders' Equity 6
Notes to Condensed Consolidated Financial Statements.. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation.............................. 12
PART II - Other Information
Item 1. Legal Proceedings..................................... 14
Item 2. Changes in Securities................................. 14
Item 3. Default Upon Senior Securities........................ 14
Item 4. Submission of Matters to a Vote of Security Holders... 14
Item 5. Other Information..................................... 15
Item 6. Exhibits and Reports on Form 8-K...................... 15
Signatures ...................................................... 16
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
June 30, December 31,
2001 2000
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $176,641 $301,110
Accounts receivable, less allowance for doubtful
accounts of $70,000 and $50,000, respectively 343,581 522,119
Inventories, net of allowance for obsolete
inventory of $152,000 and $127,000, respectively 1,300,428 1,607,059
Deposits with suppliers --- 283,449
Foreign taxes receivable 230,207 96,948
Prepaid expenses 44,931 78,192
Other current assets 6,265 14,520
--------- -----------
Total current assets 2,102,053 2,903,397
Fixed assets, net
205,543 227,728
---------- ----------
$2,307,596 $3,131,125
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable- trade $1,037,743 $1,396,182
Accrued liabilities 1,104,918 1,296,382
Acquisition earn-out obligation 300,000 300,000
Dividends payable on preferred stock 33,425 28,466
Current portion of capital lease obligations 9,583 8,718
Revolving credit facility 426,912 675,520
--------- ---------
Total current liabilities 2,912,581 3,705,268
Capital lease obligations, less current portion 23,129 25,127
Stockholders' equity:
Convertible Preferred Stock, $50,000 par value,
unlimited authorized shares, 4 and 11 shares
issued and outstanding at June 30, 2001 and
December 31, 2000, respectively 207,682 560,500
Common Stock, no par value, unlimited authorized
shares, 47,070,119 and 34,145,982 shares issued,
and 43,070,119 and 30,145,982 outstanding at
June 30, 2001 and December 31, 2000, respectively 66,238,598 63,653,477
Notes receivable - stockholders (68,570) (66,714)
Accumulated deficit (67,005,824) (64,746,533)
----------- -----------
Total stockholders' equity (628,114) (599,270)
----------- -----------
$2,307,596 $3,131,125
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED JUNE 30, 2001 AND JUNE 30, 2000 (UNAUDITED)
Three Months Six Months
Ended Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
----- ----- ----- ----
Sales $576,943 $1,415,746 $1,877,473 $2,712,994
Cost of sales 683,595 866,902 1,715,866 1,971,646
-------- ------- --------- ---------
Gross profit (106,652) 548,844 161,607 741,348
Expenses
Selling, general and
administrative 805,761 947,453 1,951,358 1,766,185
Research and product
development 196,873 180,780 440,010 374,642
Depreciation and
amortization 18,998 11,856 38,325 32,716
--------- --------- --------- ---------
1,021,632 1,140,089 2,429,693 2,173,543
--------- --------- --------- ---------
Loss from Operations (1,128,284) (591,245) (2,268,086) (1,432,195)
Other Income (Expense)
Interest income 1,890 10,985 6,345 30,045
Interest expense (86,428) (94,771) (212,331) (208,542)
Other income 69,742 4,585 219,792 4,585
------- ------- ------- --------
(14,796) (79,201) 13,806 (173,912)
------- ------- ------- --------
Loss from continuing
operations $(1,143,080) $(670,446) $(2,254,280) $(1,606,107)
=========== ========= =========== ===========
Discontinued operations:
Gain on dissolution of
discontinued operation:
Cycomm Secure
Solutions, Inc. --- 1,119,273 --- 1,119,273
---------- --------- ---------- ---------
Net income (loss) (1,143,080) 448,827 (2,254,280) (486,834)
========== ========= ========== =========
Beneficial return on
preferred shares --- --- (162,500) ---
Net income (loss)
attributable to common
stockholders $(1,143,080) $448,827 $(2,416,780) $(486,834)
=========== ======== =========== =========
Earnings Per Share: Basic
Loss per share from
continuing operations $(0.03) ($0.03) ($0.06) ($0.07)
Income per share on
dissolution of
discontinued operation:
Cycomm Secure
Solutions, Inc. --- $0.04 --- $0.05
Net loss per share attributable
to beneficial return on
preferred shares --- --- $0.00 ---
------ ----- ------ ------
Net income (loss) per share
attributable to common
shareholders $(0.03) $0.02 $(0.06) $(0.02)
====== ===== ====== ======
Earnings Per Share: Diluted
Loss per share from
continuing operations $(0.03) ($0.02) ($0.06) ($0.07)
Income per share on
dissolution of
discontinued operation:
Cycomm Secure Solutions,
Inc. --- $0.03 --- $0.05
Net loss per share
attributable to beneficial
return on preferred shares --- --- $0.00 ---
------ ----- ------ ------
Net income (loss) per share
attributable to common
shareholders $(0.03) $0.01 $(0.06) $(0.02)
====== ===== ====== ======
Shares used in computing
earnings per share:
Basic 41,637,890 25,876,013 38,614,315 23,807,869
========== ========== ========== ==========
Diluted 41,637,890 33,960,963 38,614,315 23,807,869
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED JUNE 30, 2001 AND JUNE 30, 2000
(Unaudited)
Six Months Ended
June 30, June 30,
2001 2000
----- ----
Operating activities
Net loss from continuing operations $(2,254,280) $(1,606,107)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 38,825 55,120
Change in operating assets and
liabilities 196,872 (1,675,084)
---------- ----------
Cash used in operating activities (2,018,583) (3,226,071)
---------- ----------
Investing activities
Acquisition of fixed assets (13,621) (22,235)
------- -------
Cash used in investing activities (13,621) (22,235)
------- -------
Financing activities
Issuance of common stock 1,548,995 4,140,000
Issuance of preferred stock 611,500 ---
Exercise of stock options --- 74,999
Net repayments under revolving credit
facility (248,608) (362,117)
Repayment of obligations under capital
leases (4,152) (1,130)
--------- ---------
Cash provided by financing activities 1,907,735 3,851,752
--------- ---------
(Decrease) increase in cash and cash
equivalents during the period (124,469) 603,446
Cash and cash equivalents, beginning of
period 301,110 22,867
-------- --------
Cash and cash equivalents, end of period $176,641 $626,313
======== ========
Supplemental cash flow information:
Interest paid $108,088 $ 264,573
Income taxes paid $ --- $ ---
Non-cash investing and financing
activities:
Conversion of convertible debentures to
common stock --- $517,452
Conversion of preferred stock to common
stock $1,019,308 $2,226,098
Conversion of convertible debentures to
preferred stock --- $3,000,000
Issuance of common stock in settlement
of interest due $ 52,500 ---
See accompanying notes to condensed consolidated financial statements.
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE UNAUDITED PERIOD ENDED JUNE 30, 2001
AND THE YEAR ENDED DECEMBER 31, 2000
Preferred Preferred Common Common Accumulated
Shares Stock Shares Stock Deficit
Balance,
December 31, 1999 7 $296,250 16,807,696 $54,315,402 $(60,644,958)
==== ======== ========= =========== ============
Net Loss --- --- --- --- (4,023,822)
Issuance of
common stock:
Sale of
common stock --- --- 9,400,000 5,290,000 ---
Shares issued
in settlement
of vendor
obligation --- --- 194,283 84,012 ---
Shares issued
in settlement
of obligation
of acquisition
earn-out --- --- 400,000 200,000 ---
Conversion of
debenture
into common
stock --- --- 1,034,904 517,452 ---
Exercise of
stock
options and
warrants --- --- 345,833 74,999 ---
Issuance of
preferred
stock:
Conversion of
debentures
into Series
E preferred
stock 30 3,000,000 --- --- ---
Issuance -
Series F
preferred
stock 9 353,000 --- --- ---
Conversion of
preferred
stock (35) (3,206,250) 1,963,266 3,289,112 ---
Beneficial
conversion
rights on
preferred
stock --- 117,500 --- (117,500) ---
Dividends on
preferred
stock --- --- --- --- (77,753)
----- ----- ----- ----- -------
Balance,
December 31,
2000 11 $560,500 30,145,982 $63,653,477 $(64,746,533)
===== ======== ========== =========== ============
Net Loss (2,254,280)
Issuance of
common stock:
Sale of
common stock --- --- 7,298,739 1,548,995 ---
Shares issued
in settlement
of interest
due --- --- 300,000 52,500 ---
Issuance of
preferred
stock:
Issuance -
Series F
preferred
stock 13 611,500 --- --- ---
Conversion
of preferred
stock (20) (876,818) 5,325,398 896,126
Beneficial
conversion
rights on
preferred
stock --- (87,500) --- 87,500 ---
Dividends on
preferred
stock --- --- --- --- (2,466)
----- ----- ----- ----- -------
Balance,
June 30,
2001 4 $207,682 43,070,119 $66,238,598 $(67,005,824)
===== ======== ========== =========== ============
See accompanying notes to condensed consolidated financial statements.
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2001
NOTE 1: GENERAL
The interim financial information furnished herein was prepared from the books
and records of Cycomm International Inc. and its subsidiaries ("Cycomm") as of
June 30, 2001 and for the periods ended June 30, 2001 and 2000, without audit;
however, such information reflects all normal and recurring accruals and
adjustments which are, in the opinion of management, necessary for a fair
presentation of financial position and of the statements of operations and cash
flows for the interim period presented. The interim financial information
furnished herein should be read in conjunction with the consolidated financial
statements included in this report and the consolidated financial statements and
notes contained in Cycomm's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2000. The interim financial information presented is not
necessarily indicative of the results from operations expected for the full
fiscal year.
Our Annual Report on Form 10-KSB was prepared on a going concern basis which
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. We incurred a net loss from
continuing operations of $5.1 million for the year ended December 31, 2000 and
as of that date had a working capital deficit of approximately $800,000 and an
accumulated deficit of $64.7 million. In the quarter ended June 30, 2001, we
incurred a net loss of approximately $1.1 million, had a working capital deficit
of approximately $810,000, and an accumulated deficit of $67.0 million. Further,
borrowings on our revolving line of credit were in excess of amounts available
as of December 31, 2000 and June 30, 2001, causing us to be out of compliance
with our credit terms. As a result, our auditors have modified their report on
Cycomm's annual report on form 10-KSB to include an explanatory paragraph
regarding the Company's ability to continue as a going concern.
Management has taken several steps towards addressing the going concern issue.
We have expanded our sales force from two regional sales representatives and one
inside sales person, to four regional sales representatives, four inside sales
people, a vice president of sales and a manager of new business development. We
have increased our attendance at industry trade shows and increased our
marketing. In the quarter ended June 30, 2001, we continued to aggressively
pursue sales through trade shows, direct sales efforts and expansion of our
reseller distribution channels.
We have raised additional capital, which was used to fund operations, including
the growth of our sales force. Looking forward, Cycomm intends to grow its
PCMobile division by implementing plans to increase market share and revenue. We
plan to fund operations through working capital, borrowings on our secured line
of credit and through private equity placements.
Cycomm has historically been able to raise capital through private equity
placements and debenture issuances. During 2000, we raised $5,718,000 in private
equity placements. In the quarter ended June 30, 2001, Cycomm raised $1,398,980
in private equity placements (See Note 7: Capital Stock for further detail).
These interim financial statements do not give effect to any adjustments which
would be necessary should Cycomm be unable to continue as a going concern and
therefore be required to realize its assets and discharge its liabilities in
other than the normal course of business and at amounts different from those
reflected in the accompanying consolidated financial statements. In the event
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that Cycomm is unable to achieve its plans to fund operations, Cycomm will
consider further cost reductions, pursue the sale of all or part of its
business, or restructure its business under the United States Bankruptcy Code.
NOTE 2: EARNINGS PER SHARE
The Financial Accounting Standards Board's Statement No. 128, "Earnings per
Share", requires companies to report basic earnings per share (EPS) and diluted
EPS. Basic EPS is calculated by dividing net earnings by the weighted average
number of common shares outstanding during the year. Diluted EPS is calculated
by dividing net earnings by the weighted average number of common shares
outstanding during the year plus the incremental shares that would have been
outstanding upon the assumed exercise of eligible stock options, warrants and
the conversion of certain debenture issues. Included in EPS for the six months
ended June 30, 2001 is a charge of $162,500 related to the beneficial conversion
feature of Cycomm's convertible preferred stock. Included in EPS for the periods
ended June 30, 2000 is a gain on Cycomm's dissolution of its Cycomm Secure
Solutions, Inc. subsidiary (see Note 3: Discontinued Operations).
NOTE 3: DISCONTINUED OPERATIONS
On June 21, 1999, Cycomm completed the sale of the assets of its Cycomm Secure
Solutions Inc. ("CSS") subsidiary. The assets sold included inventory, fixed
assets and various intangibles and other assets and had a carrying value of
$2,333,779 as of June 21, 1999. Proceeds on the sale of CSS' assets were used to
repay a portion of CSS' bank debt and to satisfy CSS' lease and property tax
obligations. Cycomm recognized a net loss on disposal of $1,535,643 on the sale
of CSS' assets. Included in the 1999 net loss is a gain of $278,297 on the
settlement of an operating lease obligation.
On June 29, 2000, Cycomm completed the legal dissolution of its CSS subsidiary.
As a result of the dissolution, Cycomm is not entitled to receive any assets
generated in the future by CSS, and is not liable for any present or future
unsatisfied claims of CSS' creditors. Cycomm recognized a gain of $1,119,273
related to the dissolution of CSS.
NOTE 4: ACQUISITION EARN-OUT
In connection with the purchase price paid for Cycomm's acquisition of its
Cycomm Mobile Solutions subsidiary in 1996, Cycomm entered into an acquisition
earn-out agreement with the seller, M3i Technologies Inc. and M3i Systems Inc.
(collectively the "Seller"). The earn-out provision of the purchase price was to
be paid in Cycomm common stock, up to a maximum value of $4,000,000, subject to
provisions based on the achievement of certain unit sales volumes for a five
year period. Common stock issued under the earn-out provisions was to be issued
at the average current market price of the last month for the quarter in which
it was earned. As of June 30, 2001, Cycomm had paid $1,354,796 of contingent
consideration, which was paid in 444,862 shares of common stock.
Cycomm and the Seller were parties to a lawsuit regarding the interpretation of
the earn-out agreement. On May 24, 1999, Cycomm and the Seller entered into a
complete settlement of the litigation. As of June 30, 2001, Cycomm has paid the
Seller $400,000. The settlement was amended to allow Cycomm until September 30,
2001 to pay the Seller $300,000 in full settlement of the obligation. If Cycomm
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does not satisfy the obligation by September 30, 2001, Cycomm will be obligated
to pay $1.1 million to the Seller by April 30, 2002. Cycomm has an accrued
liability of $300,000 as of June 30, 2001 related to this obligation.
In conjunction with the 1999 settlement and subsequent amendments, Cycomm issued
200,000 warrants to the Seller with a fair value on the date of issuance of
$88,000. It was considered part of the purchase price and subsequently written
off in conjunction with goodwill impairment charge. Additionally, in
consideration of the subsequent amendments to the settlement agreement, Cycomm
has agreed to issue 200,000 shares of common stock to the Seller.
NOTE 5: INVENTORIES
The following is a summary of inventories at June 30, 2001 and December 31,
2000:
June 30, December 31,
2001 2000
----- ----
Raw materials $1,071,665 $1,376,206
Work in process and sub-assemblies 378,841 133,106
Finished goods 2,043 224,974
Allowance for obsolete inventory (152,121) (127,227)
--------- ---------
$1,300,428 $1,607,059
========== ==========
Cycomm continually evaluates inventory for obsolescence or impairment in value.
The impairment loss is measured by comparing the carrying amount of the
inventory to its fair value with any excess of carrying value over fair value
reserved. Fair value is based on market prices where available, or on an
estimate of market value, or determined by various valuation techniques
including discounted cash flow.
NOTE 6: DEFERRED REVENUE
Cycomm recorded deferred revenue related to sales in which customers were
shipped PCMobiles with 586 processors (the "586s") to be used until PCMobiles
with Pentium processors (the "Pentiums") became available. At the time the
shipments were made, Cycomm was still in the process of developing the Pentium
PCMobile, however the customers agreed to take 586s until Cycomm was able to
deliver Pentiums. The customers paid the full price for Pentiums at the time of
the shipment, which was recorded as deferred revenue. When the Pentiums became
available, the customers could trade in the 586s for Pentiums at no additional
charge. The customers retained the right to return the 586s at any time before
they received the Pentiums. Upon the return of the 586s, the customers would be
entitled to a full refund, and the entire sale would be cancelled.
Revenue on the sales was recognized when the Pentium units were shipped to the
customers. As of December 31, 2000, Cycomm had completed the shipments of
Pentium units to customers, or had received waivers from customers in which they
forfeited their right to exchange 586's for Pentium units. For the six months
ended June 30, 2000, Cycomm recognized revenue of $766,341 related to the
shipment of Pentium units to customers in exchange for the 586 units.
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NOTE 7: CAPITAL STOCK
Common Stock
On March 1, 2001, Cycomm raised capital through a private equity placement of
its common stock. The stock was issued at a discount to the market price on the
date of the issuance. In total, Cycomm issued 672,268 shares of common stock for
cash proceeds of $150,015.
On March 14, 2001, Cycomm issued 300,000 shares of its common stock in full
satisfaction of $52,500 in accrued interest due on Cycomm's $3,000,000 10%
convertible debentures. This amount represented unpaid interest for the period
of January 1, 2000 through March 31, 2000.
On April 12, 2001, Cycomm raised capital through a private equity placement of
its common stock. The stock was issued at a discount to the market price on the
date of the issuance. In total, Cycomm issued 1,000,000 shares of common stock
for cash proceeds of $250,000.
In the period from May 11, 2001 through June 29, 2001, Cycomm raised capital
through a series of related private equity placements of its common stock. The
stock was issued to a group of investors at a discount to the market price on
the date of issuance. In total, Cycomm issued 2,450,000 shares of common stock
for cash proceeds of $469,000.
On May 15, 2001, Cycomm raised capital through a private equity placement of its
common stock. The stock was issued at a discount to the market price on the date
of the issuance. In total, Cycomm issued 2,000,000 shares of common stock for
cash proceeds of $497,980.
On June 29, 2001, Cycomm raised capital through a private equity placement of
its common stock. The stock was issued at a discount to the market price on the
date of the issuance. In total, Cycomm issued 1,176,471 shares of common stock
for cash proceeds of $182,000.
Preferred Stock
On January 5, 2001, Cycomm issued 6 shares of Series F convertible preferred
stock ("Series F preferred stock") for gross proceeds of $300,000. On January
23, 2001, Cycomm issued 7 shares of Series F preferred stock for gross proceeds
of $350,000. Net proceeds, after issuance costs for these transactions totaled
$611,500. In connection with the issuance of the Series F preferred stock,
4,000,000 shares of Cycomm's common stock were placed in an escrow account to be
available upon conversion of the Series F preferred stock. The Series F
preferred stock was convertible at the option of the holder into Cycomm common
stock. The Series F preferred stock had no voting rights. In the event of
liquidation of the Company, the Series F preferred stock had preferences
entitling the holders to the original face value of outstanding shares, plus
interest at 8% per annum. The conversion price was the lesser of $0.32, or a 25%
discount of the three-day average closing bid price prior to the date of
conversion. The shares had beneficial conversion rights of $162,500 on the date
of issuance.
As of June 30, 2001, 20 shares of Series F preferred stock and related accrued
interest had been converted into 5,325,398 shares of common stock. Subsequent to
June 30, 2001, the remaining 2 shares of Series F preferred stock and related
accrued interest were converted into 600,306 shares of common stock (See Note 9:
Subsequent Events).
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As of June 30, 2001, 2 shares of Series B preferred stock are outstanding. The
Series B preferred stock was issued on February 26, 1998. It is convertible at
the option of the holder into Cycomm common stock. The conversion price is the
lesser of $2.38 or a 15% discount to the five-day average closing bid price
prior to the date of conversion. If the stock is trading at or below $1.50 per
share at the conversion date, Cycomm has the right to redeem the Series B
preferred shares at a premium of 18% over the conversion price. The Series B
preferred stock has no voting rights. In the event of liquidation of the
Company, the Series B preferred stock has preferences entitling the holders to
the original face value of outstanding shares, plus accrued dividends.
NOTE 8: SEGMENT AND RELATED INFORMATION
Cycomm has one reporting segment, which sells wireless rugged computing products
and peripherals. Geographic region data on sales and the location of
identifiable assets is provided in the tables below.
Quarters Ended Six Months Ended
-------------- ----------------
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
----- ----- ----- ----
Geographic Region Data
Sales
United States $ 557,464 $1,400,574 $1,838,805 $2,348,364
Canada 19,479 15,172 38,668 364,630
$ 576,943 $1,415,746 $1,877,473 $2,712,994
========= ========== ========== ==========
Loss from Operations
United States $ 689,060 $ 24,601 $1,473,713 $1,000,686
Canada 439,224 566,644 794,373 431,509
---------- --------- ---------- ----------
$1,128,284 $ 591,245 $2,268,086 $1,432,195
========== ========= ========== ==========
Identifiable Assets June 30, December 31,
2001 2000
United States $ 861,986 $1,175,833
Canada 1,445,610 1,955,292
=========== ==========
$2,307,596 $3,131,125
========== ==========
NOTE 9: SUBSEQUENT EVENTS
On July 10, 2001, 1 share of Series F preferred stock and related accrued
interest was converted into 301,799 shares of common stock. On July 17, 2001, 1
share of Series F preferred stock and related accrued interest was converted
into 298,507 shares of common stock.
In the period from July 2, 2001 through August 2, 2001, Cycomm raised capital
through a series of related private equity placements of its common stock. The
stock was issued to a group of investors at a discount to the market price on
the date of issuance. In total, Cycomm issued 290,000 shares of common stock for
cash proceeds of $51,737.
Page 12
On August 1, 2001, Cycomm raised capital through a private equity placement of
its common stock. The stock was issued at a discount to the market price on the
date of issuance. In total, Cycomm issued 1,000,000 shares of common stock for
cash proceeds of $135,000.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Results of Continuing Operations
Quarters Ended June 30, 2001 and June 30, 2000
Revenues for the quarter ended June 30, 2001 were $576,943 as compared to
revenues of $1,415,746 for the quarter ended June 30, 2000. This decrease is a
result of delays caused by a change order from our largest customer, causing
PCMobile shipments scheduled for the month of June to be delivered in July. The
decrease is also the result of the recognition of $581,134 of deferred revenue
in the quarter ended June 30, 2000.
Cost of sales for the quarter ended June 30, 2000 were $683,595 as compared to
cost of sales of $866,902 for the prior period. Gross margins for the quarter
ended June 30, 2001 were (18%), as compared to 39% in the quarter ended June 30,
2000. The decrease in gross margins is a result of two primary factors. Lower
sales volumes in the quarter ended June 30, 2001 caused unfavorable overhead
variances, which caused margins to decrease significantly. Cycomm had ramped up
production for June shipments, however the customer change order described above
caused production to be delayed until July. The other primary reason behind the
change in gross margins was the recognition of deferred revenue in the quarter
ended June 30, 2000 (See Note 5: Deferred Revenue). Cycomm recognized $581,134
in deferred revenue in the quarter ended June 30, 2000, while the corresponding
cost of sales for these revenues were recognized during 1999. This caused gross
margins to be higher in the quarter ended June 30, 2000.
Operating expenses decreased to $1,021,632 for the quarter ended June 30, 2001
as compared to $1,140,089 in the quarter ended June 30, 2000. Selling, general
and administrative expenses decreased $128,555 to $805,761 for the current
quarter. This decrease is a result of reductions made to accounting and
consulting fees, decreases in shareholder relations fee, and general cost
savings. Research and development costs were $196,873 for the quarter ended June
30, 2001, as compared to $180,780 in the quarter ended June 30, 1999. Current
quarter R&D efforts involved final testing of the Pentium III PCMobiles and dual
USB docking stations. Depreciation and amortization increased to $18,998 for the
quarter ended June 30, 2001 as compared to $11,856 in the quarter ended June 30,
2000 as a result of the acquisition of fixed assets.
Interest expense for the quarter ended June 30, 2001 was $86,428 as compared to
$94,771 for the quarter ended June 30, 2000. The decrease is the result of the
renegotiation of the terms of Cycomm's revolving credit facility. Prior to May
2001, Cycomm was paying interest of prime + 3% on a minimum average loan balance
of $2,000,000. As of May 1, 2001, Cycomm began paying prime + 3% on a minimum
loan balance of $1,000,000. The decrease in interest charges paid on the
revolving line of credit were partially offset by an increase in finance changes
paid to one of Cycomm's key suppliers in the quarter ended June 30, 2001, as
compared to finance charges paid to this supplier in the quarter ended June 30,
2000.
Page 13
Other income for the quarter ended June 30, 2001 was $69,742 as compared to
$4,585 in the previous quarter. Included in other income for the quarter ended
June 30, 2001 is a gain of $70,940 on the settlement of a vendor obligation,
offset by miscellaneous expenses.
Cycomm legally dissolved its Cycomm Secure Solutions ("CSS") subsidiary in the
quarter ended June 30, 2000. As a result of the dissolution, Cycomm eliminated
CSS' liabilities and recognized a gain of $1,119,273, or $0.04 per share, for
the quarter ended June 30, 2000.
Six Months Ended June 30, 2001 and June 30, 2000
Revenues for the six months ended June 30, 2001 were $1,877,473 as compared to
revenues of $2,712,994 for the six months ended June 30, 2000. The decrease in
sales is primarily the result of delays caused by a change order from our
largest customer, causing PCMobile shipments scheduled for the month of June to
be delivered in July. The decrease is also the result of recognition of $766,341
in deferred revenue (See Note 5: Deferred Revenue) in the six months ended June
30, 2000.
Cost of sales for the six months ended June 30, 2000 were $1,715,866 as compared
to cost of sales of $1,971,646 for the six months ended June 30, 1999. Gross
margins for the six months ended June 30, 2001 were 9%, which represents a
decrease from 27% in the prior period. The decrease in gross margins is a result
of lower sales volumes in the six months ended June 30, 2001, and the
recognition of $766,341 in deferred revenue (See Note 5: Deferred Revenue) in
the six months ended June 30, 2000, while the corresponding cost of sales was
recognized during 1999.
Operating expenses increased to $2,429,693 for the six months ended June 30,
2001 as compared to $2,173,543 in the prior period. Selling, general and
administrative expenses increased $185,173 to $1,951,358 for the six months
ended June 30, 2001. This increase is mainly the result of the expansion of
Cycomm's sales force from 4 people in the six months ended June 30, 2000 to 10
people in the six months ended June 30, 2001. Research and development costs
increased to $440,010 as compared to $374,642 in the prior period. Cycomm
increased its R&D expenditures in order to accelerate the release of the Pentium
III PCMobile and docking stations with dual USB ports. Depreciation and
amortization increased to $38,325 for the six months ended June 30, 2001 as
compared to $32,716 in the prior period.
Interest expense for the six months ended June 30, 2001 was $212,331 as compared
to $208,542 for the prior period. The increase is the result of finance charges
paid to one of Cycomm's key suppliers in the six months ended June 30, 2001, as
compared to finance charges paid to this supplier in the six months ended June
30, 2000. This was partially offset by a decrease in interest paid on Cycomm's
revolving credit facility resulting from the renegotiation of credit terms.
Prior to May 2001, Cycomm was paying interest of prime + 3% on a minimum average
loan balance of $2,000,000. As of May 1, 2001, Cycomm began paying prime + 3% on
a minimum loan balance of $1,000,000.
Cycomm legally dissolved its Cycomm Secure Solutions ("CSS") subsidiary in the
six months ended June 30, 2000. As a result of the dissolution, Cycomm
eliminated CSS' liabilities and recognized a gain of $1,119,273, or $0.05 per
share, for the six months ended June 30, 2000.
Page 14
Liquidity and Capital Resources
Cycomm has satisfied working capital requirements through cash on hand,
available lines of credit and various equity related financings. At June 30,
2001, Cycomm had cash and cash equivalents of $176,641.
In the six months ended June 30, 2000, cash used in operations was $2,018,583,
largely due to Cycomm's net loss from continuing operations of $2,254,280.
Accounts receivable decreased by $178,538, inventories decreased by $306,631 and
a vendor deposit was reduced by $283,449, but these sources of cash were offset
by decreases in trade accounts payable of $358,439 and accrued liabilities of
$191,464. Cash used in investing activities in the six months ended June 30,
2001 totaled $13,621. Cash provided by financing activities was $1,907,735 for
the six months ended June 30, 2001. Cycomm completed a series of private
placements of its common stock for net proceeds of $1,548,995, and completed a
private placement of Series F preferred stock for net proceeds of $611,500.
Cycomm decreased the amounts drawn on its revolving line of credit by $248,608
during the six months ended June 30, 2001.
Cycomm's net working capital at June 30, 2001 was ($810,528) as compared to
($801,871) at December 31, 2000. In the six months ended June 30, 2001, Cycomm's
current assets decreased by $801,344, and current liabilities decreased by
$792,687. Accounts receivable and inventory decreased as a result of lower sales
volumes in the six months ended June 30, 2001. The balance of Cycomm's revolving
credit facility, which is collateralized by accounts receivable and inventory,
decreased as a result of decreases in these assets. The decrease in accounts
payable is primarily the result of a supplier applying a $283,449 deposit
against outstanding payables, and the recognition of $70,940 from the settlement
of a vendor obligation.
As of June 30, 2001, Cycomm's borrowings on its revolving line of credit were in
excess of amounts available, causing Cycomm to be out of compliance with its
credit terms. As of August 14, 2001, Cycomm was in compliance with the credit
terms of its revolving line of credit.
Cycomm's auditors modified their report on Cycomm's annual report on form 10-KSB
to include an explanatory paragraph regarding the Company's ability to continue
as a going concern. Management is addressing the going concern issue with
several actions, including expanding its sales force, adding resellers,
evaluating potential acquisitions and strategic partnerships, and further
capitalizing the Company through borrowings and private equity placements.
Page 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 24, 1999, Cycomm entered into a settlement agreement with the trustee in
bankruptcy of M3i Technologies, Inc., a Quebec corporation (the "Seller").
Cycomm was the defendant in a case alleging breach of contract and
misrepresentation in connection with the "earn out" provision of the asset
purchase agreement in the Cycomm's purchase of its Cycomm Mobile Solutions
subsidiary. As of June 30, 2001, Cycomm has paid the Seller $400,000. The
settlement was amended to allow Cycomm until September 30, 2001 to pay the
Seller $300,000 in full settlement of the obligation. If Cycomm does not satisfy
the obligation by September 30, 2001, Cycomm will be obligated to pay $1.1
million to the Seller by April 30, 2002. Cycomm has an accrued liability of
$300,000 as of June 30, 2001 related to this obligation.
On June 15, 1999, Cycomm entered into a settlement agreement with Infotech
International, a Florida corporation involved in the resale of Cycomm's PCMobile
computers. Cycomm was the plaintiff in a case alleging breach of contract and
conversion of funds. Cycomm agreed to a payment plan in which Infotech would pay
$592,959 plus interest and costs according to a fixed schedule prior to
September 15, 2000. Infotech paid $110,000 to Cycomm before defaulting on the
payment schedule. Infotech subsequently merged with another company to form
MobileTec International. On March 6, 2001, Cycomm agreed to a new settlement in
which MobileTec paid Cycomm $150,000 in cash, and Cycomm received 500,000 shares
of MobileTec common stock in full settlement of all obligations outstanding.
MobileTec is privately held, and Cycomm has assigned no value to the shares
received.
A lawsuit was instituted against Cycomm on August 3, 1999 in the Circuit Court
of the Nineteenth Judicial Circuit in and for Indian River County, FL by G.T.
Gangemi, former President of our Cycomm Secure Solutions subsidiary. The lawsuit
alleged breach of contract in connection with the severance provisions of Mr.
Gangemi's employment agreement with Cycomm Secure Solutions. On January 24,
2001, Mr. Gangemi was awarded damages of $101,500 plus interest. Cycomm and Mr.
Gangemi entered into a settlement agreement under which Cycomm will pay Mr.
Gangemi a total of $94,000 plus interest in equal monthly installments.
Item 2. Changes in Securities.
None.
Item 3. Default Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Page 16
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27. Financial Data Schedule
(b) Reports on Form 8-K:
None.
Page 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CYCOMM INTERNATIONAL INC.
Date: August __, 2001 /s/ Albert I. Hawk
-------------------------------
Albert I. Hawk
President and
Chief Executive Officer
Date: August __, 2001 /s/ Robert M. Hutton
------------------------------------
Robert M. Hutton
Vice President of Finance
Appendix A to item 601(c) of Regulation S-K
Commercial and Industrial Companies
Article 5 of Regulation S-X
Item Number Item Description
5-02(1) 176,641 Cash and cash Items
5-02(2) 0 Marketable securities
5-02(3)(a)(1) 413,581 Notes and accounts receivable - trade
5-02(4) 70,000 Allowances for doubtful accounts
5-02(6) 1,300,428 Inventory
5-02(9) 2,102,053 Total current assets
5-02(13) 565,063 Property, plant and equipment
5-02(14) 359,920 Accumulated depreciation
5-02(18) 2,307,596 Total assets
5-02(21) 2,912,581 Total current liabilities
5-02(22) 426,912 Bonds, mortgages and similar debt
5-02(28) 0 Preferred stock - mandatory redemption
5-02(29) 207,682 Preferred stock - no mandatory redemption
5-02(30) 66,238,598 Common stock
5-02(31) 0 Other stockholders' equity
5-02(32) 2,307,596 Total liabilities and stockholders' equity
5-03(b)1(a) 1,877,473 Net sales of tangible products
5-03(b)1 1,877,473 Total revenues
5-03(b)2(a) 1,715,866 Cost of tangible goods sold
5-03(b)2 1,715,866 Total costs and expenses applicable to sales and
revenues
5-03(b)3 2,429,693 Other costs and expenses
5-03(b)5 0 Provisions for doubtful accounts and notes
5-03(b)8 212,331 Interest and amortization of debt discount
5-03(b)(10) (2,254,280) Income before taxes and other items
5-03(b)(11) 0 Income tax expenses
5-03(b)(14) (2,254,280) Income/loss continuing operations
5-03(b)(15) 0 Discontinued operations
5-03(b)(17) 0 Extraordinary items
5-03(b)(18) 0 Cumulative effect - changes in accounting
principles
5-03(b)(19) (2,254,280) Net income or loss
5-03(b)(20) (.06) Earnings per share - basic
5-03(b)(20) (.06) Earnings per share - diluted