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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 September 30, 2002
____ 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 (I.R.S. Employer Identification No.)
of 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 November 8, 2002, the Registrant had 85,283,504 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
Consolidated Balance Sheets........................... 3
Consolidated Statements of Operations................. 4
Consolidated Statements of Cash Flows................. 5
Consolidated Statement of Stockholders' Equity........ 6
Notes to Consolidated Financial Statements............ 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation.............................. 15
Item 3. Controls and Procedures............................... 18
PART II - Other Information
Item 1. Legal Proceedings..................................... 19
Item 2. Changes in Securities................................. 20
Item 3. Default Upon Senior Securities........................ 20
Item 4. Submission of Matters to a Vote of Security Holders... 20
Item 5. Other Information..................................... 20
Item 6. Exhibits and Reports on Form 8-K...................... 20
Signatures ...................................................... 21
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
September 30, December 31,
2002 2001
----- ----
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $145,346 $80,804
Accounts receivable, less allowance for
doubtful accounts of $50,000 398,095 510,048
Inventories, net of allowance for obsolete
inventory of $220,000 and $201,460, respectively 371,302 489,236
Deferred financing costs 139,513 ---
Foreign taxes receivable --- 141,413
Prepaid expenses 5,355 30,562
--------- ---------
Total current assets 1,059,611 1,252,063
Equipment, net 21,606 177,977
----------- ----------
Total assets $1,081,217 $1,430,040
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable - trade $1,000,429 $950,955
Convertible debentures 1,272,000 ---
Discount on convertible debentures (908,423) ---
--------- -------
Convertible debentures, net of discount 363,577 ---
Warranty reserve 600,478 602,479
Accrued exit cost obligations 642,870 ---
Other accrued liabilities 370,132 644,990
Dividends payable on preferred stock 45,946 38,466
Current portion of capital lease obligations 7,747 9,626
Revolving credit facility 277,986 405,701
--------- ---------
Total current liabilities 3,309,165 2,652,217
Capital lease obligations, less current portion 11,595 14,488
Stockholders' deficit:
Convertible preferred stock, $50,000
par value, unlimited authorized shares,
2 shares issued and outstanding at
September 30, 2002 and December 31, 2001,
respectively 105,000 105,000
Common stock, no par value, unlimited authorized
shares, 85,283,504 and 56,323,871 shares
issued and 78,283,504 and 56,323,871 shares
outstanding at September 30, 2002 and December
31, 2001, respectively 71,435,346 68,214,258
Accumulated deficit (73,779,889) (69,555,923)
----------- -----------
Total stockholders' deficit (2,239,543) (1,236,665)
---------- ----------
Total liabilities and stockholders' deficit $1,081,217 $1,430,040
========== ==========
See accompanying notes to consolidated financial statements
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
(UNAUDITED)
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
Sales $467,674 $2,553,536 $1,437,298 $4,431,009
Cost of sales 598,367 1,787,355 1,368,171 3,503,222
------- --------- --------- ---------
Gross profit (loss) (130,693) 766,181 69,127 927,787
Expenses
Selling, general and
administrative 739,716 1,015,534 2,365,521 2,966,892
Exit costs --- --- 998,874 ---
Research and product
development 43,963 196,198 421,662 636,209
Depreciation and
amortization 4,304 19,220 29,169 57,545
------- --------- --------- ---------
787,982 1,230,952 3,815,226 3,660,646
------- --------- --------- ---------
Loss from Operations (918,675) (464,771) (3,746,099) (2,732,859)
Other (Expense) Income
Interest income 139 1,505 689 7,851
Interest expense (355,976) (70,215) (470,462) (282,546)
Other (expense) income --- 2,279 (614) 222,072
-------- ------- -------- -------
(355,837) (66,431) (470,387) (52,623)
-------- ------- -------- -------
Net loss (1,274,512) (531,202) (4,216,846) (2,785,482)
========== ========= ========== ==========
Beneficial return on
preferred shares --- --- --- (162,500)
------------ ----------- ---------- ----------
Net loss attributable
to common
stockholders $(1,861,669) $(1,143,080) $(2,941,974)$(2,416,780)
============ =========== ========== ===========
Earnings Per Share
Loss per share $(0.02) $(0.01) ($0.06) ($0.08)
Net loss per share
attributable
to beneficial return on
preferred shares --- --- --- ($0.00)
------- ------- ------- -------
Net loss per share
attributable to common
shareholders $(0.02) $(0.01) $(0.06) $(0.08)
======= ======= ======= =======
Weighted average
number of
common shares
outstanding 83,747,413 45,312,190 73,560,425 38,219,460
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
(Unaudited)
Nine Months Ended
September 30, September 30,
2002 2001
----- ----
Operating activities
Net loss from continuing operations $(4,216,486) $(2,785,482)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Non-cash exit costs 885,936 ---
Amortization of deferred financing costs 48,742 ---
Amortization of discount on convertible
debentures 325,776 ---
Depreciation and amortization 29,169 57,545
Change in operating assets and liabilities 157,729 (296,812)
---------- ----------
Cash used in operating activities (2,769,134) (3,024,749)
---------- ----------
Investing activities
Acquisition of fixed assets (3,012) (20,866)
------ -------
Cash used in investing activities (3,012) (20,866)
------ -------
Financing activities
Issuance of common stock 1,857,500 2,196,884
Issuance of preferred stock --- 611,500
Borrowings under convertible debentures 1,111,675
Net borrowings (repayments) under
revolving credit facility (127,715) 104,113
Repayment of obligations under capital
leases (4,772) (5,771)
Cash provided by financing activities 2,836,688 2,906,726
--------- ---------
(Decrease) increase in cash and cash
equivalents during the period 64,542 (138,889)
Cash and cash equivalents, beginning of
period 80,804 301,110
------ -------
Cash and cash equivalents, end of period $145,346 $162,221
======== ========
Supplemental cash flow information:
Interest paid $ 64,836 $240,942
Income taxes paid $ --- $ ---
Non-cash investing and financing
activities:
Conversion of convertible debentures to
common stock $ 28,389 ---
Conversion of preferred stock to common
stock --- $1,090,560
Issuance of common stock in settlement
of interest due --- $ 52,500
Issuance of common stock in settlement
of lawsuit $ 100,000 ---
Issuance of common stock in settlement
of legal fees due $ 1,000 ---
See accompanying notes to consolidated financial statements
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE UNAUDITED PERIOD ENDED SEPTEMBER 30, 2002
AND THE YEAR ENDED DECEMBER 31, 2002
Notes
PreferredPreferred Common Common Receivable Accumulated
Shares Stock Shares Stock Stockholders Deficit Total
Balance,
December
31, 2000 11 $560,500 30,145,982 $63,653,477$(66,714)$(64,746,533) $(599,270)
==== ======== ========== =========== ======= =========== ========
Net Loss --- --- --- --- --- (4,799,724) (4,799,724)
Issuance
of common
stock:
Sale of
common
stock --- --- 17,752,185 2,999,721 --- --- 2,999,721
Shares
issued in
settle-
ment
of
interest
due --- --- 300,000 52,500 --- --- 52,500
Shares
issued in
settle-
ment
of
obligation
of
acquisi-
tion
earn-out --- --- 1,700,000 413,000 --- --- 413,000
Exercise of
stock
options --- --- 500,000 5,000 --- --- 5,000
Issuance of
preferred
stock:
Issuance -
Series F
preferred
stock 13 611,500 --- --- --- --- 611,500
Conversion
of
preferred
stock (22)(1,229,500) 5,925,704 1,253,060 --- --- 23,560
Beneficial
conversion
rights on
preferred
stock --- 162,500 --- (162,500) --- --- ---
Write-off
of notes
receivable -
stockholders
and
related
interest
receivable --- --- --- --- 66,714 --- 66,714
Dividends
on
preferred
stock --- --- --- --- --- (9,666) (9,666)
---- ------- --------- --------- ------ ------------ ------------
Balance,
December
31, 2001 2 $105,000 56,323,871$68,214,258 --- $(69,555,923) $(1,236,665)
==== ======= ========== ========== ====== ============ ===========
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Net Loss --- --- --- --- --- (4,216,486) (4,216,486)
Issuance
of common
stock:
Sale of
common
stock --- --- 19,829,111 1,858,500 --- --- 1,858,500
Shares
issued
in
settle-
ment of
lawsuit --- --- 1,052,632 100,000 --- --- 100,000
Shares
held in
escrow
underlying
convertible
deben-
tures --- --- 7,000,000 --- --- --- ---
Beneficial
conversion
rights
convertible
deben-
ture --- --- --- 808,455 --- --- 808,455
Warrants
issued
with
convertible
deben-
ture --- --- --- 425,744 --- --- 425,744
Conversion
of deben-
tures --- --- 1,077,890 28,389 --- --- 28,389
Dividends
on
preferred
stock --- --- --- --- --- (7,480) (7,480)
---- -------- ---------- ---------- ---- ----------- ----------
Balance,
September
30, 2002 2 $105,000 85,283,504$71,435,346 --- $(73,779,889) $(2,239,543)
==== ======== ========== ========== ==== ============ ===========
See accompanying notes to consolidated financial statements
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
NOTE 1: GENERAL
The financial information presented as of any other date than December 31 has
been prepared from the books and records without audit. Financial information as
of December 31 has been derived from the audited financial statements of Cycomm
International Inc. and its subsidiaries ("Cycomm"), but does not include all the
disclosures required by generally accepted accounting principles. In the opinion
of management, the accompanying unaudited financial statements contain all
adjustments, consisting of only normal recurring adjustments necessary to
present fairly Cycomm's financial position as of September 30, 2002, and the
results of its operations and cash flows for the periods ended September 30,
2002 and 2001. The results of operations are not necessarily indicative of the
results that may be expected for the year ending December 31, 2002. These
unaudited consolidated financial statements should be read in conjunction with
the financial statements and the notes thereto included in Cycomm's Annual
Report on Form 10-KSB for the year ended December 31, 2001.
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 $4.8 million for the year ended December 31, 2001 and
as of that date had a working capital deficit of approximately $1.4 million and
an accumulated deficit of $69.6 million. Further, we were not in compliance with
the terms of our debt agreements at December 31, 2001. In the three months ended
September 30, 2002, we were in compliance with our debt agreements, however, we
incurred a net loss of approximately $1.3 million, had a working capital deficit
of approximately $2.2 million, and an accumulated deficit of $73.8 million.
These factors raise substantial doubt about Cycomm's ability to continue as a
going concern.
Management has taken several steps towards addressing the going concern issue.
We hired a new president, who also serves as Cycomm's Chief Operating Officer,
to restructure the company and lower our operating costs. We have reduced
headcount from 75 employees to 18 employees, eliminating redundant positions,
consolidating administrative functions, and combining our manufacturing and
repair personnel. Additionally, we closed our Montreal facility. We are
exploring further cost savings initiatives, and plan to outsource tasks that can
be handled more efficiently by third parties. Specifically, we are pursuing an
agreement to outsource our production. We have begun to sell to markets outside
of the public safety industry, and plan to aggressively pursue the field
service, utilities and industrial markets. We are also developing new products
to further expand and diversify our current product line.
Cycomm intends to fund its operations through working capital, borrowings on our
secured line of credit, private equity placements and borrowings under
convertible debentures. Historically, Cycomm has been able to raise capital
through private equity placements and debenture issuances. During 2001, we
raised $3,611,211 in private equity placements. In the nine months ended
September 30, 2002, Cycomm raised $1,857,500 in private equity placements (See
Note 6: Capital Stock for further detail) and $1,111,675 under convertible
debentures (See Note 5: Convertible Debentures for further detail).
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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
that Cycomm is unable to achieve its plans to fund operations, Cycomm will
consider further cost reductions and may be required to seek protection under
the United States Bankruptcy Code.
NOTE 2: RESTRUCTURING
In April 2002, Cycomm began to take major steps to reduce costs. Cycomm's
organization had been built to support production levels much higher than it had
achieved historically. Management made the decision to close Cycomm's Canadian
facility and to transfer all manufacturing operations to its Florida facility.
Cycomm is continuing to manufacture its existing product line of rugged, mobile
computers.
On April 9, 2002, Cycomm reduced its staff from approximately 75 employees to
approximately 45 employees. On June 28, 2002, Cycomm further reduced its staff
to 18 employees. The terminated personnel included 28 general and administrative
employees, 19 research and development employees, 7 production employees, 2
repair and maintenance employees and 1 salesperson. The total value of employee
severance packages was $511,737. The severance packages included $111,761 in
payroll and vacation benefits that had been previously accrued, therefore
severance expense of $399,976 was incurred in the nine months ended September
30, 2002 and is included in exit cost expenses.
Cycomm agreed to pay employee severance over a period of time, as specified in
each individual severance agreement. To date, Cycomm has paid $224,699 in
employee severance payments. As of September 30, 2002, the outstanding employee
severance obligation is $287,038, which is included in accrued exit obligations.
On June 28, 2002, Cycomm closed its Canadian facility. The lease for the
Canadian facility does not expire until March 31, 2008. The present value of
future lease payments due under the Canadian facility lease is $751,060.
Management has estimated the present value of income from subleasing the
Canadian facility as approximately $395,228, therefore Cycomm recorded $355,832
as an accrued exit obligation related to the termination of the Canadian
facility lease, and recognized this amount as exit costs in the nine months
ended September 30, 2002.
In connection with the closing of the Canadian facility, Cycomm made the
decision to abandon certain fixed assets, and accordingly, Cycomm has written
off fixed assets with a book value of $130,214. This write-off is included in
exit costs in the nine months ended September 30, 2002. Management also
determined that the closing of the Canadian facility could prevent Cycomm from
collecting the full amount of foreign taxes receivable from the Canadian
government related to tax credits for research and development. Cycomm has
recorded a reserve of $112,852 against foreign taxes receivable, and has
recognized this amount as exit costs in the nine months ended September 30,
2002.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144 (FAS 144), "Accounting for the Impairment
or Disposal of Long-Lived Assets", which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
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SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of Operations", for a
disposal of a segment of a business. The Company adopted FAS 144 as of January
1, 2002. This guidance was followed in recognizing the impact of closing the
Canadian facility.
In June 2002, the FASB issued Statement No. 146 (FAS 146), "Accounting for Costs
Associated with Exit or Disposal Activities". FAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs in a Restructuring)". FAS 146 specifies that a
liability for a cost associated with an exit or disposal activity is incurred
when the definition of a liability in Concepts Statement 6, Elements of
Financial Statements, is met. The provisions of FAS 146 are effective for exit
or disposal activities that are initiated after December 31, 2002, with early
application encouraged. The Company has implemented FAS 146 in June 2002 related
to the closure of the Canadian facility.
NOTE 3: INVENTORIES
The following is a summary of inventories at September 30, 2002 and December 31,
2001:
September 30, December 31,
2002 2001
----- ----
Raw materials 563,045 $645,286
Work in process and sub-assemblies 26,867 35,966
Finished goods 1,390 9,444
Allowance for obsolete inventory (220,000) (201,460)
--------- ---------
$371,302 $489,236
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.
NOTE 4: REVOLVING CREDIT FACILITY
On February 28, 2002, Cycomm renewed and amended its revolving credit facility
to allow the Company to borrow and repay amounts up to a maximum of $1,000,000.
As part of the renewal, the interest rate on the revolving credit facility was
increased to prime plus 4%. Prior to February 28, 2002, Cycomm was able to
borrow and repay amounts up to a maximum of $2,000,000, and was paying an
interest rate of prime plus 3%.
Cycomm restructured the terms of its revolving credit facility in order to lower
the minimum loan balance on which the Company was paying interest. Prior to
February 28, 2002, Cycomm was paying interest on a minimum loan balance of
$1,050,000. Under the new terms of the revolving credit facility, Cycomm is
paying interest on a minimum loan balance of $550,000.
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The credit facility is collateralized by the trade accounts receivable,
inventory and other assets of Cycomm Mobile Solutions. The amounts outstanding
on the credit facility were $277,986 and $405,701 as of September 30, 2002 and
December 31, 2001, respectively. As of September 30, 2002, Cycomm was in
compliance with the terms of the credit facility. As of December 31, 2001,
Cycomm was not in compliance with the terms of its loan agreement as total
borrowings under the revolving credit facility exceeded the available borrowing
base of the underlying collateral by $5,019.
NOTE 5: CONVERTIBLE DEBENTURES
On June 17, 2002, Cycomm issued $1,050,000 of 8% convertible debentures due June
17, 2003 which are convertible at the option of the holders into Cycomm common
stock at the lesser of 75% of the average of the three lowest closing prices for
the 30 days prior to the date of issuance ($0.04), or 75% of the average of the
three lowest closing prices for the 30 days prior to the date of conversion. The
debentures are fully eligible for conversion as of June 17, 2002. Interest on
the debentures can be paid in either cash or common stock, at Cycomm's option.
In the event that the debentures have not been fully converted into common stock
at the date of maturity, the debentures can be converted into common stock at
Cycomm's option. Cycomm issued 5,000,000 shares of common stock to be available
upon conversion of the debentures. The shares of common stock are restricted and
are being held in escrow by the collateral agent and holder of the convertible
debentures. In connection with the issuance of the debentures, Cycomm issued
13,125,000 warrants to purchase common stock at $0.08 per share. The warrants
are immediately exercisable for a period of seven years.
Cycomm allocated the proceeds from the offering, less issue costs paid to the
investor of $53,301, to the warrants and the debentures based on the relative
fair value of each instrument. This resulted in $343,870 recorded as a discount
on the convertible debentures for the relative fair value of the warrants. The
proceeds allocated to the debentures were compared to the fair value of the
common stock into which the debentures are convertible in order to determine the
intrinsic value of the beneficial conversion feature. The value of the
beneficial conversion feature of $652,829 was recorded as an additional discount
on the convertible debentures. The total discount was limited to the proceeds
raised, less issue costs paid to the investor of $53,301, and will be amortized
as interest expense over the term of the debentures.
On July 29, 2002, debentures with principal and accrued interest of $7,569 were
converted into 288,344 shares of common stock. On August 12, 2002, debentures
with principal and accrued interest of $13,159 were converted into 500,448
shares of common stock. On September 23, 2002, debentures with principal and
accrued interest of $7,661 were converted into 289,098 shares of common stock.
On September 4, 2002, Cycomm issued $250,000 of 8% convertible debentures due
September 4, 2003 which are convertible at the option of the holders into Cycomm
common stock at the lesser of 75% of the average of the three lowest closing
prices for the 30 days prior to the date of issuance ($0.04), or 75% of the
average of the three lowest closing prices for the 30 days prior to the date of
conversion. The debentures are fully eligible for conversion as of September 4,
2002. Interest on the debentures can be paid in either cash or common stock, at
Cycomm's option. In the event that the debentures have not been fully converted
into common stock at the date of maturity, the debentures can be converted into
common stock at Cycomm's option. Cycomm issued 2,000,000 shares of common stock
Page 12
to be available upon conversion of the debentures. The shares of common stock
are restricted and are being held in escrow by the collateral agent and holder
of the convertible debentures. In connection with the issuance of the
debentures, Cycomm issued 3,125,000 warrants to purchase common stock at $0.08
per share. The warrants are immediately exercisable for a period of seven years.
Cycomm allocated the proceeds from the offering, less issue costs paid to the
investor of $12,500, to the warrants and the debentures based on the relative
fair value of each instrument. This resulted in $81,874 recorded as a discount
on the convertible debentures for the relative fair value of the warrants. The
proceeds allocated to the debentures were compared to the fair value of the
common stock into which the debentures are convertible in order to determine the
intrinsic value of the beneficial conversion feature. The value of the
beneficial conversion feature of $155,626 was recorded as an additional discount
on the convertible debentures. The total discount was limited to the proceeds
raised, less issue costs paid to the investor of $12,500, and will be amortized
as interest expense over the term of the debentures.
NOTE 6: CAPITAL STOCK
Common Stock
On January 8, 2002, Cycomm raised capital through a private equity placement of
its common stock. Cycomm issued 1,000,000 shares of common stock for cash
proceeds of $135,000.
On January 11, 2002, Cycomm raised capital through a private equity placement of
its common stock. Cycomm issued 1,500,000 shares of common stock for cash
proceeds of $150,000.
On January 23, 2002, Cycomm raised capital through a private equity placement of
its common stock. Cycomm issued 1,500,000 shares of common stock for gross
proceeds of $225,000. Cash proceeds, after commissions and issue costs were
$150,000.
On January 31, 2002, Cycomm raised capital through a private equity placement of
its common stock. Cycomm issued 1,428,572 shares of common stock for cash
proceeds of $200,000.
On February 13, 2002, Cycomm raised capital through a private equity placement
of its common stock. Cycomm issued 1,500,000 shares of common stock for gross
proceeds of $270,000. Cash proceeds, after commissions and issue costs were
$195,000.
On March 7, 2002, Cycomm raised capital through a private equity placement of
its common stock. Cycomm issued 2,750,000 shares of common stock for cash
proceeds of $250,000.
On March 15, 2002, Cycomm issued 2,500 shares of common stock in payment of
legal services totalling $500.
On March 15, 2002, Cycomm issued 50,000 shares of common stock upon the exercise
of non-employee stock options for proceeds of $500.
On March 26, 2002, Cycomm raised capital through a private equity placement of
its common stock. Cycomm issued 1,764,706 shares of common stock for cash
proceeds of $150,000.
On April 3, 2002, Cycomm issued 1,052,632 shares of common stock in settlement
of a lawsuit. The shares were issued in full settlement of a $100,000
obligation.
Page 13
On April 26, 2002, Cycomm raised capital through a private equity placement of
its common stock. Cycomm issued 2,333,333 shares of common stock for cash
proceeds of $175,000.
On May 3, 2002, Cycomm raised capital through a private equity placement of its
common stock. Cycomm issued 2,000,000 shares of common stock for cash proceeds
of $140,000.
On May 14, 2002, Cycomm raised capital through a private equity placement of its
common stock. Cycomm issued 2,500,000 shares of common stock for cash proceeds
of $200,000.
On May 22, 2002, Cycomm raised capital through a private equity placement of its
common stock. Cycomm issued 1,500,000 shares of common stock for cash proceeds
of $112,500.
On July 29, 2002, debentures with principal and accrued interest of $7,569 were
converted into 288,344 shares of common stock. On August 12, 2002, debentures
with principal and accrued interest of $13,159 were converted into 500,448
shares of common stock. On September 23, 2002, debentures with principal and
accrued interest of $7,661 were converted into 289,098 shares of common stock.
Page 14
NOTE 7: SEGMENT AND RELATED INFORMATION
Cycomm has one reporting segment, which sells wireless rugged computing products
and peripherals. Prior to June 28, 2002, we operated a manufacturing facility in
Montreal, Canada. On June 28, 2002, we closed this facility and transferred
inventory and certain fixed assets to our Melbourne, Florida facility. Fixed
assets with a book value of $130,214 were not transferred to Florida, and were
written off as of June 30, 2002. Geographic region data on sales and the
location of identifiable assets is provided in the tables below. Sales data
reflects the geographic location of the customers to whom sales were made.
Quarters Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
----- ----- ----- ----
Geographic Region Data
Sales
United States $457,039 $2,548,858 $1,386,275 $4,387,662
Canada 10,635 4,678 51,023 43,347
-------- ---------- ---------- ----------
$467,674 $2,553,536 $1,437,298 $4,431,009
======== ========== ========== ==========
Loss from Operations
United States $(918,675) $(546,250) $(2,090,752) $(2,019,965)
Canada --- 81,479 (1,658,347) (712,894)
--------- --------- ----------- -----------
$(918,675) $(464,771) $(3,746,099) $(2,732,859)
========== ========== ============ ============
Identifiable Assets September 30, December 31,
2002 2001
----- ----
United States $1,081,217 $ 717,048
Canada --- 712,992
---------- ----------
$1,081,217 $1,430,040
========== ==========
Page 15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Results of Continuing Operations
Three Months Ended September 30, 2002 and September 30, 2001
Revenues for the three months ended September 30, 2002 were $467,674 as compared
to revenues of $2,553,536 for the prior period. Vendor delays and financial
constraints slowed deliveries in the quarter ended September 30, 2002.
Cost of sales for the three months ended September 30, 2002 was $598,367 as
compared to cost of sales of $1,787,355 for the prior period. Gross margins for
the three months ended September 30, 2002 were (28%) as compared to gross
margins of 30% in the prior period. In the three months ended September 30,
2002, our motherboard supplier forced us to accept $179,416 in materials that
had been ordered previously under non-cancelable, non-returnable purchase
orders. These materials were obsolete, and charged to cost of goods sold. The
remainder of the decrease is a result of lower sales volumes, which force
overhead costs to be spread over fewer units.
Operating expenses decreased to $787,982 for the three months ended September
30, 2002 as compared to $1,230,952 in the prior period. Selling, general and
administrative expenses decreased to $739,716 from $1,015,534 in the three
months ended September 30, 2002, primarily as a result of headcount reductions.
Research and development costs decreased to $43,963 as compared to $196,198 in
the prior period. The decrease is the result of headcount reductions in the R&D
staff, as we began outsourcing this function following the closing of our
Canadian manufacturing facility.
Depreciation and amortization decreased to $4,303 for the three months ended
September 30, 2002 as compared to $19,220 in the prior period. The decrease is a
result of certain fixed assets reaching the end of their depreciable lives, and
the write-off of Canadian fixed assets with a book value of $130,214, which was
recorded prior to the three months ended September 30, 2002.
Interest expense for the three months ended September 30, 2002 was $355,976 as
compared to $70,215 for the prior period. The increase in interest expense is
primarily the result of the issuance of convertible debentures. On June 17,
2002, Cycomm issued debentures convertible into Cycomm common stock with a
principal amount of $1,050,000, bearing interest at 8% and maturing on June 17,
2003. The total interest incurred on the principal of the debentures in the
three months ended September 30, 2002 was $21,188. The debentures have a
beneficial conversion feature, in which they are convertible at a discount to
the market price of Cycomm's common stock. This beneficial conversion feature
has a value of $652,829, which is amortized over the life of the debenture and
recognized as interest expense. Total interest related to the amortization of
the beneficial conversion feature in the three months ended September 30, 2002
was $179,048. Additionally, Cycomm issued 13,125,000 warrants to purchase common
stock at $0.08 per share to the debenture holders. The relative fair value of
these warrants is $343,870, which is amortized over the life of the debenture
and recognized as interest expense. Total interest related to the amortization
of the relative fair value of the warrants in the three months ended September
30, 2002 was $94,311. The portion of deferred loan costs related to financing
fees is amortized over the life of the debentures, and recognized as interest
expense. Total interest expense related to the amortization of deferred loan
costs was $28,798 in the three months ended September 30, 2002.
Page 16
On September 4, 2002, Cycomm issued debentures convertible into Cycomm common
stock with a principal amount of $250,000, bearing interest at 8% and maturing
on September 4, 2003. The total interest incurred on the principal of the
debentures in the three months ended September 30, 2002 was $1,425. The
debentures have a beneficial conversion feature, in which they are convertible
at a discount to the market price of Cycomm's common stock. This beneficial
conversion feature has a value of $155,626, which is amortized over the life of
the debenture and recognized as interest expense. Total interest related to the
amortization of the beneficial conversion feature in the three months ended
September 30, 2002 was $11,086. Additionally, Cycomm issued 3,125,000 warrants
to purchase common stock at $0.08 per share to the debenture holders. The
relative fair value of these warrants is $81,874, which is amortized over the
life of the debenture and recognized as interest expense. Total interest related
to the amortization of the relative fair value of the warrants in the three
months ended September 30, 2002 was $5,832. The portion of deferred loan costs
related to financing fees is amortized over the life of the debentures, and
recognized as interest expense. Total interest expense related to the
amortization of deferred loan costs was $1,779 in the three months ended
September 30, 2002.
The increase in interest expense due to the issuance of convertible debentures
in the three months ended September 30, 2002 is partially offset by lower
interest payments being made on our revolving credit facility as a result of
lower average debt balances, and lower amounts of interest being paid to
vendors.
Net loss increased to $1,274,512, or $0.02 per share, for the three months ended
September 30, 2002 from $531,202, or $0.01 per share for the three months ended
September 30, 2001. The increase in net loss is a result of the factors
discussed above.
Nine Months Ended September 30, 2002 and September 30, 2001
Revenues for the nine months ended September 30, 2002 were $1,437,298 as
compared to revenues of $4,431,009 for the prior period. The decrease in sales
was a primarily the result of the loss of a major customer which accounted for
54% of Cycomm's sales in the nine months ended September 30, 2001. Revenue was
also affected by delays caused by the restructuring of our company. During the
nine months ended September 30, 2002, we reduced our headcount from 75 employees
to 18 employees and closed our Canadian facility. The transition of the
manufacturing operations and physical transfers of materials caused production
to be delayed. Financial constraints and vendor delays also had an adverse
impact on sales.
Cost of sales for the nine months ended September 30, 2002 was $1,368,171 as
compared to cost of sales of $3,503,222 for the prior period. Gross margins for
the nine months ended September 30, 2002 were 5% as compared to gross margins of
21% in the prior period. In the nine months ended September 30, 2002, our
motherboard supplier forced us to accept $179,416 in materials that had been
ordered previously under non-cancelable, non-returnable purchase orders. These
materials were obsolete, and charged to cost of goods sold. The remainder of the
decrease is a result of lower sales volumes, which force overhead costs to be
spread over fewer units.
Operating expenses increased to $3,815,226 for the nine months ended September
30, 2002 as compared to $3,660,646 in the prior period. Selling, general and
administrative expenses decreased to $2,365,521 from $2,966,892 in the nine
Page 17
months ended September 30, 2001. The decrease is primarily the result of cost
savings related to Cycomm's restructuring efforts. The restructuring of Cycomm's
organization caused Cycomm to incur $998,874 in exit costs in the nine months
ended September 30, 2002. This amount includes $399,976 related to severance
charges for terminated employees, $355,832 related to the termination liability
for the lease on Cycomm's Canadian facility, a $130,214 write-off of Canadian
fixed assets, and a reserve of $112,852 taken against the value of Cycomm's
Canadian foreign taxes receivable. Research and development costs decreased to
$421,662 as compared to $636,209 in the prior period. The decrease is the result
of headcount reductions in the R&D staff.
Depreciation and amortization decreased to $29,169 for the nine months ended
September 30, 2002 as compared to $57,545 in the prior period. The decrease is a
result of certain fixed assets reaching the end of their depreciable lives, and
the write-off of Canadian fixed assets with a book value of $130,214 included in
exit costs in the nine months ended June 30, 2002.
Interest expense for the nine months ended September 30, 2002 was $470,462 as
compared to $282,546 for the prior period. The increase in interest expense is
primarily the result of the issuance of convertible debentures. On June 17,
2002, Cycomm issued debentures convertible into Cycomm common stock with a
principal amount of $1,050,000, bearing interest at 8% and maturing on June 17,
2003. The total interest incurred on the principal of the debentures in the nine
months ended September 30, 2002 was $24,179. The debentures have a beneficial
conversion feature, in which they are convertible at a discount to the market
price of Cycomm's common stock. This beneficial conversion feature has a value
of $652,829, which is amortized over the life of the debenture and recognized as
interest expense. Total interest related to the amortization of the beneficial
conversion feature in the nine months ended September 30, 2002 was $202,300.
Additionally, Cycomm issued 13,125,000 warrants to purchase common stock at
$0.08 per share to the debenture holders. The relative fair value of these
warrants is $343,870, which is amortized over the life of the debenture and
recognized as interest expense. Total interest related to the amortization of
the relative fair value of the warrants in the nine months ended September 30,
2002 was $106,559. The portion of deferred loan costs related to financing fees
is amortized over the life of the debentures, and recognized as interest
expense. Total interest expense related to the amortization of deferred loan
costs was $32,538 in the nine months ended September 30, 2002.
On September 4, 2002, Cycomm issued debentures convertible into Cycomm common
stock with a principal amount of $250,000, bearing interest at 8% and maturing
on September 4, 2003. The total interest accrued on the principal of the
debentures in the nine months ended September 30, 2002 was $1,425. The
debentures have a beneficial conversion feature, in which they are convertible
at a discount to the market price of Cycomm's common stock. This beneficial
conversion feature has a value of $155,626, which is amortized over the life of
the debenture and recognized as interest expense. Total interest related to the
amortization of the beneficial conversion feature in the nine months ended
September 30, 2002 was $11,086. Additionally, Cycomm issued 3,125,000 warrants
to purchase common stock at $0.08 per share to the debenture holders. The
relative fair value of these warrants is $81,874, which is amortized over the
life of the debenture and recognized as interest expense. Total interest related
to the amortization of the relative fair value of the warrants in the nine
months ended September 30, 2002 was $5,832. The portion of deferred loan costs
related to financing fees is amortized over the life of the debentures, and
recognized as interest expense. Total interest expense related to the
amortization of deferred loan costs was $1,779 in the nine months ended
September 30, 2002.
Page 18
The increase in interest expense due to the issuance of convertible debentures
in the nine months ended September 30, 2002 is partially offset by lower
interest payments being made on our revolving credit facility as a result of
lower average debt balances, and lower amounts of interest being paid to
vendors.
Net loss increased to $4,216,486, or $0.06 per share, for the nine months ended
September 30, 2002 from $2,785,482, or $0.08 per share for the nine months ended
September 30, 2001. The increase in net loss is a result of the factors
discussed above.
Liquidity and Capital Resources
Cycomm has satisfied working capital requirements through cash on hand,
available lines of credit and various equity related financings. At September
30, 2002, Cycomm had cash and cash equivalents of $145,346.
In the nine months ended September 30, 2002, cash used in operations amounted to
$2,769,134, largely due to Cycomm's net loss of $4,216,486. The net loss
included $885,936 of non-cash exit costs. Additionally, Cycomm incurred expenses
of $48,742 related to the amortization of deferred finance costs, and expenses
of $325,776 related to the amortization of the discount on convertible
debentures. Accounts receivable decreased by $111,953, inventory decreased by
$117,934, and Cycomm collected foreign taxes receivable of $121,098. but this
was offset by an increase in accounts payable of $49,474. Cash used in investing
activities during the nine months ended September 30, 2002 totaled $3,012. Cash
provided by financing activities was $2,836,688 for the nine months ended
September 30, 2002. Cycomm completed 11 private placements of common stock for
net proceeds of $1,857,500, borrowed funds under convertible debentures totaling
$1,111,675 and decreased the amounts drawn on its bank credit lines in an amount
of $127,715 during the nine months ended September 30, 2002.
Cycomm's net working deficit at September 30, 2002 was $2,249,554 as compared
to $1,400,154 at December 31, 2001. In the nine months ended September 30,
2002, Cycomm's current assets decreased by $192,452, and current liabilities
increased by $656,948. Accounts receivable decreased as a result of improved
collections and lower sales volumes. Inventories decreased as a result of
shipments to customers, and ordering fewer parts due to lower sales volumes. The
amortization of the discount on convertible debentures caused the balance to
increase to $363,577 at September 30, 2002. Cycomm has accrued $642,870 for exit
cost obligations related to the closing of its Canadian manufacturing facility.
The balance of Cycomm's revolving credit facility, which is collateralized by
accounts receivable, decreased as a result of the decreases in accounts
receivable.
Cycomm's auditors modified their report on Cycomm's 2001 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 hired a new president, who also serves as
Cycomm's Chief Operating Officer, to restructure the company and lower our
operating costs. We have reduced headcount from 75 employees to 18 employees,
eliminating redundant positions, consolidating administrative functions, and
combining our manufacturing and repair personnel. Additionally, we closed our
Montreal facility. We are exploring further cost savings initiatives, and plan
to outsource tasks that can be handled more efficiently by third parties.
Specifically, we are pursuing an agreement to outsource our production. We have
begun to sell to markets outside of the public safety industry, and plan to
Page 19
aggressively pursue the field service, utilities and industrial markets. We are
also developing new products to further expand and diversify our current product
line.
Cycomm intends to fund its operations through working capital, borrowings on our
secured line of credit, private equity placements and borrowings under
convertible debentures. Historically, Cycomm has been able to raise capital
through private equity placements and debenture issuances. During 2001, we
raised $3,611,211 in private equity placements. In the nine months ended
September 30, 2002, Cycomm raised $1,857,500 in private equity placements (See
Note 6: Capital Stock for further detail) and $1,111,675 under convertible
debentures (See Note 5: Convertible Debentures for further detail).
Item 3. Controls and Procedures.
The Chief Executive Officer, Chief Operating Officer and Vice President of
Finance (Principal Accounting Officer) of Cycomm, based on their evaluation of
Cycomm's disclosure controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report on Form 10-QSB (the "Evaluation Date")
have concluded that Cycomm's disclosure controls and procedures are adequate and
effective for the purposes set forth as defined in the Exchange Act rules.
There have been no significant changes in Cycomm's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On April 5, 2002, Cycomm entered into a settlement agreement with Michael D.
Perrine, former president of the Company's Cycomm Mobile Solutions subsidiary.
Cycomm had filed a lawsuit against Mr. Perrine alleging breach of contract,
unjust enrichment and breach of fiduciary duty. Mr. Perrine filed a lawsuit
against Cycomm alleging breach of contract and tortuous interference with
existing contract and business relations. Under the terms of the settlement,
Cycomm issued 1,052,632 shares of Cycomm common stock with a value of $100,000
to Mr. Perrine, and both parties agreed to dismiss their respective lawsuits.
The settlement is reflected in the results of operations for the year ended
December 31, 2001.
On November 21, 2001, the Telepad Corporation Liquidating Trust (the "Trustee")
filed a lawsuit against Cycomm alleging breach of contract, breach of express
trust and unjust enrichment. Telepad Corporation ("Telepad") had entered a bid
to sell Cycomm products to TRW Systems & Information Technology Group ("TRW")
for use in Montgomery County, MD. On March 17, 1999, Telepad filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code. On October 8, 1999,
Cycomm entered into an agreement with the Trustee which assigned Telepad's bid
to Cycomm. In exchange, Cycomm agreed that if the bid was accepted, Cycomm would
pay the Trustee 5% of the total value of products sold to TRW. The Telepad bid
was never accepted by TRW. Instead, TRW chose to purchase Cycomm's products
through a different reseller. Cycomm's maximum exposure in this lawsuit is
$115,000. Cycomm intends to defend this case vigorously. Cycomm does not believe
that loss of this case is probable, and has not accrued for any potential loss
related to this case.
Page 20
Item 2. Changes in Securities.
On May 22, 2002 we issued 1,500,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to New
Range Management, for net proceeds of $112,500.
On June 17, 2002 we issued 5,000,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to SS
Equities. These shares are being held in escrow by SS Equities, as the
collateral agent for Cycomm and the holders of Cycomm convertible debentures.
On July 29, 2002 we issued 288,344 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to Alpha
Capital upon the conversion of debentures with principal and accrued interest of
$7,569.
On August 12, 2002 we issued 500,448 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Stonestreet LP upon the conversion of debentures with principal and accrued
interest of $13,162.
On August 12, 2002 we issued 2,000,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to SS
Equities. These shares are being held in escrow by SS Equities, as a collateral
agent, in anticipation of a proposed financing between Cycomm and a group of
investors.
On September 23, 2002 we issued 289,098 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to Alpha
Capital upon the conversion of debentures with principal and accrued interest of
$7,661.
Item 3. Default Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 99.1 Officer's Certification
(b) Reports on Form 8-K:
None
Page 21
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: November 15, 2002 /s/ Albert I. Hawk
------------------------------------
Albert I. Hawk
Chief Executive Officer
Date: November 15, 2002 /s/ Robert M. Hutton
------------------------------------
Robert M. Hutton
Vice President of Finance
Page 22
Exhibit 99.1
I, Albert I. Hawk, CEO of Cycomm International Inc. (the "Company"), certify,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350, that:
(1) the Quarterly Report on Form 10-Q of the Company for the quarter ended
September 30, 2002 (the "Report") fully complies with the requirements of
Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 (15 U.S.C.
78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Dated: November 15, 2002
------------------------------
Albert I. Hawk
Chief Executive Officer
I, Robert M. Hutton, Principal Accounting Officer of Cycomm International
Inc. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, 18 U.S.C. Section 1350, that:
(1) the Quarterly Report on Form 10-Q of the Company for the quarter ended
September 30, 2002 (the "Report") fully complies with the requirements of
Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 (15 U.S.C.
78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Dated: November 15, 2002
------------------------------
Robert M. Hutton
Principal Accounting Officer
Page 23
CERTIFICATIONS
I, Albert I. Hawk, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Cycomm
International Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls;
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 15, 2002
- ---------------------------
Albert I. Hawk
Chief Executive Officer
Page 24
CERTIFICATIONS
I, Robert M. Hutton, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Cycomm
International Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls;
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 15, 2002
- ---------------------------
Robert M. Hutton
Vice President of Finance
Principal Accounting Officer