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 March 31, 1999
____ 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 54-177904
(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 April 30, 1999, the Registrant had 12,492,928 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.................... 11
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..................................... 14
Item 6. Exhibits and Reports on Form 8-K...................... 14
Signatures ...................................................... 15
Page 3
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
March 31, December 31,
1999 1998
ASSETS (Unaudited) (Restated)
Current assets:
Cash and cash equivalents $240,074 $567,977
Accounts receivable, net 2,135,212 2,353,999
Inventories 2,155,304 1,885,983
Prepaid expenses 57,677 21,829
Assets held for sale from discontinued
operations: Cycomm Secure Solutions
Inc. (Net of allowance of $1,598,409 for
loss on disposal) 800,000 2,655,832
Net assets of discontinued operations:
Val-Comm Inc. 379,748 374,913
--------- ---------
Total current assets 5,768,015 7,860,533
Fixed assets, net 331,622 569,323
Goodwill, net 815,913 2,175,400
Other assets:
Notes receivable 72,786 68,912
Deferred financing costs, net --- 31,701
Other 198,733 224,850
---------- -----------
$7,187,069 $10,930,719
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable- trade $3,418,796 $2,191,025
Accrued liabilities 1,629,187 1,567,694
Deferred revenue 622,224 934,948
Dividends payable on preferred stock 5,417 33,333
Current portion of capital lease
obligations 16,980 22,418
Revolving credit facility 2,043,302 2,310,890
Current portion of notes payable and
convertible debentures 378,648 3,394,425
--------- ----------
Total current liabilities 8,114,554 10,454,733
Capital lease obligations, less current
portion 37,767 42,015
Notes payable and convertible debentures, 3,000,000 ---
less current portion
Stockholders' equity:
Series B Preferred Stock, 1 share issued
and outstanding at March 31, 1999 45,000 360,000
Common Stock, no par value, unlimited
authorized shares, 12,492,928 and
12,210,311 shares issued and outstanding
at March 31, 1999 and December 31, 1998 52,020,975 51,674,618
Accumulated deficit (56,031,227) (51,600,647)
----------- -----------
Total stockholders' equity (4,010,252) 433,971
---------- -----------
$7,187,069 $10,930,719
========== ===========
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 MARCH 31, 1999 AND MARCH 31, 1998
(Unaudited)
Three Months Ended
March 31, March 31,
1999 1998
(Unaudited) (Restated)
Sales $1,565,782 $3,856,957
Cost of sales 1,291,758 2,405,874
--------- ---------
Gross profit 274,024 1,451,083
--------- ---------
Expenses
Selling, general and administrative 919,018 1,276,403
Research and product development 178,285 114,815
Depreciation and amortization 150,058 161,627
--------- ---------
1,247,361 1,552,845
--------- ---------
Loss from Operations (973,337) (101,762)
Other Income (Expense)
Interest income 4,937 12,030
Interest expense (119,551) (99,294)
Other income
--- 1,508
----------- ---------
(114,614) (85,754)
----------- ---------
Loss from continuing operations ($1,087,951) ($187,518)
=========== =========
Discontinued operations
Income from operations of discontinued
operation Val-Comm Inc. 7,657 64,852
Loss from operations of discontinued
operation Cycomm Secure Solutions, Inc. (1,751,877) (969,799)
Estimated loss on disposal of Cycomm
Secure Solutions (1,598,409) ---
---------- -----------
Net Loss ($4,430,580) ($1,092,465)
=========== ===========
Earnings per share
Income per share from discontinued operations:
Val-Comm Inc. $0.00 $0.01
Loss per share from continuing operations ($0.09) ($0.02)
Loss per share from discontinued
operations: Cycomm Secure Solutions ($0.14) ($0.10)
Loss per share on disposal of Cycomm
Secure Solutions ($0.13) ---
------ ------
Net loss per share ($0.36) ($0.11)
====== ======
Weighted average number of common shares 12,433,264 9,987,588
outstanding ========== =========
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 MARCH 31, 1999 AND MARCH 31, 1998
(Unaudited)
Three Months Ended
March 31, March 31,
1999 1998
Operating activities
Net loss from continuing operations ($1,087,951) ($187,518)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 150,058 161,627
Recognition of deferred revenue (312,724) ---
Change in operating assets and liabilities 1,153,622 (2,449)
--------- -------
Cash used in operating activities (96,995) (28,340)
--------- -------
Investing activities
Acquisition of fixed assets --- (95,979)
Increase in notes receivable (4,000) 50,000
Decrease in notes receivable 2,000 (50,000)
Other 26,119 3,443
------ -------
Cash provided by (used in) investing activities 24,119 (92,536)
------ -------
Financing activities
Issuance of preferred stock --- 900,000
Borrowings under revolving credit facility (267,588) 227,494
Repayment of notes payable (15,777) (31,582)
Repayment of obligations under capital leases (9,686) (7,010)
-------- ---------
Cash provided by financing activities (293,051) 1,088,902
-------- ---------
Discontinued operations
Cash provided by (used in) discontinued
operation: CSS 33,176 (894,592)
Cash provided by (used in) discontinued
operation: Val-Comm 4,848 (101)
Increase in cash and cash equivalents
during the period (327,903) 73,333
Cash and cash equivalents, beginning of period 567,977 509,580
-------- --------
Cash and cash equivalents, end of period $240,074 $582,913
======== ========
Supplemental cash flow information:
Interest paid $194,050 $173,626
Income taxes paid $ --- $ ---
Non-cash investing and financing activities:
Conversion of convertible debentures
to common stock $ --- $273,970
Conversion of preferred stock to common stock $381,356 $ ---
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 MARCH 31, 1999
AND THE YEAR ENDED DECEMBER 31, 1998
Preferred Preferred Common Common Accumulated
Shares Stock Shares Stock Deficit
Balance, December 31, 1997 --- --- 9,816,877 47,491,611 (43,247,978)
Net Loss (8,296,049)
Issuance of common stock:
Conversion of debentures --- --- 236,380 273,970 ---
Private placement -
common stock --- --- 1,870,000 2,895,750 ---
Value of options issued to
non-employees --- --- --- 450,000 ---
Issuance of preferred stock:
Private placement -
preferred stock 20 900,000 --- --- ---
Conversion of preferred stock (12) (540,000) 287,054 563,287
Dividends on preferred stock (56,620)
-------- -------- ---------- ----------- ------------
Balance, December 31, 1998 8 $360,000 12,210,311 $51,674,618 $(51,600,647)
======== ======== ========== =========== ============
Net Loss (4,430,580)
Issuance of common stock:
Conversion of preferred stock (7) (315,000) 282,617 346,357 ---
-------- -------- ---------- ---------- ------------
Balance, March 31, 1999 1 $45,000 12,492,928 52,020,975 $(56,031,227)
======== ======== ========== ========== ============
See accompanying notes to condensed consolidated financial statements.
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1998
NOTE 1 - GENERAL
The interim financial information furnished herein was prepared from the
books and records of Cycomm International Inc. and its subsidiaries (the
"Company") as of March 31, 1999 and for the period then ended, 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 the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1998. The
interim financial information presented is not necessarily indicative of the
results from operations expected for the full fiscal year.
NOTE 2 - DISCONTINUED OPERATIONS
On March 4, 1999 the Company signed a Letter of Intent for the sale of the
assets of its secure computing subsidiary, Cycomm Secure Solutions Inc.
("CSS") to an investment group led by that subsidiary's current management.
The Company anticipates that the sale will be completed in the second quarter
of 1999. The results of operations for CSS are reported as discontinued
operations for all periods presented. For the quarter ended March 31, 1999,
the results of CSS include a write-off of goodwill of $1,265,554 and a
write-off of fixed assets of $320,502. The results of operations for Cycomm
Secure Solutions Inc. are summarized as follows:
Quarter ended
March 31, March 31,
1999 1998
Revenue 1,664,051 1,013,117
Cost of Sales 1,182,542 1,060,208
--------- ---------
Gross profit (loss) 481,509 (47,091)
Operating Expenses 2,233,386 922,708
--------- -------
Net loss (1,751,877) (969,799)
========== ========
Net loss per share $(0.14) $(0.10)
====== ======
The assets being sold include the inventory, fixed assets and various
intangibles and other assets and have a carrying value of $2,398,409 as of
March 31, 1999. Estimated proceeds on the sale of Cycomm Secure's assets are
$800,000 an estimated net loss on disposal of 1,598,409.
The Company has also entered into an agreement to sell its secure
telecommunications subsidiary, Val-Comm Inc. to an investment group located
within Val-Comm's geographical area. The transaction will be a stock
purchase, and management anticipates that the sale will be completed in the
second quarter of 1999. The results of operations for Val-Comm Inc. are
reported as discontinued operations for all periods presented, and are
summarized as follows:
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Quarter ended
March 31, March 31,
1999 1998
Revenue 331,508 405,495
Cost of Sales 211,383 239,514
------- -------
Gross profit (loss) 120,125 165,981
Operating Expenses 112,468 101,129
------- -------
Net income 7,657 64,852
===== ======
Net income per share $0.00 $0.01
===== =====
The net book value of Val-Comm's assets at March 31, 1999 is $379,748.
Management estimates that the proceeds of the sale will be approximately
$750,000.
NOTE 3 - ACQUISITION EARN-OUT
XL Computing (Canada) Inc.
In connection with the purchase price paid for the Company's acquisition of
its Cycomm Mobile Solutions subsidiary, the Company 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 March 31, 1999, Cycomm had paid $1,354,796 of contingent consideration,
which was paid in 444,862 shares of common stock. Cycomm has accrued an
additional liability of $700,000 related to the earn-out obligation, however
payment of this amount is contingent upon the outcome of the lawsuit
described in the paragraph below. No contingent consideration was paid by
Cycomm in 1999 or 1998.
The Company is currently involved in a lawsuit with the Seller regarding the
amount of earn-out consideration due. The Company believes that eligible
units in the earn-out calculation include all PCMobile units which are
substantially the same as the units manufactured by M3i Technologies at the
time of the acquisition (486 75mhz processors with monochrome screens). M3i
believes that earn-out should be calculated on all units sold, including the
subsequent generations of PCMobile computers (the 586 133mhz color screen
units, and the Pentium 233mhz color screen units). If the asset purchase
agreement is interpreted to use M3i's method of calculation, Cycomm would be
obligated to issue M3i approximately $1.5 million of Cycomm common stock.
This would have no income statement effect for Cycomm, but it would increase
the Company's goodwill related to the transaction and increase the common
stock outstanding.
The Company is in advanced negotiations to settle this lawsuit with the
plaintiff. The lawsuit has been stayed during the settlement discussions.
The Company has recorded the full amount of earn-out based on the current terms
of the proposed settlement. See Part II - Item 1 for further information
regarding litigation.
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
NOTE 4 - DELISTING FROM THE AMERICAN STOCK EXCHANGE
On January 21, 1999, Cycomm was notified by the American Stock Exchange that
it no longer met continued listing criteria and would be delisted.
Specifically, Cycomm had incurred losses in its last five fiscal years and
therefore failed to meet the American Stock Exchange listing requirement of
pre-tax income of at least $750,000 in its last fiscal year, or in two of its
last three fiscal years. Additionally, Cycomm failed to satisfy the minimum
stockholders' equity requirement of $4 million. Trading of Cycomm's stock
was suspended on April 13, 1998 and Cycomm was delisted from the AMEX on
April 30, 1999. The Company began trading on the Over-the-Counter Bulletin
Board (OTCBB) on May 5, 1999 under the symbol "CYII".
NOTE 5 - DEFERRED REVENUE
The Company has recorded deferred revenue of $622,224 and $934,948 for the
periods ended March 31, 1999 and December 31, 1998 respectively. Deferred
revenue was recorded as a result of certain sales of PCMobile computers 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 retain the right to return the 586s at any time before they
receive the Pentiums. Upon the return of the 586s, the customers would be
entitled to a full refund, and the entire sale would be cancelled.
The 586s have been classified as demonstration units, which are recorded in
inventory, and are depreciated over a one year period. Revenue on the sales
is recognized when the Pentium units are shipped to the customers. Cycomm
recognized revenue of $312,724 for the quarter ended March 31, 1999 related
to the shipment of Pentium units to customers in exchange for the 586 units.
NOTE 6 - INVENTORIES
The following is a summary of inventories at March 31, 1999 and December 31,
1998:
March 31, December 31,
1999 1998
Restated
Raw materials $1,506,115 $932,025
Work in process and sub-assemblies 272,959 651,018
Finished goods 376,230 302,940
---------- ----------
$2,155,304 $1,885,983
========== ==========
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NOTE 7 - NOTES PAYABLE AND CONVERTIBLE DEBENTURES
The Company has a revolving credit facility from a lender under which the
Company may, at its option, borrow and repay amounts up to a maximum of
$3,432,000, of which $2,043,302 was outstanding at March 31, 1999.
Borrowings under this credit facility bear interest at prime plus 3%. The
credit facility is collateralized by trade accounts receivable and inventory
and restricts the Company from paying dividends in certain circumstances. In
conjunction with this credit facility, the Company obtained a term loan in
the amount of $568,000 collateralized by certain machinery and equipment.
This term loan bears interest at prime plus 3% and is payable in equal
installments of $15,777 per month through January 1, 2001. As of March 31,
1999, the outstanding balance of the term loan was $378,648.
As of March 31, 1999, the Company has outstanding a total of $3,000,000 in
convertible debentures which are convertible at the option of the holders
into common stock of the Company. The original date of maturity for the
convertible debentures was February 28, 1999, however, the Company obtained
an extension of the maturity date until March 31, 1999. Effective as of
March 31, 1999, the Company entered into a new agreement with the holders of
the debentures, which amended the terms of the note and extended the maturity
date to May 1, 2000. Pursuant to the terms of the new debenture, the
interest rate on the convertible debentures has been lowered from 12% per
annum to 7% per annum. The debentures are convertible at the market price of
Cycomm's common stock, provided that the market price is not below $0.50
per share at the time of conversion. The holders of the debentures cannot
convert more than 5% of the outstanding debentures until after August 1, 1999,
10% until after November 1, 1999, 15% until after February 1, 2000 and the
balance until after May 1, 2000.
NOTE 8 - CAPITAL STOCK
Authorized Capital
The authorized capital of the Company consists of an unlimited number of
common shares without par value and an unlimited number of preferred shares
without par value, issuable in series.
Common Stock
The issued common stock of the Company consisted of 12,492,928 and 12,210,311
shares as of March 31, 1999 and December 31, 1998, respectively. Basic loss
per share is calculated based on the weighted average number of common shares
outstanding during each period. Diluted net loss per share was equal to basic
loss per share in each of the periods presented as the effect of potentially
dilutive securities was anitdilutive.
Preferred Stock
In February 1998, Cycomm issued 20 shares of Series B convertible redeemable
preferred stock ("Series B preferred stock") with a conversion value of
$50,000 per share for net proceeds of $900,000. The Series B preferred stock
is convertible at the option of the holder into common stock pursuant to a
conversion schedule as set forth in the agreement. The holder can convert 25%
of its preferred shares on or after the 90th day after February 26, 1998, and
up to a further 25% every 30 days thereafter. The conversion price is the
lesser of $2.38, or a 15% discount of the five-day average closing bid price
prior to the date of conversion. In the event that Cycomm's common stock is
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trading at or below $1.50 per share at the conversion date, Cycomm has the
right to redeem the preferred shares at a premium of 18% over the conversion
price. If Cycomm does not exercise this right, the holder may convert 10% of
its preferred shares, and up to a further 10% every 20 days thereafter. As
of March 31, 1999, 19 shares of Series B preferred stock had been converted
into 569,671 shares of common stock, and 1 share of Series B preferred stock
was outstanding.
NOTE 9 - SUBSEQUENT EVENTS
The Company has proposed a settlement to M3i Technologies, Inc. (M3i)
regarding the lawsuit over PCMobile earn-out calculations. M3i was seeking
over $2 million in damages, to be paid in cash. The terms of the proposed
settlement call for Cycomm to sign a promissory note for an amount to be
determined based on the date of the payment. The note will be $700,000 if it
is repaid before the first anniversary of the settlement date, $1,100,000 if
repaid before the second anniversary of the settlement date, and $1,500,000
if repaid before the third anniversary of the settlement date. The Company
and M3I currently believe that a settlement in this form is attainable,
however, there can be no assurances that such a settlement can be reached.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Results of Continuing Operations
Quarter Ended March 31, 1999 and March 31, 1998
In the quarter ended March 31, 1999 the Company made the determination that
it could no longer fund the operations of its secure computing segment,
Cycomm Secure Solutions, Inc. ("CSS"). CSS lost over $4 million in the year
ended December 31, 1998, causing a significant drain on the Company's cash
resources. Management identified several potential buyers, and on March 4,
1999 signed a letter of intent to sell the assets of CSS to a group led by
that subsidiary's current management. The operating results of CSS for the
quarter ended March 31, 1999 are not included in results from continuing
operations, and are classified on a separate line item on the income
statement.
The Company also entered into an agreement to sell its secure communications
equipment subsidiary, Val-Comm Inc., in order to generate additional working
capital, and to concentrate fully on the Company's core business, the
PCMobile line of rugged computers. Val-Comm is in the process of being sold
to a group of investors located within its geographic region. Results of
operations from Val-Comm have also been excluded from results from continuing
operations, and are classified separately on the income statement.
The results of continuing operations for the quarters ended March 31, 1999
and March 31, 1998 reflect only the results of the Company's PCMobile product
line and the results of the parent company.
Revenues for the three months ended March 31, 1998 were $1,565,782 as
compared to revenues of $3,856,957 for the prior period. The decrease in
sales was a result of production shortfalls caused by inadequate resources
available to the Company.
Cost of sales for the quarter ended March 31, 1999 were $1,291,758 as
compared to cost of sales of $2,405,874 for the prior period. Gross margins
for the quarter ended March 31, 1999 were 18%, which represents a decrease
Page 12
from 38% in the prior period. The decrease in gross margins is directly
attributable to the decrease in sales volume from the prior period. The
Company prices its PCMobiles to attain gross margins within a range of 30% to
40%. However, lower levels of production cause manufacturing overhead to be
spread over fewer products, which increases the cost of production per unit
and lowers margins.
Operating expenses decreased to $1,247,361 for the period ended March 31,
1999 as compared to $1,552,845 in the prior period. Selling, general and
administrative expenses decreased $357,385 to $919,018 for the current
period. This decrease is mainly the result of management headcount
reductions. Research and development costs increased to $178,285 as compared
to $114,815 in the prior period. The research and development expenses in
the current period approximate normal levels for the PCMobile product, and
are related primarily to streamlining the production of the Pentium and
Pentium II models of the PCMobile. Depreciation and amortization decreased
to $150,058 for the quarter ended March 31, 1999 as compared to $161,627 in
the prior period.
Interest expense for the quarter ended March 31, 1999 was $119,551 as
compared to $99,294 for the prior period. The increase is a result of the
change in the interest rate on the convertible debentures from 10% to 12%.
On March 31, 1999 the terms of the convertible debentures were renegotiated,
and the interest rate was reduced to 7% (see Note 7).
Net loss from continuing operations increased to $1,087,951, or $0.09 per
share, for the quarter ended March 31, 1999 from $187,518, or $0.02 per
share for the quarter ended March 31, 1998. The increase in net loss from
continuing operations is a result of the significant decrease in PCMobile
sales and margins from the prior period, offset by the Company's reductions
in selling, general and administrative expenses.
The loss from discontinued operations from the Company's Cycomm Secure
Solutions subsidiary was $1,751,877 for the quarter ended March 31, 1999, as
compared to $969,799 in the prior period. Included in the loss for the
period ended March 31, 1999 is a write-off of goodwill of $1,265,554 and a
write-off of fixed assets of $320,502.
Income from discontinued operations from the Company's Val-Comm subsidiary
was $7,657 for the quarter ended March 31, 1999 as compared to $64,852 in the
prior period.
Liquidity and Capital Resources
The Company has satisfied working capital requirements through cash on hand,
available lines of credit and various equity related financings. At March
31, 1999, the Company had cash and cash equivalents of $240,074.
In the three months ended March 31, 1999, cash used in operations amounted to
$96,995. Cash provided by investing activities during the three months ended
March 31, 1999 totaled $24,119. Cash used in financing activities was
$293,051 for the three months ended March 31, 1999. The Company decreased
the amounts drawn on its bank credit lines in an amount of $267,588 during
the three months ended March 31, 1999.
The Company's net working capital at March 31, 1999 was ($2,346,539) as compared
to ($2,594,200) at December 31, 1998. The change in net working capital is a
Page 13
result of $3,000,000 of convertible debentures being reclassified from current
to long term obligations of the Company, as the maturity date has been extended
until May 1, 2000. Trade accounts payable increased by $1,227,771 to $3,418,796
at March 31, 1999. Net working capital for the quarter ended March 31, 1999
also includes an allowance for loss on disposal of the assets of Cycomm Secure
Solutions of $1,598,409.
The Company is currently facing significant cash flow problems, which have
slowed the production of the PCMobile product line and have caused revenues to
decrease and losses to grow. The Company is addressing these problems with
the sale of two of its subsidiaries, Cycomm Secure Solutions Inc. ("CSS")
and Val-Comm Inc. The sale of CSS will eliminate a significant cash
drain for the Company, as CSS lost over $4 million for the year ended
December 31, 1998. Proceeds from the sale will be used to pay down the
Company's secured line of credit and vendors. The sale of Val-Comm will
generate cash which will be used primarily to fund PCMobile operations. In the
event that one or both of these transactions are not completed or are
unable to be completed on terms acceptable to management, the Company will
consider further cost cutting measures, including the discontinuation of
certain business segments, sale of assets or protection under Federal
bankruptcy laws.
Management is also streamlining operations by reducing headcount,
implementing programs to grow revenue and evaluating plans to further
capitalize the Company through private equity placements or borrowings.
Page 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
A lawsuit was instituted against the Company on September 2, 1998 in
the United States District Court for the Eastern District of Virginia by the
trustee in bankruptcy of M3i Technologies, Inc., a Quebec corporation from
which the Company and a subsidiary purchased certain PCMobile assets in June
1996. The lawsuit alleges breach of contract and misrepresentation in
connection with the "earn out" provision of the asset purchase agreement and
seeks monetary damages and other relief. The Company has denied any
wrongdoing and liability and has vigorously defended the allegations. The
Company is in advanced settlement negotiations with the plaintiff. The
lawsuit has been stayed during the settlement negotiations.
The Company instituted a lawsuit on February 5, 1999 in the Circuit
Court of the Thirteenth Judicial Circuit in and for Hillsborough County,
Florida against Infotech International, a Florida corporation involved in the
resale of the Company's PCMobile computers. The lawsuit alleges breach of
contract and conversion of funds. The Company is seeking damages of $592,959
plus interest and costs. The Company is in advanced settlement negotiations
with the defendant.
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.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27. Financial Data Schedule
(b) Reports on Form 8-K:
1. Current Report on Form 8-K was filed on February 4, 1999 reporting
the decision by the American Stock Exchange to delist the Company's
common stock under Item 5. - Other Items.
Page 15
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: May 20, 1999 /s/ Albert I. Hawk
Albert I. Hawk
President and
Chief Executive Officer
Date: May 20, 1999 /s/ Robert M. Hutton
Robert M. Hutton
Vice President of Finance
Page 16
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 ____________, 1999
________________________________
Albert I. Hawk
President and
Chief Executive Officer
Date: ____________, 1999
_______________________________
Robert M. Hutton
Vice President of Finance