1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------
FORM 10-QSB/A
-------------
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
- ----- Act of 1934
For the quarterly period ended February 29, 1996
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 (12b)
CYCOMM INTERNATIONAL INC.
(Exact name of small business issuer as specified in its charter)
Wyoming 54-1779046
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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 10, 1996, the Registrant had 4,718,468 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format: Yes No X
---- ---
2
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page No.
--------
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Loss and Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statement of Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2
3
CYCOMM INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
AS OF FEBRUARY 29, 1996 AND MAY 31, 1995
UNAUDITED
February 29, May 31,
1996 1995
------------------ ----------------------
ASSETS (Restated)
Current Assets
Cash and cash equivalents $2,229,611 $1,791,720
Accounts receivable 183,803 55,798
Inventories 1,401,403 1,374,005
Prepaid expenses 238,891 46,001
------------------ ----------------------
4,053,708 3,267,524
------------------ ----------------------
Notes receivable 189,510 170,672
Fixed assets, net 287,387 335,210
Other assets
Long-term investments 1,055,796 1,055,796
Deferred costs 481,337 342,087
Unearned discount 129,527 -
Goodwill, net of accumulated amortization 676,193 991,924
Patents, net of accumulated amortization 23,750 -
Prepaid royalties 30,466 30,466
------------------ ----------------------
2,397,069 2,420,273
------------------ ----------------------
------------------ ----------------------
$6,927,674 $6,193,679
================== ======================
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities $610,092 $691,787
Capital lease obligations 19,852 23,341
Notes payable - current portion 476,101 639,655
------------------ ----------------------
1,106,045 1,354,783
------------------ ----------------------
Convertible debentures 2,775,000 -
Notes payable 35,109 35,109
------------------ ----------------------
2,810,109 35,109
------------------ ----------------------
Commitments and Contingencies
SHAREHOLDERS' EQUITY
Common Stock, no par value, unlimited
authorized shares, 4,224,784 and
3,594,316 shares issued and outstanding
at February 29,1996 and May 31, 1995 29,976,673 26,606,192
Retained Earnings (Deficit) (26,965,153) (21,802,405)
------------------ ----------------------
3,011,520 4,803,787
------------------ ----------------------
$6,927,674 $6,193,679
================== ======================
The accompanying notes are an integral part of these consolidated financial
statements.
3
4
CYCOMM INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
FOR THE PERIODS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
UNAUDITED
Three Months Ended Nine Months Ended
----------------------------------------- --------------------------------------
February 29, February 28, February 29, February 28,
1996 1995 1996 1995
------------------ ---------------------- ---------------- ---------------------
OPERATIONS (Restated) (Restated)
Sales $323,983 $441,465 $1,176,411 $1,056,396
Cost of sales 166,264 274,753 614,562 679,745
------------------ ---------------------- ---------------- ---------------------
Gross profit 157,719 166,712 561,849 376,651
------------------ ---------------------- ---------------- ---------------------
Expenses
Consulting 331,409 118,221 649,708 375,167
Depreciation and amortization 134,284 70,137 410,851 233,549
Foreign exchange loss(gain) 295 (2,887) 14,001 2,336
Insurance 42,358 12,087 141,043 161,355
Legal and accounting 27,203 17,802 146,913 139,215
Office and miscellaneous 215,458 57,235 451,513 168,603
Research and product development 204,624 66,840 493,683 377,682
Rent 37,719 43,764 96,030 95,718
Salaries, benefits and management fees 558,114 323,930 1,390,598 1,067,234
Shareholder communication 41,815 41,763 115,528 120,044
Telephone and facsimile 33,292 29,566 92,825 89,182
Travel and promotion 100,007 59,620 246,023 185,712
Write-down of inventories - - 354,885 -
------------------ ---------------------- ---------------- ---------------------
1,726,578 838,078 4,603,601 3,015,797
------------------ ---------------------- ---------------- ---------------------
------------------ ---------------------- ---------------- ---------------------
LOSS FROM OPERATIONS (1,568,859) (671,366) (4,041,752) (2,639,146)
------------------ ---------------------- ---------------- ---------------------
OTHER INCOME(EXPENSE)
Interest income 30,215 18,652 51,202 84,334
Interest expense (640,977) (6,238) (1,165,172) (23,898)
Gain (loss) on sale of fixed assets - - (11,175) 3,871
Other income 1,027 939 4,149 6,595
------------------ ---------------------- ---------------- ---------------------
(609,735) 13,353 (1,120,996) 70,902
------------------ ---------------------- ---------------- ---------------------
------------------ ---------------------- ---------------- ---------------------
NET LOSS ($2,178,594) ($658,013) ($5,162,748) ($2,568,244)
================== ====================== ================ =====================
LOSS PER SHARE
Net loss per share ($0.58) ($0.21) ($1.37) ($0.81)
================== ====================== ================ =====================
Weighted average common shares outstanding 3,760,329 3,175,481 3,760,329 3,175,481
================== ====================== ================ =====================
DEFICIT
Deficit, beginning of period 24,786,559 19,082,190 21,802,405 17,171,959
Loss for the period 2,178,594 658,013 5,162,748 2,568,244
------------------ ---------------------- ---------------- ---------------------
Deficit, end of period $26,965,153 $19,740,203 $26,965,153 $19,740,203
================== ====================== ================ =====================
The accompanying notes are an integral part of these consolidated financial
statements.
4
5
CYCOMM INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
UNAUDITED
Nine Months Ended
-----------------------------------------
February 29, February 28,
1996 1995
---------------------- ----------------
OPERATING ACTIVITIES: (Restated)
Loss for the period ($5,162,748) ($2,568,244)
Add (deduct) items not affecting cash:
Depreciation and amortization expense 410,851 233,549
Non-cash expenses 1,083,493 -
Provision to rework inventory - 866
Research and product development 138,250 140,583
Provision for product warranty (17,763) 13,735
Provision for doubtful accounts 8,555 -
Loss/(gain) on sale of fixed assets 11,175 (5,404)
Write-down of inventories 354,885 -
---------------------- ----------------
(3,173,302) (2,184,915)
---------------------- ----------------
Changes to working capital:
Change in accounts receivable (136,560) 90,796
Change in inventory (382,283) (43,796)
Change in prepaid expenses 107,110 (15,000)
Change in accounts payable and accrued liabilities 331,029 (574,442)
---------------------- ----------------
(80,704) (542,442)
---------------------- ----------------
---------------------- ----------------
Cash used in operating activities (3,254,006) (2,727,357)
---------------------- ----------------
INVESTING ACTIVITIES:
Additions to fixed assets (81,549) (14,456)
Proceeds from the sale of fixed assets 24,327 19,804
Acquisition of patents (25,000) -
Increase in notes receivable (20,000) (43,715)
Decrease in notes receivable 1,162 -
Increase in long term investments - (49,874)
---------------------- ----------------
Cash used in investing activities (101,060) (88,241)
---------------------- ----------------
FINANCING ACTIVITIES:
Proceeds from convertible debentures and notes payable 3,985,588 8,000
Repayment of notes payable (189,142) (62,607)
Repayment of capital lease obligations (3,489) (9,183)
Proceeds from sale of common stock - 87,567
---------------------- ----------------
Cash provided by financing activities 3,792,957 23,777
---------------------- ----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 437,891 (2,791,821)
CASH AND CASH EQUIVALENTS - BEGINNING OF THE PERIOD 1,791,720 3,201,804
---------------------- ----------------
CASH AND CASH EQUIVALENTS - END OF THE PERIOD $2,229,611 $409,983
====================== ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (NOTE B)
The accompanying notes are an integral part of these consolidated financial
statements.
5
6
CYCOMM INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD ENDED FEBRUARY 29, 1996
UNAUDITED
COMMON COMMON SPECIAL ACCUMULATED
SHARES STOCK WARRANTS DEFICIT
--------------- ---------------------- ---------------- -------------------
BALANCE, MAY 31, 1994 3,012,447 $20,940,396 $2,020,639 ($17,171,959)
Net Loss (4,630,446)
Issuance of Common Stock:
Exercise of stock options 21,900 82,597
Exercise of special warrants 160,000 2,025,609 (2,020,639)
Acquisition of assets 100,000 937,500
Private placement 298,775 2,604,945
Exchange for interest in subsidiary 1,194 15,145
--------------- ---------------------- ---------------- -------------------
BALANCE, MAY 31, 1995 3,594,316 26,606,192 - (21,802,405)
Net Loss (5,162,748)
Issuance of Common Stock:
Issued in Payment for Services 63,000 300,000
Issued in Settlement of Liabilities 76,978 363,455
Conversion of debentures 490,490 1,494,006
Beneficial conversion feature of convertible debt 1,213,020
--------------- ---------------------- ---------------- -------------------
BALANCE, FEBRUARY 29, 1996 4,224,784 $29,976,673 $ - ($26,965,153)
=============== ====================== ================ ===================
The accompanying notes are an integral part of these consolidated financial
statements.
6
7
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - UNAUDITED FINANCIAL STATEMENTS
The interim financial information furnished herein was prepared from the books
and records of Cycomm International Inc. and its subsidiaries (the "Company")
as of February 29, 1996 and for the period then ended, without audit; however,
such information reflects all adjustments which are, in the opinion of
management, necessary to a fair presentation of financial position and of the
statements of operations and cash flows for the interim period presented.
Management feels that the adjustments made during the current operating period
were of a normal, recurring nature.
On October 12, 1995, the Company received shareholder approval to redomicile,
effective November 1, 1995, to the United States from Canada. The change was
made as the Company's operations are conducted primarily in the United States.
As a result, the Company has adopted the U.S. dollar as its functional and
reporting currency. This change represents a change in circumstance and the
consolidated financial statements have been translated into U.S. currency as if
the U.S. dollar had been adopted as the functional and reporting currency
effective June 1, 1994.
The interim financial information furnished herein should be read in
conjunction with the financial statements included in this report and the
financial statements and notes contained in the Company's annual report on Form
20-F for the fiscal year ended May 31, 1995.
The interim financial information presented is not necessarily indicative of
the results from operations expected for the full fiscal year.
NOTE B - SUPPLEMENTAL DATA TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Excluded from the consolidated statement of cash flows for the period ended
February 29, 1996 were the effects of certain non-cash investing and financing
activities as follows:
Conversion of convertible debentures to
equity $1,625,000
NOTE C - SUBSEQUENT EVENTS
Acquisition of XL Computing Corporation
On March 21, 1996, with an effective date of March 15, 1996, the Company
entered into a Stock Purchase Agreement by and among the Company and XL Vision,
Inc. ("XLV") and XL Computing Corporation ("XLCC") whereby the Company acquired
100% of the outstanding stock of XLCC from XLV for an aggregate purchase price,
subject to adjustment, of $5,137,787. XLCC is based in Sebastian, Florida and
is engaged in the design, manufacturing, sale and support of secure, ruggedized
computer products and related products and service thereto.
The Company acquired 100% of the outstanding stock of XLCC in exchange for cash
of $2,000,000, a promissory note in the amount of $131,787 due in four equal
monthly payments commencing on July 21, 1996 and 300,000 shares of Series A
Redeemable Convertible Preferred
7
8
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock valued at $3,000,000 for an aggregate purchase price of, subject to
adjustment, $5,131,787. The promissory note is subject to adjustment based on
certain financial results of XLCC. The Company also granted warrants to
purchase 500,000 common shares of the Company at $3.75 per share to XLV. In
March 1996, the Company issued a series of convertible debentures with gross
proceeds of $1,800,000 to the Company. The proceeds of the debentures were
used to fund the cash portion of the XLCC acquisition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
LIQUIDITY AND CAPITAL RESOURCES
Cycomm is developing and marketing new cellular privacy and security products.
Until Cycomm is able to achieve sustainable levels of sales, it will be
required to rely on its working capital or raise additional capital to fund its
operations. With the completion of Cycomm's private placement in April 1995
and the issuance of convertible debentures in the current fiscal year, Cycomm
has sufficient working capital for the fiscal year ended May 31, 1996. In the
event that sales are less than anticipated during the remainder of fiscal year
1996 and fiscal year 1997, Cycomm may be required to seek additional funding
through borrowings or sales of equity securities. Historically, Cycomm has
raised funds through equity financings to develop and market its products,
sustain its operations, make acquisitions and enter into joint ventures and
distribution agreements.
At February 29, 1996, the Company had working capital of approximately $2.9
million and total debt of approximately $3.3 million. Included in total debt
is $430,000 due to AT&T in conjunction with the acquisition of certain assets
from Datotek, Inc., a wholly-owned subsidiary of AT&T Corp. The terms of the
AT&T Note were restructured to provide for principal payments of $100,000 on
each of April 11, 1996, July 11, 1996 and October 11, 1996 and $130,000 on
December 31, 1996.
As of February 29, 1996, the Company has raised $4.4 million in debt financing
through the issuance of convertible debentures of which $2,775,000 is
outstanding at February 29, 1996. In September 1995, the Company issued a
series of convertible debentures with gross proceeds of $1,400,000 to the
Company. As of February 29, 1996, debentures in this issue with a principal
amount of $1,375,000, with accrued interest thereon, were converted into
416,779 common shares of the Company.
In December 1995, the Company issued a series of convertible debentures with
gross proceeds of $3,000,000 to the Company. The debentures, which are due on
December 4, 1997 and bear interest of 10% per annum, are unsecured and
convertible into common stock of the Company at the Market Price, as defined.
Pursuant to the terms of the debentures, the holders may convert, at their
option, an amount of up to 25% of outstanding principal and interest any time
after January 25, 1996, up to 50% of outstanding principal and interest after
February 24, 1996, up to 75% of outstanding principal and interest after March
25, 1996 and up to 100% of outstanding principal and interest after April 24,
1996. As of February 29, 1996, debentures in this issue with a principal amount
of $250,000, with accrued interest thereon, were converted into 73,711 common
shares of the Company.
8
9
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
In March 1996, the Company issued a series of convertible debentures with gross
proceeds of $1,800,000 to the Company. The proceeds of the debentures were
used to fund the cash portion of the XLCC acquisition. The debentures, which
are due in March 1998 and bear interest of 9.5% per annum, are unsecured and
convertible into common stock of the Company at the Market Price, as defined.
Pursuant to the terms of the debentures, the holders may convert, at their
option, an amount of up to 33.3% of outstanding principal and interest any time
after May 4, 1996, up to 66.7% of outstanding principal and interest after May
24, 1996, and up to 100% of outstanding principal and interest after June 23,
1996.
RESULTS OF OPERATIONS
Three Months Ended February 29, 1996 and February 28, 1995
The Company recorded a net loss of $2,178,594 for the three months ended
February 29, 1996, as compared to a net loss of $658,013 for the three months
ended February 28, 1995.
The Company recorded sales of $323,983 for the three months ended February 29,
1996, as compared to sales of $441,465 for the corresponding quarter of the
prior year. This represents a decrease of 27% and is attributable a large
one-time privacy rack sale in the prior year period.
The Company recorded gross profit of $157,719, or 49% of net sales in the three
months ended February 29, 1996, as compared to $166,712, or 38% of net sales
for the corresponding quarter of the prior year. The improvement in gross
margin in mainly due to the Company's ability to reduce its manufacturing costs
on its security products.
Total operating expenses were $1,726,578 for the three months ended February
29, 1996, as compared to total operating expenses of $838,078 for the three
months ended February 28, 1995. This increase is attributable to increased
costs related to additional expenses incurred in anticipation of increased
sales such as sales and marketing costs, salaries and advertising.
Interest expense for the three months ended February 29, 1996 was $640,977 as
compared to $6,238 for the prior period. This increase is due to increased
debt financing obtained by the Company in the form of convertible debentures.
Included in interest expense are non-recurring, non-cash charges of $616,827
for the three months ended February 29, 1996 related to convertible debt
financing that give effect to beneficial conversion features.
Nine Months Ended February 29, 1996 and February 28, 1995
The Company recorded a net loss of $5,162,748 for the nine months ended
February 29, 1996, as compared to a net loss of $2,568,244 for the nine months
ended February 29, 1995.
The Company recorded sales of $1,176,411 for the nine months ended February 29,
1996, as compared to sales of $1,056,396 for the corresponding nine month
period of the prior year. This represents an increase of 11% and is
attributable to increased unit volumes on the sales of the Company's security
products. Additional revenue increases were recognized on the sales of certain
equipment and products that will not form a part of the Company's on-going
products lines.
9
10
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
The Company recorded gross profit of $561,849, or 48% of net sales in the nine
months ended February 29, 1996, as compared to $376,651, or 36% of net sales
for the corresponding nine month period of the prior year. The
improvement in gross margin in mainly due to the Company's ability to reduce
its manufacturing costs on its security products. However, an additional factor
in the current period gross margin increase was the high margins realized on
sales of certain equipment and products whose costs had been previously written
down.
Total operating expenses were $4,603,601 for the nine months ended February 29,
1996, as compared to total operating expenses of $3,015,797 for the nine months
ended February 28, 1995. This increase is attributable to increased costs
related to additional expenses incurred in anticipation of increased sales.
Also included in the current nine month period was an expense of $354,885
resulting from a one-time charge related to the settlement of a component
contract for discontinued inventory ordered in 1993.
Interest expense for the nine months ended February 29, 1996 was $1,165,172 as
compared to $23,898 for the prior period. This increase is due to increased
debt financing obtained by the Company in the form of convertible debentures.
Included in interest expense are non-recurring, non-cash charges of $1,083,493
for the nine months ended February 29, 1996 related to convertible debt
financing that give effect to beneficial conversion features.
PART II.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits -- None
(b) Reports on Form 8-K:
1. Current Report on Form 8-K was filed on April 5, 1996
reporting the acquisition of XL Computing Corporation under
Item 2. - Acquisition or Disposition of Assets.
10
11
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: June 25, 1997 /s/ Albert I. Hawk
-------------------- -----------------------------------
Albert I. Hawk
President and
Chief Executive Officer
Date: June 25, 1997 /s/ Michael R. Skoff
------------------- -----------------------------------
Michael R. Skoff
Chief Financial Officer
11