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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-QSB/A-2
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(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
- ----- Act of 1934
For the quarterly period ended August 31, 1996
Transition report under Section 13 or 15(d) of the Securities Exchange
- ----- Act of 1934
For the period from to
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Commission file number: 1-11686
CYCOMM INTERNATIONAL INC.
(Exact name of small business issuer as specified in its charter)
Wyoming 54-1779046
(State or other jurisdiction of 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
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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
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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 October 11, 1996, the Registrant had 7,617,087 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.
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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 . . . . . . . . . . . . . . . . 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 2. CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 3. DEFAULT UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . 10
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF AUGUST 31, 1996 AND MAY 31, 1996
(UNAUDITED)
AUGUST 31, MAY 31,
1996 1996
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(Restated) (Restated)
ASSETS
Current Assets
Cash and cash equivalents $ 612,154 $ 2,477,267
Accounts receivable, net 3,126,193 1,782,982
Inventories 7,034,444 2,691,000
Prepaid expenses 135,078 186,451
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10,907,869 7,137,700
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Notes receivable 69,305 69,182
Fixed assets, net 1,535,465 1,593,672
Goodwill, net 1,768,581 1,849,114
Other assets
Long-term investments 1,175,859 1,175,859
Organization costs 45,944 ---
Deferred technology costs, net 111,671 157,754
Deferred financing costs, net 187,565 316,084
Deferred income tax 35,221 ---
Unearned Discount 55,842 499,188
Patents, net 21,250 22,500
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1,633,352 2,171,385
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$15,914,572 $12,821,053
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LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities $2,379,253 $2,404,934
Due to affiliate 13,230 60,129
Bank line of credit 1,186,160 ---
Dividends payable on preferred stock 76,667 46,000
Current portion of capital lease obligations 75,413 9,360
Notes payable 762,016 1,032,942
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4,492,739 3,553,365
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Capital lease obligations 8,208 8,207
Convertible debentures 2,141,666 3,309,001
Deferred credit (Note 2) 2,033,540 ---
STOCKHOLDERS' EQUITY
Series A Preferred Stock, 15,000 shares issued and
outstanding at August 31, 1996 and May 31, 1996 1,500,000 1,500,000
Common Stock, no par value, unlimited
authorized shares, 6,973,351 and
5,943,771 shares issued and
outstanding at August 31, 1996 and May 31, 1996 38,882,350 35,743,536
Cumulative translation adjustment (11,285) ---
Deficit (33,132,646) (31,293,056)
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7,238,419 5,950,480
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15,914,572 $12,821,053
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See accompanying notes to consolidated financial statements.
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED AUGUST 31, 1996 AND AUGUST 31, 1995
(UNAUDITED)
THREE MONTHS ENDED
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AUGUST 31, AUGUST 31,
1996 1995
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(Restated) (RESTATED - NOTE 1)
Sales $4,465,105 $429,353
Cost of sales 2,871,979 192,700
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Gross profit 1,593,126 236,653
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Expenses
Selling, general and administrative 1,939,177 966,736
Research and product development 461,040 88,536
Depreciation and amortization 179,076 141,153
Foreign exchange loss(gain) (2,356) (1,267)
Write-down of inventories 3,529 ---
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2,580,466 1,195,090
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LOSS FROM OPERATIONS (987,340) (958,505)
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OTHER INCOME (EXPENSE)
Interest income 21,006 10,033
Interest expense (895,637) (15,250)
Gain (loss) on sale of fixed assets (203) (8,597)
Other income 53,251 1,382
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(821,583) (12,432)
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NET LOSS $(1,808,923) $(970,937)
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LOSS PER SHARE
Net loss per share $(0.29) $ (0.27)
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Weighted average number of common shares outstanding 6,248,291 3,613,192
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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 AUGUST 31, 1996 AND AUGUST 31, 1995
(UNAUDITED)
THREE MONTHS ENDED
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AUGUST 31, AUGUST 31,
1996 1995
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(Restated) (RESTATED - NOTE 1)
OPERATING ACTIVITIES
Net loss $(1,808,923) $(970,937)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 179,076 141,153
Loss (gain) on sale of fixed assets 202 8,597
Write-down of inventories 3,529 ---
Non-cash expenses 880,036 1,810
Research and product development 46,084 73,965
Change in operating assets and liabilities (2,598,741) (161,518)
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Cash (used in) operating activities (3,298,737) (906,930)
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INVESTING ACTIVITIES
Acquisition of fixed assets (39,385) (10,645)
Proceeds on disposal of fixed assets 2,013 ---
Increase in notes receivable (123) ---
Payment for acquisition, net of cash acquired:
- XL Computing Canada Inc. (1,000,000) ---
Other (81,165) ---
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Cash (used in) investing activities (1,118,660) (10,645)
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FINANCING ACTIVITIES
Issuance of common stock 300,000 ---
Borrowings under bank line of credit 1,186,160 ---
Repayment of notes payable (270,926) (149,402)
Borrowings under convertible debentures 1,500,000 ---
Deferred financing costs on convertible debentures (150,000) ---
Repayment of obligations under capital leases (12,950) (1,556)
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Cash provided (used) by financing activities 2,552,284 (150,958)
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Increase (decrease) in cash and cash equivalents during the period (1,865,113) (1,068,533)
Cash and cash equivalents, beginning of period 2,477,267 1,791,720
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Cash and cash equivalents, end of period $ 612,154 $ 723,187
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SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 15,588 $ 5,416
Income taxes paid --- ---
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of convertible debentures to common stock $2,507,234 $ ---
Capital lease obligations incurred $ 79,004 $ 9,094
See accompanying notes to consolidated financial statements.
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED AUGUST 31, 1996
(UNAUDITED)
CUMULATIVE
PREFERRED PREFERRED COMMON COMMON TRANSLATION ACCUMULATED
SHARES STOCK SHARES STOCK ADJUSTMENT DEFICIT
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BALANCE, MAY 31, 1995 --- --- 3,594,316 $26,606,192 --- $(21,802,405)
Net loss (9,444,651)
Issuance of preferred stock
on acquisition of XLCC 30,000 $3,000,000
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 1,809,477 4,814,655
Conversion of preferred stock (15,000) (1,500,000) 400,000 1,500,000
Dividends on preferred stock (46,000)
Beneficial conversion feature of
convertible debt 2,159,234
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BALANCE, MAY 31, 1996 15,000 1,500,000 5,943,771 35,743,536 --- (31,293,056)
Net loss (1,808,923)
Issuance of common stock:
Conversion of debentures 929,580 2,507,234
Exercise of options 100,000 300,000
Dividends on preferred stock (30,667)
Cumulative translation adjustment $(11,285)
Beneficial conversion feature of
convertible debt 331,580
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BALANCE, AUGUST 31, 1996 15,000 $1,500,000 6,973,351 $38,882,350 $(11,285) $(33,132,646)
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See accompanying notes to consolidated financial statements
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - 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 August 31, 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
effective June 1, 1994.
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/A for the fiscal year ended May 31, 1996.
The interim financial information presented is not necessarily indicative of
the results from operations expected for the full fiscal year.
NOTE 2 - ACQUISITIONS
On June 21, 1996, the Company completed the Asset Purchase Agreement by and
among the Company and 9036-8028 Quebec, Inc., a wholly-owned subsidiary,
(collectively the "Buyer") and M3i Technologies Inc. and M3i Systems Inc.
(collectively the "Seller") whereby the Buyer acquired substantially all of the
assets of the Seller, for an aggregate purchase price, subject to earn-out
provisions, of a maximum of $5,000,000. Subsequent to the asset acquisition,
9036-8028 Quebec, Inc. was renamed XL Computing Canada Inc. ("XL Canada"). XL
Canada is based in Montreal, Quebec and is engaged in the design, manufacture,
sale and support of mobile computing and communications systems.
The aggregate purchase price consisted of cash of $1,000,000 and common stock
of the Company valued at a maximum of $4,000,000 for an aggregate purchase
price, subject to earn-out provisions, of a maximum of $5,000,000. The amount
of the common stock is subject to earn-out provisions based on the achievement
of certain unit sales volumes for a five year period. Any common stock issued
under the earn-out provisions will be issued at the average current market
price for the quarter of issuance. The earn-out provisions will be fully
satisfied upon XL Canada recording approximately $31 million in revenues from
the sales of computer units.
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
The acquisition of XL Canada was accounted for as a purchase. Accordingly, the
purchase price was allocated to the net assets acquired based on their
estimated fair market value. The fair market value of the monetary and
nonmonetary assets acquired was $3,794,939 and the fair value of the
liabilities assumed was $79,004. After an allocation to reduce nonmonetary
assets acquired to zero, the remaining excess of the estimated fair market value
of net assets acquired over the purchase price amounted to $2,074,461, which has
been accounted for as a deferred credit and is being amortized over ten years
using a straight line basis. The value of common stock issued to the Seller as
the contingent consideration is earned subject to the earn-out provisions will
be recorded against the deferred credit. The accompanying consolidated
statements of operations reflect the operating results of XL Canada since the
effective date of the acquisition.
NOTE 3 - INVENTORIES
AUGUST 31, MAY 31,
1996 1996
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Raw materials $3,964,146 $1,486,645
Work in process and sub-assemblies 1,917,869 941,989
Finished goods 1,152,429 262,366
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$7,034,444 $2,691,000
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NOTE 4 - SUBSEQUENT EVENTS
In September 1996, the Company issued $400,000 of 10% convertible debentures
due September 30, 1998, which are convertible at the option of the holder into
common stock of the Company at the lesser of $4.80 per share or a range of 80%
to 82% of the average closing bid of the Company's common stock prior to
conversion. The debentures are fully eligible for conversion after February 2,
1997.
In October 1996, the Company completed a private placement of 155,000 shares of
common stock for gross proceeds of $589,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1996, the Company had net working capital of approximately $6.4
million and total debt of approximately $4.1 million. Included in total debt
is $2.1 million of convertible debentures with maturity dates from March 1998
through June 1998. The Company anticipates that the holders of the convertible
debentures will exercise the conversion options and working capital will not be
required to retire these debentures. Also included in total debt are
acquisition notes payable of $230,000 due to Lucent Technologies, Inc. and
$485,165 due to XL Vision, Inc. These amounts are due in full by December 31,
1996. Additionally, XL Computing Corp. ("XLCC") obtained a bank line of credit
in July 1996 with a maximum borrowing capacity of $1.5 million. The line of
credit is collateralized by the inventories and accounts receivable of XLCC
and is guaranteed by Cycomm International Inc. At August 31, 1996, an amount of
approximately $1.2 million was outstanding on this bank line of credit, which
has been reduced to approximately $700,000 as of October 15, 1996.
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
In the quarter ended August 31, 1996, cash used in operations amounted to
approximately $3.3 million. Increases in accounts receivable and inventories
required a use of cash totaling approximately $2.5 million. Investing
activities used approximately $1.1 million in the quarter ended August 31,
1996. The major component of this was the $1.0 million cash portion of the
acquisition of XL Computing Canada Inc. in June 1996. Cash provided by
financing activities was approximately $2.6 million for the quarter ended
August 31, 1996. The Company realized gross proceeds of $1.5 million on the
issuance of convertible debentures in June 1996. Additionally, through its
wholly-owned subsidiary XL Computing Corp., a bank line of credit was obtained
to finance working capital. An amount of approximately $1.2 million was drawn
on this line during the quarter. Also, the Company realized proceeds of
$300,000 through the exercise of certain stock options.
Until the operations of the communications security products segment achieves
certain levels, this business segment will require additional financing through
funding from other subsidiaries' activities, borrowings or issuance of equity
and debt securities. The Company expects its computer equipment segment to be
able to fund operations from working capital and secured lines of credit. The
Company believes that it has the capital resources to raise funds through
additional debt and equity financings, to develop and market its products and
to make acquisitions. In this regard, the Company believes that it will be
able to meet its obligations during the remainder of the present fiscal year.
There can, however, be no assurance that the above will be successfully
accomplished, or will be possible on terms acceptable to the Company. In that
event, there is substantial doubt about the Company's ability to continue as a
going concern.
RESULTS OF OPERATIONS
Three Months Ended August 31, 1996 and August 31, 1995
The Company recorded a net loss of $1,808,923 for the three months ended August
31, 1996, as compared to a net loss of $970,937 for the three months ended
August 31, 1995.
The Company recorded total sales of $4,465,105 for the three months ended
August 31, 1996, as compared to sales of $429,353 for the corresponding quarter
of the prior year. This represents a increase of 940% and is attributable to
the inclusion of the results of operations of XL Computing Corporation and XL
Computing Canada Inc. which were acquired subsequent to August 31, 1995.
Revenue from the communication security products segment decreased by 15% from
the prior year period due to special one time sales related to the disposal of
obsolete inventory of $132,583 in the prior year. Without that one time gain,
revenues in that segment would have increased by 15%. Revenue from the computer
equipment segment was $4,105,196 or 92% of total revenue for the period. All
computer equipment segment revenues are generated by the two newly acquired
subsidiaries.
The Company recorded gross profit of $1,593,126, or 36% of net sales in the
three months ended August 31, 1996, as compared to $236,653, or 55% of net
sales for the corresponding quarter of the prior year. Without the one time
sale of obsolete inventory gross margin would have been 35%.
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
Total operating expenses were $2,580,466 for the three months ended August 31,
1996, as compared to total operating expenses of $1,195,090 for the three
months ended August 31, 1995. This increase is attributable to increased costs
related to overhead expenses incurred in operating the two newly acquired
subsidiaries.
Interest expense for the three months ended August 31, 1996 was $895,637 as
compared to $15,250 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 $774,926
for the three months ended August 31, 1996 related to convertible debt
financing that give effect to beneficial conversion features.
Losses from operations from the communication security products segment
increased from $535,584 to $594,479 or 11% for the current quarter versus last
year's first quarter. This increase is mainly attributable to approximately
$140,000 in costs related to "Slice" CSD development costs. The computer
equipment segment generated income from operations of $156,154 for the first
quarter of fiscal 1997.
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
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 -- None
(b) Reports on Form 8-K:
1. A Current Report on Form 8-K was filed on July 8, 1996
reporting the acquisition of substantially all the assets of M3i Technologies,
Inc. under Item 2 - Acquisitions or Disposition of Assets.
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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
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Albert I. Hawk
President and
Chief Executive Officer
Date: June 25, 1997 /s/ Michael R. Skoff
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Michael R. Skoff
Chief Financial Officer
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