FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996
33-8356-NY
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(Commission File Number)
CYPHERCOM SOLUTIONS, INC.
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(Exact name of registrant as specified in Charter)
Delaware
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(State or other jurisdiction of Incorporation)
13-3356966
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(IRS Employer Identification Number)
114 47th Street, 24th Floor, New York, New York 10036
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(Address of Principal Executive Offices)
(212) 869-2800
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(Registrant's telephone number, including area code)
ATC CAPITAL GROUP, LTD.
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(Former name or former address, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
There were 16,000,000 shares of the Company's Common Stock, $.0002 par value per
share, issued and outstanding at September 30, 1996.
There were 2,500 shares of the Company's Preferred Stock Series A, $1.00 par
value per share, issued and outstanding at September 30, 1996.
<PAGE>
CYPHERCOM SOLUTIONS, INC.
(f/k/a ATC Capital Group, Ltd.)
(A Development Stage Company)
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet -- September 30, 1996 (unaudited), and December 31,
1995
Statement of Operations -- Three months and nine months ended
September 30, 1996 and 1995 and cumulative from inception to
September 30, 1996 (unaudited).
Statement of Cash Flows -- Three months and nine months ended
September 30, 1996 and 1995 and cumulative from inception to
September 30, 1996 (unaudited).
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security-Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
<PAGE>
CYPHERCOM SOLUTIONS, INC.
(f/k/a ATC Capital Group, Ltd.)
(A Development Stage Company)
PART I - FINANCIAL INFORMATION
Item I. Financial Statements
3
<PAGE>
<TABLE>
CYPHERCOM SOLUTIONS, INC.
(f/k/a ATC Capital Group, Ltd.)
(A Development Stage Company)
CONDENSED BALANCE SHEET
<CAPTION>
September 30, December 31,
1996 1995
--------------- ---------------
(Unaudited) (*)
<S> <C> <C>
ASSETS
Current Assets:
Cash ................................................................................... $ 256,382 $ 120
Deferred Expenses ...................................................................... 36,000 --
--------------- ---------------
Total Current Assets .............................................................. 292,382 120
Property and Equipment, net .................................................................. 1,317,705 --
Other Assets:
Security Deposits ...................................................................... 141,078
Investments ............................................................................ 2,545 --
--------------- ---------------
Total Other ....................................................................... 143,628
--------------- ---------------
$ 1,753,710 $ 120
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Expenses .................................................. $ 121,169 $ --
--------------- ---------------
Due to Related Party ......................................................................... -- 3,450
--------------- ---------------
Stockholders' Equity:
Convertible Preferred Stock, Series A- $1.00 par value, 1,000,000 shares authorized;
2,500 shares issued and outstanding .................................................. 2,500 --
Common stock, $.0002 par value at September 30, 1996 and $.0001 at
December 31, 1995; 75,000,000 shares and 30,000,000 shares authorized respectively;
issued and outstanding, 6,550,000 at December 31, 1995 and 16,000,000 shares at
September 30, 1996 ................................................................... 3,200 655
Additional paid-in capital ............................................................. 2,965,891 593,459
Retained earnings (deficit) ............................................................ (1,339,050) (597,444)
--------------- ---------------
Total Stockholders' Equity ........................................................ 1,632,541 (3,330)
--------------- ---------------
$ 1,753,710 $ 120
=============== ===============
<FN>
* Condensed from audited annual financial statements
</TABLE>
4
<PAGE>
<TABLE>
CYPHERCOM SOLUTIONS, INC.
(f/k/a ATC Capital Group, Ltd.)
(A Development Stage Company)
CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
Period from
April 4, 1986
Three Months Ended Nine Months Ended (inception) to
September 30, September 30, September 30,
1996 1995 1996 1995 1996
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Interest and Other Income .................... $ 3,356 $ -- $ 6,838 $ -- $ 34,624
------------ ------------ ------------ ------------ -------------
Costs and Expenses:
Interest expense ............................. -- -- -- -- 253
Selling and Administrative ................... 200,586 1,321 641,603 12,991 952,007
Depreciation ................................. 106,841 -- 106,841 -- 106,841
Loss on Loans Receivable ..................... -- -- -- -- 314,573
------------ ------------ ------------ ------------ -------------
Total Costs & Expenses ....................... 307,427 1,321 748,444 12,991 1,373,674
------------ ------------ ------------ ------------ -------------
Net Loss ........................................... $ (304,071) $ (1,321) $ (741,606) $ (12,991) $ (1,339,050)
============ ============ ============ ============ =============
Loss per share, based on average weighted number of
shares outstanding ............................... $ (0.02) $ -- $ (0.05) $ -- $ (0.96)
============ ============ ============ ============ =============
Number of Shares ................................... 16,000,000 6,550,000 16,000,000 6,138,889 1,399,824
============ ============ ============ ============ =============
</TABLE>
5
<PAGE>
<TABLE>
CYPHERCOM SOLUTIONS, INC.
(f/k/a ATC Capital Group, Ltd.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Period from
April 4, 1986
For the Nine Months (inception) to
Ended September 30, September 30,
1996 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Interest income received ............................................ $ 6,838 $ -- $ 19,415
Cash paid for goods and services .................................... (697,512) (12,991) (960,207)
--------------- --------------- ---------------
Total Cash Flows from Operating Activities .............................. (690,674) (12,991) (940,792)
--------------- --------------- ---------------
Cash Flows from Investing Activities:
Acquisition of property and equipment ............................... (1,424,546) -- (1,424,546)
Advances on loans or notes .......................................... -- -- (875,000)
Repayment on loans or notes ......................................... -- -- 540,427
--------------- --------------- ---------------
Cash Flows from Investing Activities .................................... (1,424,546) -- (1,759,119)
--------------- --------------- ---------------
</TABLE>
6
<PAGE>
<TABLE>
CYPHERCOM SOLUTIONS, INC.
(f/k/a ATC Capital Group, Ltd.)
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS - Continued
(UNAUDITED)
<CAPTION>
Period from
April 4, 1986
For the Nine Months (inception) to
Ended September 30, September 30,
1996 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash Flows from Financing Activities:
Issuance of preferred stock ......................................... 2,500,000 -- 2,500,000
Sale of equity services ............................................. -- 9,000 594,613
Offering costs ...................................................... (125,068) -- (144,320)
Proceeds from borrowing ............................................. -- 3,000 9,450
Reduction on borrowing .............................................. (3,450) -- (3,450)
--------------- --------------- ---------------
Cash Flows from Financing Activities .................................... 2,371,482 12,000 2,956,293
--------------- --------------- ---------------
Increase in cash .......................................................... 397,340 (991) 397,460
Cash balance, beginning ................................................... 120 1,194 --
--------------- --------------- ---------------
Cash balance, end ......................................................... $ 397,460 $ 203 $ 397,460
=============== =============== ===============
</TABLE>
7
<PAGE>
<TABLE>
CYPHERCOM SOLUTIONS, INC.
(f/k/a ATC Capital Group, Ltd.)
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS - Continued
(UNAUDITED)
<CAPTION>
Period from
April 4, 1986
For the Nine Months (inception) to
Ended September 30, September 30,
1996 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Reconciliation of Net Income to Cash Flows from Operating Activities:
Net Income ................................................................ $ (741,606) $ (12,991) $ (1,339,050)
--------------- --------------- ---------------
Adjustments:
Depreciation ........................................................ 106,841 -- 106,841
Compensation paid in stock .......................................... -- -- 12,500
Conversions of loans to equity ...................................... -- -- 6,253
Settlement costs .................................................... -- -- 35,000
Loss on loan receivable ............................................. -- -- 299,573
Increase in prepaid expenses ........................................ (36,000) -- (36,000)
Increase in security deposits ....................................... (141,078) (141,078)
Increase in payables ................................................ 121,169 -- 115,169
--------------- --------------- ---------------
Total Adjustments ....................................................... 50,932 -- 398,258
--------------- --------------- ---------------
Cash Flows from Operating Activities ...................................... $ (690,674) $ (12,991) $ (940,792)
=============== =============== ===============
</TABLE>
8
<PAGE>
CYPHERCOM SOLUTIONS, INC.
(f/k/a ATC Capital Group, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1: FAIR PRESENTATION
The balance sheet as of September 30, 1996, the statement of operations
for the three month and nine month periods ended September 30, 1996 and
September 30, 1995, and the statement of cash flows for the three months
and nine months ended September 30, 1996, have been prepared by the
Company without audit. In the opinion of management, all adjustments,
(consisting of normal recurring accruals), considered necessary to
present fairly the financial position and results of operations at
September 30, 1996 and for all periods presented have been made. The
operations for the three months and nine months ended September 30, 1996
are not necessarily indicative of the results of operations to be
expected for the Company's fiscal year. These statements should be read
in conjunction with the financial statements and notes thereto included
in the Company's annual report on Form 10-K for the fiscal year ended
December 31, 1995.
NOTE 2: BACKGROUND
On March 26, 1996, the Company acquired all of the issued and
outstanding capital stock of PaySafe, Inc. (f/k/a NetSafe, Inc.), a
Delaware corporation ("PaySafe"), from the company's controlling
shareholder, International Finance Asia Limited, a British Virgin
Islands corporation ("IFAL"), in exchange for 6,362,500 of the company's
authorized but unissued shares of Common Stock. Simultaneously, the
Company also acquired all of the issued and outstanding capital stock of
Larisa Trading Pte Limited, a corporation formed under the laws of
Singapore ("Larisa"), from IFAL in exchange for 6,632,500 of the
company's authorized but unissued shares of Common Stock.
Both PaySafe and Larisa were recently incorporated and neither has
conducted any business or has any assets other than a license (each, a
"License") from IFAL to use and commercially exploit, throughout the
United States and its possessions in the case of PaySafe and throughout
the rest of the world in the case of Larisa, certain technology
developed by IFAL, primarily computer software and other intellectual
9
<PAGE>
CYPHERCOM SOLUTIONS, INC.
(f/k/a ATC Capital Group, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 2: BACKGROUND - Continued
property rights, relating to the establishment of secure automated
financial exchanges on open networks, including the Internet. Each
License is perpetual and provides for the payment to IFAL of a royalty
equal to one percent (1%) of the gross revenue received by PaySafe and
Larisa from the use, distribution, sublicense or other commercial
exploitation of the licensed technology up to a maximum of $500,000 per
License.
NOTE 3: NOTE PAYABLE
Since January 1996, the Company has borrowed funds from its controlling
stockholder, International Finance Asia Limited, with the proceeds of
such borrowing being and to be used for working capital purposes. The
loan is repayable on demand and is non-interest bearing. During the
current quarter, the borrowing was repaid.
NOTE 4: PREFERRED STOCK
On July 1, 1996, the Company increased its authorized capital stock from
30,000,000 shares of Common Stock to 76,000,000 shares of capital stock
consisting of 75,000,000 shares of Common Stock par value $.0002 per
share, and 1,000,000 shares of Preferred Stock par value $1.00 per
share.
On July 19, 1996, the Company privately placed 2,500 shares of its
Series A Convertible Preferred Stock at an issue price of $1.00 per
share. The Company realized net proceeds from the placement, after
deduction of placement fees and other expenses, of approximately
$2,375,000. The Series A Convertible Preferred Stock is non-voting,
non-redeemable and may be converted solely into shares of the Company's
Common Stock at the lesser of $2.50 per share or 80% of the closing bid
price of the Company's Common Stock on the date of conversion. The
placement agent was issued a warrant which entitles it to purchase
10
<PAGE>
CYPHERCOM SOLUTIONS, INC.
(f/k/a ATC Capital Group, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 4: PREFERRED STOCK - Continued
125,000 shares of the Company's Common Stock at $2.50 per share at any
time and from time to time until July 19, 1998.
On August 6, 1996, the Company changed its name from ATC Capital Group,
Ltd. to CyperCom Solutions, Inc.
NOTE 5: SUBSEQUENT EVENT
In October 1996, the Company entered into an agreement with another
party to receive strategic, marketing and other advice relating to the
promotion of the Company's product. In connection therewith, the Company
issued a warrant to purchase 2,500,000 shares of the Company's Common
Stock at the lesser of $2.50 per share or 80% of the quoted market price
per share on or about the date of exercise. The warrant expires on April
24, 1997. In addition, the Company is obligated to pay certain expenses
up to a maximum of approximately $111,000.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The analysis of the Company's financial condition, capital resources and
operating results should be viewed in conjunction with the accompanying
financial statements, including the notes thereto.
Financial Condition
As of September 30, 1996 and June 30, 1996, the Company had current assets,
(consisting primarily of cash), of $292,382 and $64, respectively. The Company
had current liabilities of $121,169 as of September 30, 1996 compared to current
liabilities of $440,929 at June 30, 1996. Total assets of the Company at
September 1996 and at June 30, 1996 amounted to $1,753,710 and $2,609
respectively and the Company had a net worth of $1,632,541 as of September 30,
1996, as compared to a negative net worth of $438,320 at June 30, 1996. The net
change in the Company's net worth was due to the issuance of preferred stock,
which the Company realized net proceeds of approximately $2,375,000 and a net
loss of $304,071 for the three months ended September 30, 1996. The loss
primarily consisted of expenses related to the salaries of management, travel
and accommodation expenses of its management and staff, legal and professional
fees, depreciation, general and administrative expenses, and not receiving any
operating revenue. The change in assets was due to the acquisition of equipment
and an increase of cash, which was funded by the issuance of the preferred
stock, as described in Note 4 to the financial statements.
Liquidity and Capital Resources
At September 30, 1996, the Company had cash of $256,382. The Company's operating
expenses for the three months ended September 30, 1996 consisted primarily of
salaries of management, travel and accommodation expenses of its management and
staff, legal and professional fees, depreciation and general and administrative
expenses. The Company had no business operations other than seeking suitable
investment opportunities until June 17, 1996, when the Company acquired PaySafe
and Larisa and the licenses owned by such entities. As discussed in Note 4 to
the financial statements, the Company completed a private placement from which
the Company realized net proceeds of approximately $2,375,000. These funds are
being used to purchase equipment and otherwise commercially exploit the licensed
software, general administrative expenses, and other working capital purposes.
It is expected that the Company will require additional funds to fully complete
the commercial exploitation of the licensed software. In order to raise such
additional funds, the Company will need to sell additional securities or obtain
alternative financing.
12
<PAGE>
Liquidity and Capital Resources - Continued
The Company has no present material commitments for additional capital
expenditures. The Company has no outstanding credit lines or commitments in
place and, apart from the need to meet the expenses referred to above, has no
current need for financial credit.
Results of Operations
Apart from interest income, the Company had no operating revenue for the three
month and nine month periods ended June 30, 1996 and September 30, 1996.
Operating expenses for the three month period ended September 30, 1996 were
$307,427, primarily consisting of salaries of management, travel and
accommodation expenses of its management and staff, legal and professional fees,
depreciation, and general and administrative expenses compared to operating
expenses for the three month period ended June 30, 1996 of $309,963.
13
<PAGE>
PART II
Item 1. LEGAL PROCEEDINGS
Not applicable
Item 2. CHANGES IN SECURITIES
Not applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not applicable
Item 5. OTHER INFORMATION
Not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
See Exhibit Index
14
<PAGE>
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.
CYPERCOM SOLUTIONS, INC.
(Registrant)
Dated: November 18, 1996 By: /s/ Dennis Charter
------------------------------------
Name: Dennis Charter
Title: Chairman of the Board and
Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- ----------------------------------------------------------------
27 Financial Data Schedule (provided for the information of the
Securities and Exchange Commission only)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR CYPHERCOM SOLUTIONS, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000799900
<NAME> CYPHERCOM SOLUTIONS, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 256,382
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 292,382
<PP&E> 1,424,546
<DEPRECIATION> 106,841
<TOTAL-ASSETS> 1,753,710
<CURRENT-LIABILITIES> 121,169
<BONDS> 0
0
2,500
<COMMON> 3,200
<OTHER-SE> 1,626,841
<TOTAL-LIABILITY-AND-EQUITY> 1,753,710
<SALES> 0
<TOTAL-REVENUES> 6,838
<CGS> 0
<TOTAL-COSTS> 748,444
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (741,606)
<INCOME-TAX> 0
<INCOME-CONTINUING> (741,606)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (741,606)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
