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 Quarter Ended June 30, 1996
33-8356-NY
(Commission File Number)
CYPHERCOM SOLUTIONS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-3356966
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
245 Park Avenue, 40th Floor, New York, New York 10167
(Address of Principal Executive Offices)
(212) 692-1852
(Registrant's Telephone Number, including area code)
ATC CAPITAL GROUP, LTD.
(Former name, former address and former fiscal years,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports 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 reports), 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 June 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 Sheets - June 30, 1996 (unaudited) and December 31, 1995.
Statement of Operations - Three months and six months ended June 30,
1996 and 1995 and cumulative from inception to June 30, 1996
(unaudited).
Statement of Cash Flows - Three months and six months ended June 30,
1996 and 1995, and cumulative from inception to June 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
<PAGE>
CYPHERCOM SOLUTIONS, INC.
(f/k/a/ ATC Capital Group, Ltd.)
(A Development Stage Company)
PART I - FINANCIAL INFORMATION
Item I.Financial Statements
<PAGE>
CYPHERCOM SOLUTIONS, INC.
(f/k/a/ ATC Capital Group, Ltd.)
(A Development Stage Company)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 64 $ 120
TOTAL CURRENT ASSETS 64 120
OTHER ASSETS:
Investments 2,545 -
$ 2,609 $ 120
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 360,072 $ -0-
Note Payable - Stockholder 80,857 -0-
TOTAL CURRENT LIABILITIES 440,929 -0-
LONG-TERM LIABILITIES
Loan payable - related parties -0- 3,450
SHAREHOLDERS' EQUITY:
Common stock, $.0002 par value
at June 30, 1996 and $.0001 at
December 31, 1995; 30,000,000
shares authorized; issued and
outstanding, 6,550,000 at
December 31, 1995 and 16,000,000
shares at June 30, 1996 3,200 655
Additional paid-in capital 593,459 593,459
Accumulated deficit (1,034,979) (597,444)
TOTAL SHAREHOLDERS' EQUITY (438,320) (3,330)
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 2,609 $ 120
</TABLE>
The accompanying notes are an integral part of the financial statement.
<PAGE>
CYPHERCOM SOLUTIONS, INC.
(f/k/a/ ATC Capital Group, Ltd.)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Three Months Ended Six Months Ended April 4, 1986
June 30, June 30, (Inception) to
1996 1995 1996 1995 June 30, 1996
<S> <C> <C> <C> <C> <C>
REVENUES:
Interest and
other income $ - $ - $ 3,482 $ - $ 31,268
COSTS AND EXPENSES:
Interest expense - - - - 253
Selling and
administrative 309,963 8,319 441,017 11,670 751,421
Loss on loans
receivable - - - - 314,573
Total Costs
and Expenses 309,963 8,319 441,017 11,670 1,066,247
Net Loss $ (309,963) $ (8,319) $ (437,535) $ (11,670) $(1,034,979)
Loss per share,
based on average
weighted number of
shares outstanding $ (.02) $ - $ (.03) $ - $ (1.27)
Number of Shares 16,000,000 3,275,000 16,000,000 3,275,000 811,668
</TABLE>
The accompanying notes are an integral part of the financial statement.
<PAGE>
CYPHERCOM SOLUTIONS, INC.
(f/k/a/ ATC Capital Group, Ltd.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Six Months Ended April 4, 1986
June 30, (Inception) to
1996 1995 June 30, 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $(437,535) $ (11,670) $(1,034,979)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Forgiven debt (3,450) - (3,450)
Settlement costs - - 35,000
Compensation paid in stock - - 12,500
Conversion of loans to equity - - 6,253
Loss on loan receivable - - 299,573
Increase in investments (2,545) (2,545)
Increase (decrease)
in payables 440,929 - 434,929
Total Adjustments 434,934 - 782,260
Net cash (used in)
operating activities: (2,601) (11,670) (252,719)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Advances on loans or notes - - (875,000)
Repayment of loans or notes - - 540,427
Net cash (used in)
investing activities - - (334,573)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from borrowing - 3,000 9,450
Sale of equity securities 2,545 9,000 597,158
Offering costs - - (19,252)
Net cash provided by
financing activities 2,545 12,000 587,356
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (56) 330 64
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 120 1,194 -
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 64 $ 1,524 $ 64
</TABLE>
The accompanying notes are an integral part of the financial statement.
<PAGE>
CYPHERCOM SOLUTIONS, INC.
(f/k/a/ ATC Capital Group, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
NOTE 1 - FAIR PRESENTATION
The balance sheet as of June 30, 1996, the statement of operations for the
three months and six months ended June 30, 1996, and the statement of cash
flows for the three months and six months ended June 30, 1996, have been
prepared by the Company without audit. In the opinion of management, all
adjustments (consisting of normal continuing accruals) considered necessary to
present fairly the financial position and results of operations at June 30,
1996, and for all periods presented have been made. The operations for the
three months and six months ended June 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 effected a reverse stock split whereby each two
(2) shares of its Common Stock, par value $.0001 per share, issued and
outstanding immediately prior thereto was converted into one share of its
Common Stock, par value $.0002 per share. As a result, the total number of
shares issued and outstanding was reduced from 6,550,000 to 3,275,000.
Retroactive effect has been given in the financial statements included herein
to the reverse stock split.
On June 17, 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 6,362,500 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
<PAGE>
CYPHERCOM SOLUTIONS, INC.
(f/k/a/ ATC Capital Group, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
NOTE 2 - BACKGROUND (Cont'd)
possessions in the case of PaySafe and throughout the reset of the world in
the case of Larisa, certain technology developed by IFAL, primarily computer
software and other intellectual 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.
NOTE 4 -SUBSEQUENT EVENTS
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 $1,000 per share. The
Company realized net proceeds from the placement, after deduction of placement
fees and other expenses, of approximately $2,350,000. 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 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 CypherCom Solutions, Inc.
<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 June 30, 1996 and March 31, 1996, the Company had current assets
(consisting of cash) of $64 and $3, respectively. The Company had current
liabilities of $440,929 as of June 30, 1996, compared to current liabilities
of $130,905 at March 31, 1996. Total assets of the Company at June 30, 1996
and as at March 31, 1996 amounted to $2,609 and $3 respectively and the
Company had a negative net worth of $438,320 as of June 30, 1996, as compared
to a negative net worth of $130,902 at March 31, 1996. The decrease in net
worth was the result of incurring operating expenses, primarily salaries of
management, travel and accommodation expenses of its management and staff,
legal fees, and general and administrative expense, and not receiving any
income.
Liquidity and Capital Resources
At June 30, 1996, the Company had cash of $64. The Company's operating
expenses for the three months ended June 30, 1996, consisted primarily of
salaries of management, travel and accommodation expenses of its management
and staff, legal fees and general and administrative expenses. The Company
had no business operations other than seeking suitable investment
opportunities for the Company until June 17, 1996, when the Company acquired
PaySafe and Larisa and the licenses owned by such entities. As indicated in
Note 4, the Company completed a private placement from which the Company
realized net proceeds of approximately $2,350,000. These funds will be 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.
The Company has no present material commitments for additional capital
expenditures. Except for the loan described in Note 3 to the accompanying
financial statements, 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.
<PAGE>
Results of Operations
Apart from the income arising out of the forgiveness of indebtedness by
certain shareholders of the Company of $3,482 in the three month period ended
March 31, 1996, the Company had no revenue for the three month and six month
periods ended March 31, 1996 and June 30, 1996. Operating expenses for the
three month period ended June 30, 1996 were $309,963, primarily consisting of
salaries of management, travel and accommodation expenses of its management
and staff, legal fees, and general and administrative expenses compared to
operating expenses for the three month period ended March 31, 1996 of
$131,054. The increase in operating expenses is attributable to the Company
seeking suitable investment opportunities.
<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
(a) There are no exhibits required to be filed for the period covered by this
Report.
(b) The Registrant filed a Current Report on Form 8-K during this reporting
period dated June 14, 1996, and reported under "Item 2. Acquisition or
Disposition of Assets" that the Company issued an aggregate of 12,725,000
shares of the Company's Common Stock to International Finance Asia
Limited in exchange for all of the issued and outstanding capital stock
of PaySafe, Inc. and Larisa Trading Pte Limited.
<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.
CYPHERCOM SOLUTIONS, INC.
Date: August 12, 1996 By:/s/ Dennis Charter
Dennis Charter, Chairman
Date: August 12, 1996 By:/s/ Andrew I. Patrick
Andrew I. Patrick, Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Balance
Sheet, Statement of Operations, Statements of Cash Flows and Notes thereto,
incorporated in Part I, Item 1. of this Form 10-Q and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 64
<SECURITIES> 2,545
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 64
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,609
<CURRENT-LIABILITIES> 440,929
<BONDS> 0
0
0
<COMMON> 3,200
<OTHER-SE> 593,459
<TOTAL-LIABILITY-AND-EQUITY> 2,609
<SALES> 0
<TOTAL-REVENUES> 3,450
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 309,963
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (309,963)
<INCOME-TAX> (309,963)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (309,963)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
