<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, 1997
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)
<TABLE>
<S> <C>
Wyoming 54-1779046
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
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 May 9, 1997, the Registrant had 9,172,043 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format: Yes No X
----- -----
<PAGE> 2
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
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 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
</TABLE>
2
<PAGE> 3
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
-------------- -----------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,097,233 $ 1,220,544
Accounts receivable, net 3,052,456 2,170,518
Inventories 5,640,647 5,819,852
Prepaid expenses 37,756 76,785
------------ ------------
Total current assets 11,828,092 9,287,699
------------ ------------
Fixed assets, net 1,674,471 1,663,176
Goodwill, net 1,833,471 1,673,835
Other assets:
Notes receivable --- 41,521
Long-term investments --- 513,500
Deferred technology costs, net 18,204 50,227
Deferred financing costs, net 323,610 264,825
Unearned discount 275,464 159,276
Other 130,256 94,699
------------ ------------
747,534 1,124,048
------------ ------------
$16,083,568 $13,748,758
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable- trade $1,879,768 $1,871,815
Accrued liabilities 1,214,251 1,167,337
Due to affiliate 266,274 160,321
Dividends payable on preferred stock 86,667 86,667
Current portion of capital lease obligations 68,331 81,527
Revolving credit facility 1,352,181 1,138,933
Current portion of notes payable and convertible debentures 230,000 329,401
------------ ------------
Total current liabilities 5,097,472 4,836,001
------------ ------------
Capital lease obligations 62,409 71,869
Convertible debentures 3,624,999 3,074,999
Deferred credit 334,560 620,466
Stockholders' equity:
Common Stock, no par value, unlimited authorized shares,
9,134,159 and 8,050,401 shares issued and outstanding 45,941,769 42,970,749
at March 31, 1997 and December 31, 1996
Accumulated deficit (38,977,641) (37,825,326)
------------ ------------
Total stockholders' equity 6,964,128 5,145,423
------------ ------------
$16,083,568 $13,748,758
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED MARCH 31, 1997 AND FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31, FEBRUARY 29,
1997 1996
---------------- --------------------
(Restated - Note 1)
<S> <C> <C>
Sales $3,624,707 $ 323,983
Cost of sales 2,515,425 166,264
----------- ------------
Gross profit 1,109,282 157,719
----------- ------------
Expenses
Selling, general and administrative 1,526,214 1,387,375
Research and product development 227,454 204,624
Depreciation and amortization 190,823 134,284
Foreign exchange loss(gain) 2,251 295
----------- ------------
1,946,742 1,726,578
----------- ------------
LOSS FROM OPERATIONS (837,460) (1,568,859)
OTHER INCOME (EXPENSE)
Interest income 11,817 30,215
Interest expense (326,672) (640,977)
Other income --- 1,027
----------- ------------
(314,855) (609,735)
----------- ------------
NET LOSS ($1,152,315) ($2,178,594)
=========== ============
LOSS PER SHARE
Net loss per share ($0.14) ($0.58)
======= =======
Weighted average number of common shares outstanding 8,438,141 3,760,329
=========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31, 1997 AND FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31, FEBRUARY 29,
1997 1996
--------------- -----------------
(Restated - Note 1)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ($1,152,315) ($2,178,594)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 190,823 134,284
Non-cash expenses 217,145 616,827
Research and product development 32,023 46,083
Change in operating assets and liabilities (418,250) 216,212
----------- -----------
Cash used in operating activities (1,130,574) (1,165,188)
----------- -----------
INVESTING ACTIVITIES
Acquisition of fixed assets (99,943) (13,111)
Proceeds on disposal of fixed assets 1,550 ---
Increase in long-term investment (205,000) ---
Decrease in long-term investment 513,500 ---
Increase in notes receivable --- (20,000)
Decrease in notes receivable 41,521 1,161
Acquisition of patents --- (25,000)
Other (35,556) ---
----------- -----------
Cash provided by (used in) investing activities 216,072 (56,950)
----------- -----------
FINANCING ACTIVITIES
Borrowings under revolving credit facility 213,248 ---
Repayment of notes payable (99,401) (33,672)
Borrowings under convertible debentures 3,000,000 3,000,000
Deferred financing costs on convertible debentures (300,000) (300,000)
Repayment of obligations under capital leases (22,656) (2,354)
----------- -----------
Cash provided by financing activities 2,791,191 2,663,974
----------- -----------
Increase in cash and cash equivalents during the period 1,876,689 1,441,836
Cash and cash equivalents, beginning of period 1,220,544 787,775
----------- -----------
Cash and cash equivalents, end of period $3,097,233 $2,229,611
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 31,308 $ 702
Income taxes paid $ --- $ ---
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of convertible debentures to common stock $2,347,051 $1,625,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED PREFERRED COMMON COMMON ACCUMULATED
SHARES STOCK SHARES STOCK DEFICIT
------ ------------- ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, MAY 31, 1996 15,000 $ 1,500,000 5,943,771 $35,743,536 $(31,293,056)
Net loss (6,491,603)
Issuance of common stock:
Conversion of debentures 1,393,186 3,911,880
Conversion of preferred stock (15,000) (1,500,000) 400,000 1,500,000
Private placement 195,331 530,100
Exercise options 100,000 300,000
Acquisition earn-out 18,113 90,020
Beneficial conversion feature of
convertible debt 895,213
Dividends on preferred stock (40,667)
--------------- -------------- ----------- ------------ --------------
BALANCE, DECEMBER 31, 1996 --- --- 8,050,401 42,970,749 (37,825,326)
Net loss
Issuance of common stock: (1,152,315)
Conversion of debentures 990,004 2,347,051
Acquisition earn-out 93,754 290,636
Beneficial conversion feature of
convertible debt 333,333
--------------- -------------- ----------- ------------ --------------
BALANCE, MARCH 31, 1997 --- $ --- 9,134,159 $45,941,769 ($38,977,641)
=============== ============== =========== ============ ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements
6
<PAGE> 7
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
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, 1997 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, 1996. The interim financial information presented is not
necessarily indicative of the results from operations expected for the full
fiscal year.
The Company has changed its fiscal year end from May 31 to December 31
effective December 31, 1996. Accordingly, the results of operations for the
three months ended March 31, 1997 are compared to the most applicable period
from the previous fiscal year which is the three months ended February 29,
1996.
The Company has restated its February 29, 1996 financial statements to
recognize a recently announced position by the staff of the Securities and
Exchange Commission regarding the accounting for the issuance of debt that can
be converted at a discount to the market price of the Company's common stock.
In this regard, the implicit return provided by the conversion terms of the
debt is accounted for as additional interest expense and accreted over the
period between the date of issuance of the debt and the date the debt first
becomes convertible. This prior period adjustment resulted in additional
interest expense of $616,827 in the three months ended February 29, 1996 or
$0.16 per share.
NOTE 2 - INVENTORIES
The following is a summary of inventories at March 31, 1997 and December 31,
1996:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------------- ---------------------
<S> <C> <C>
Raw materials $4,173,627 $3,859,242
Work in process and sub-assemblies 947,340 1,593,705
Finished goods 519,680 366,905
---------- ----------
$5,640,647 $5,819,852
========== ==========
</TABLE>
NOTE 3 - NOTES PAYABLE AND CONVERTIBLE DEBENTURES
XL Computing obtained a revolving credit facility from a bank under which XL
Computing may, at its option, borrow and repay amounts up to a maximum of
$1,500,000, of which $1,128,990 was outstanding at March 31, 1997. The credit
facility is collateralized by XL Computing trade accounts receivable and
inventory and is guaranteed by the Company. XL Canada obtained a bank
7
<PAGE> 8
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
line of credit under which XL Canada may, at its option, borrow and repay
amounts up to a maximum of Cdn$750,000 (approximately $550,000) of which
$63,191 was outstanding at March 31, 1997. The line of credit is
collateralized by XL Canada's trade accounts receivable and inventory and is
guaranteed by the Company.
On February 28, 1997, the Company issued $3.0 million of 10% convertible
debentures due February 28, 1999 which are convertible at the option of the
holders into common stock of the Company at a conversion price equal to 90% of
the average closing bid price of the Company's common stock prior to
conversion, provided; however, that the conversion price shall in no event be
greater than $6.00 per share or less than $3.00 per share. The debentures are
fully eligible for conversion after February 28, 1998.
As of March 31, 1997, the Company has outstanding a total of $3,624,999 in
convertible debentures which are convertible at the option of the holders into
common stock of the Company at prices ranging from 79% to 90% of the average
closing bid price of the Company's common stock prior to conversion. At March
31, 1997, an amount of $624,999 in convertible debentures are fully eligible
for conversion. During the three months ended March 31, 1997, principal and
accrued interest in amount of $2,537,615 were converted into 990,004 shares of
common stock.
NOTE 4 - RECENT PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is not expected to result in a
change in primary earnings per share for the periods ended March 31, 1997, and
February 29, 1996, as the effect of these changes would be anti-dilutive. The
impact of Statement 128 on the calculation of fully diluted earnings per share
for these quarters is also expected to be anti-dilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 and February 29, 1996
The revenues for the three months ended March 31, 1997 were $3,624,707 which
represents an increase of 1018% over revenues of $323,983 for the prior period.
The increased revenues are related to the inclusion of the revenues of XL
Computing and XL Canada acquired in March 1996 and June 1996, respectively.
These newly acquired subsidiaries accounted for $3,108,281, or 86% of total
revenues. The remaining revenue of $516,426 related to the communications
security products segment and reflected an approximate 59% increase from the
prior period. The increase is due to the shipments of the CSD Slice products
to Lucent Technologies.
Cost of sales for the three months ended March 31, 1997 were $2,515,425 as
compared to cost of sales of $166,264 for the prior period. The increase is
related to the acquisitions of XL Computing and XL Canada. These subsidiaries,
which form the computer products segment, contributed $2,180,415 to total cost
of sales which resulted in a gross margin of 30% for sales in
8
<PAGE> 9
this segment. The gross margin for sales in the communications security
products segment was 35%, as compared to 49% in the prior period. The decrease
in gross margin in the communications products segment is due to the sale of
written down products in the prior period.
In connection with the Company's goal of achieving profitable operations, the
Company experienced only a 13% increase in operating expenses despite the
inclusion of the results of its acquisitions of XL Computing and XL Canada.
Operating expenses increased to $1,946,742 for the three months ended as
compared to $1,726,578 for the prior period. The increase is mainly due to the
acquisition of XL Computing and XL Canada. Selling, general and administrative
expenses increased to $1,526,214 for the period ended March 31, 1997 as
compared to $1,387,375 from the prior period. This increase is due to the
acquisitions and represent increased personnel, facilities and operating costs.
Research and development costs increased 11% to $227,454 for the period ended
March 31, 1997. This increase reflects the Company's expenditures on the
enhancements on the TEMPEST line of computers and the development of the
PCMobile computer. Current year research and development costs also reflect a
credit of $206,000 relating to the reversal of certain expenses recorded in the
prior year related to the development of the CSD cellular security device.
Depreciation and amortization increased 42% to $190,823 for the three months
ended March 31, 1997 and reflects the increased depreciation and amortization
of capital assets and goodwill related to the acquisitions.
Interest expense for the three months ended March 31, 1997 was $326,672 as
compared to $640,977 for the prior period. While there has been increased debt
financing obtained by the Company in the form of convertible debentures,
acquisition debt and credit lines, the interest expense has decreased due to
reduced convertible debt interest charges. Included in interest expense are
charges of $217,145 and $616,827 for the three months ended March 31, 1997 and
the three months ended February 29, 1996, respectively. These are
non-recurring, non-cash charges related to convertible debt financing that give
effect to beneficial conversion features.
The net loss of $1,152,315, or ($0.14) per share, for the three months ended
March 31, 1997 represents a decrease from $2,178,594, or ($0.58) per share for
the three months ended February 29, 1996. The decrease in net loss in largely
due to the results of the restructuring plans.
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,
1997, the Company had cash and cash equivalents of $3,097,233.
In the three months ended March 31, 1997, cash used in operations amounted to
$1,130,574. Investing activities provided cash of $216,072 during the three
months ended March 31, 1997, the major activity being the sale of the Company's
investment in Galactica for $1,027,000, of which $513,500 was paid in cash at
closing. Cash provided by financing activities was $2,791,191. The issuance of
convertible debentures resulted in net proceeds of $2,700,000. The Company
increased the amounts drawn on its traditional bank credit lines in an amount
of $213,248 during the three months ended March 31, 1997.
The Company's net working capital increased to $6,730,620 at March 31, 1997,
from $4,451,698 at December 31, 1996, as funds were raised to make acquisitions
and fund working capital needs.
9
<PAGE> 10
The operations of the secure communications products segment has improved
through the results of certain restructurings; accordingly, this business
segment will require only minimal financing through funding from other
subsidiaries activities, borrowings or issuance of equity and debt securities.
The Company expects its secure, rugged computer segment to be able to fund
operations from working capital, secured lines of credit and funding from the
parent company. The Company believes that it has the capital resources 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.
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:
27. Financial Data Schedule
(b) Reports on Form 8-K:
1. Current Report on Form 8-K was filed on February 21, 1997
reporting the acquisition of substantially all the assets of
the Delta Data division of the Titan Corporation under Item 5.
2. Current Report on Form 8-K was filed on March 18, 1997
reporting the issuance of convertible debentures under Item 9.
10
<PAGE> 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: May 15, 1997 /s/ Albert I. Hawk
----------------------------
Albert I. Hawk
President and
Chief Executive Officer
Date: May 15, 1997 /s/ Michael R. Skoff
----------------------------
Michael R. Skoff
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,097,233
<SECURITIES> 0
<RECEIVABLES> 3,052,456
<ALLOWANCES> 0
<INVENTORY> 5,640,647
<CURRENT-ASSETS> 11,828,092
<PP&E> 3,387,840
<DEPRECIATION> 1,713,370
<TOTAL-ASSETS> 16,038,568
<CURRENT-LIABILITIES> 5,097,472
<BONDS> 5,207,180
0
0
<COMMON> 45,941,769
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,083,568
<SALES> 3,624,707
<TOTAL-REVENUES> 3,624,707
<CGS> 2,515,425
<TOTAL-COSTS> 2,515,425
<OTHER-EXPENSES> 1,946,742
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 326,672
<INCOME-PRETAX> (1,152,315)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,152,315)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,152,315)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
