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 March 31, 1998
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 April 30, 1998, the Registrant had 10,053,257 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.
--------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
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........................................... 9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS........................................... 11
ITEM 2. CHANGES IN SECURITIES....................................... 11
ITEM 3. DEFAULT UPON SENIOR SECURITIES.............................. 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 11
ITEM 5. OTHER INFORMATION........................................... 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 11
SIGNATURES ............................................................ 12
</TABLE>
2
<PAGE> 3
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $760,071 $617,636
Accounts receivable, net 4,863,366 5,171,402
Inventories 6,014,917 5,374,511
Prepaid expenses 96,529 96,029
------------ ------------
Total current assets 11,734,883 11,259,578
------------ ------------
Fixed assets, net 1,561,912 1,582,475
Goodwill, net 2,435,445 2,534,733
Other assets:
Notes receivable 185,694 183,185
Deferred financing costs, net 137,219 179,460
Other 197,571 211,845
------------ ------------
520,484 574,490
------------ ------------
$16,252,724 $15,951,276
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable- trade $3,719,042 $3,386,543
Accrued liabilities 1,576,835 1,481,427
Due to affiliate 364,437 318,603
Deferred revenue 93,146
Dividends payable on preferred stock 8,333 ---
Current portion of capital lease obligations 26,040 29,468
Revolving credit facility 2,856,802 2,629,308
Current portion of notes payable and convertible debentures 3,189,324 413,575
------------ ------------
Total current liabilities 11,833,959 8,258,924
------------ ------------
Capital lease obligations, less current portion 50,711 54,294
Notes payable and convertible debentures, less current portion 347,094 3,394,425
Stockholders' equity:
Series B Preferred Stock, 20 shares issued and outstanding at
March 31, 1998 900,000 ---
Common Stock, no par value, unlimited authorized shares,
10,053,257 and 9,816,877 shares issued and outstanding
at March 31, 1998 and December 31, 1997 47,765,581 47,491,611
Accumulated deficit (44,644,621) (43,247,978)
------------ ------------
Total stockholders' equity 4,020,960 4,243,633
------------ ------------
$16,252,724 $15,951,276
============ ============
</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, 1998 AND MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
<S> <C> <C>
Sales $4,583,339 $3,624,707
Cost of sales 3,238,229 2,515,425
----------- -----------
Gross profit 1,345,110 1,109,282
----------- -----------
Expenses
Selling, general and administrative 1,797,712 1,528,465
Research and product development 371,914 227,454
Depreciation and amortization 389,836 190,823
----------- -----------
2,559,462 1,946,742
----------- -----------
LOSS FROM OPERATIONS (1,214,352) (837,460)
OTHER INCOME (EXPENSE)
Interest income 13,249 11,817
Interest expense (188,715) (326,672)
Other income 1,508 ---
----------- -----------
(173,958) (314,855)
----------- -----------
NET LOSS ($1,388,310) ($1,152,315)
=========== ===========
NET LOSS PER SHARE ($0.14) ($0.14)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 9,987,588 8,438,141
=========== ===========
</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, 1998 AND MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss ($1,388,310) ($1,152,315)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 389,836 190,823
Non-cash expenses 13,889 217,145
Research and product development 3,901 32,023
Change in operating assets and liabilities 126,753 (418,250)
----------- -----------
Cash used in operating activities (853,931) (1,130,574)
----------- -----------
INVESTING ACTIVITIES
Acquisition of fixed assets (95,979) (99,943)
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 50,000 ---
Decrease in notes receivable (50,000) 41,521
Other 3,443 (35,556)
----------- -----------
Cash provided by (used in) investing activities (92,536) 216,072
----------- -----------
FINANCING ACTIVITIES
Issuance of preferred stock 900,000 ---
Borrowings under revolving credit facility 227,494 213,248
Repayment of notes payable (31,582) (99,401)
Borrowings under convertible debentures --- 3,000,000
Deferred financing costs on convertible debentures --- (300,000)
Repayment of obligations under capital leases (7,010) (22,656)
----------- -----------
Cash provided by financing activities 1,088,902 2,791,191
----------- -----------
Increase in cash and cash equivalents during the period 142,435 1,876,689
Cash and cash equivalents, beginning of period 617,636 1,220,544
----------- -----------
Cash and cash equivalents, end of period $ 760,071 $3,097,233
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $173,626 $ 31,308
Income taxes paid $ --- $ ---
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of convertible debentures to common stock $273,970 $2,347,051
</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, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED PREFERRED COMMON COMMON ACCUMULATED
SHARES STOCK SHARES STOCK DEFICIT
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,1996 --- --- 8,050,401 $42,970,749 $(37,825,326)
Net loss (5,422,652)
Issuance of common stock:
Conversion of debentures 1,219,727 2,742,753
Private placement 120,000 180,000
Acquisition earn-out 426,749 1,264,776
Beneficial conversion feature of
convertible debt 333,333
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 --- --- 9,816,877 47,491,611 (43,247,978)
Net loss (1,388,310)
Issuance of common stock:
Conversion of debentures 236,380 273,970
Issuance of preferred stock:
Private placement 20 $900,000
Dividends payable - preferred
stock (8,333)
------------ ------------ ------------ ------------ ------------
BALANCE, MARCH 31, 1998 20 $900,000 10,053,257 $47,765,581 ($44,644,621)
============ ============ ============ ============ ============
</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, 1998
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, 1998 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, 1997. The interim financial information presented is not
necessarily indicative of the results from operations expected for the full
fiscal year.
NOTE 2 - INVENTORIES
The following is a summary of inventories at March 31, 1998 and December 31,
1997:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- ----------
<S> <C> <C>
Raw materials $2,632,842 $1,988,897
Work in process and sub-assemblies 2,795,596 2,591,442
Finished goods 586,479 794,172
---------- ----------
$6,014,917 $5,374,511
========== ==========
</TABLE>
NOTE 3 - NOTES PAYABLE AND CONVERTIBLE DEBENTURES
The Company obtained a revolving credit facility from a lender under which the
Company may, at its option, borrow and repay amounts up to a maximum of
$3,432,000, of which $2,856,802 was outstanding at March 31, 1998. Borrowings
under this credit facility bear interest at prime plus 3%. The credit facility
is collateralized by trade accounts receivable and inventory and restricts the
Company from paying dividends in certain circumstances. In conjunction with this
credit facility, the Company obtained a term loan in the amount of $568,000
collateralized by certain machinery and equipment. This term loan bears interest
at prime plus 3% and is payable in equal installments of $15,777 per month
through January 1, 2001.
7
<PAGE> 8
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
As of March 31, 1998, the Company has outstanding a total of $3,000,000 in
convertible debentures which are convertible at the option of the holders into
common stock of the Company at 90% of the average closing bid price of the
Company's common stock prior to conversion, provided however, that the
conversion price shall not be greater than $6.00 per share nor less than $3.00
per share. At March 31, 1998, all of the outstanding convertible debentures are
fully eligible for conversion. During the three months ended March 31, 1998,
principal and accrued interest in the amount of $278,625 were converted into
236,380 shares of common stock.
NOTE 4 - PREFERRED STOCK
On February 26, 1998, the Company issued 20 shares of Series B Convertible
Redeemable Preferred Stock in a private placement. Proceeds from the issuance
were $900,000, net of issuance costs of $100,000. Dividends are required to be
paid on the preferred shares at a rate of 10% per annum, and can be paid at the
option of the Company in either cash or in the Company's common stock.
The preferred shares are convertible at the option of the holder into common
stock of the Company pursuant to a conversion schedule as set forth in the
agreement. The holder can convert 25% of its preferred shares on or after the
90th day after February 26, 1998, and up to a further 25% every 30 days
thereafter. The conversion price is the lesser of $2.38, or a 15% discount of
the five-day average closing bid price prior to the date of conversion.
In the event that the Company's common stock is trading at or below $1.50 at the
conversion date, the Company has the right to redeem the preferred shares at a
premium of 18% over the conversion price. If the Company does not exercise this
right, the holder may convert 10% of its preferred shares, and up to a further
10% every 20 days thereafter.
In conjunction with the issuance of the preferred shares, the Company issued
70,000 warrants to purchase common stock at a purchase price of $2.50 per
share. These warrants expire on February 26, 2000.
NOTE 5 - RESTATEMENTS
The Form 10-QSB/A for the period ended 3/31/98 has been restated to reflect an
accounting treatment related to certain sales of PCMobile computers in which
customers were given PCMobiles with 586 processors (the "586") to be used until
PCMobiles with Pentium processors (the "Pentiums") became available. At the
time the sales were made, Cycomm was still in the process of developing the
Pentium PCMobile, however the customers agreed to take 586s until Cycomm was
able to deliver Pentiums. The customers paid the full price for Pentiums at the
time of the sale. When the Pentiums became available, the customers could trade
in the 586s for Pentiums at no additional charge. Cycomm recorded revenue on
the sales at the time the 586s were shipped. There were several delays in the
development of the Pentium PCMobile, which caused these sales to extend over
multiple accounting periods.
Management has determined that revenue should not have been recognized when the
586s were shipped, but should have been delayed until the Pentiums were shipped
to the customers. The 586s have been reclassified as demonstration units, which
are recorded in inventory, and are now depreciated over a one year period.
Payments received from customers have been recorded as deferred revenue.
For the three months ended March 31, 1998 the effects of the restatements are as
follows. Revenues were reduced by $692,230 with a corresponding reduction in
cost of sales of $467,366. Depreciation expense increased by $70,982. Accounts
receivable decreased by $599,084, inventory increased by $396,384, and the
Company recorded $93,146 in deferred revenue.
8
<PAGE> 9
NOTE 6 - RECENT PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share", which was required to be adopted on December 31,
1997. Under the new standard, companies are required to report basic earnings
per share (EPS) and diluted EPS, instead of the primary and fully diluted EPS
disclosures which were previously required. Basic EPS is calculated by dividing
net earnings by the weighted average number of common shares outstanding during
the year. Diluted EPS is calculated by dividing net earnings by the weighted
average number of common shares outstanding during the year plus the incremental
shares that would have been outstanding upon the assumed exercise of eligible
stock options, warrants and the conversion of certain debenture issues. For the
periods ended March 31, 1998, and March 31, 1997, the effect of the exercise of
stock options, warrants and the conversion of debentures would be anti-dilutive,
and therefore, diluted earnings (loss) per share is equal to basic earnings
(loss) per share as disclosed in the consolidated statements of operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (Statement 131), which is effective for
years beginning after December 15, 1997. Statement 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. Statement 131 is effective
for financial statements for fiscal years beginning December 15, 1997, and
therefore the Company will adopt the new requirements retroactively in 1998.
Management has not completed its review of Statement 131, but does not
anticipate that the adoption of this statement will have a significant effect on
the Company's reported segments.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 and March 31, 1997
Revenues for the three months ended March 31, 1998 were $4,583,339 which
represents an increase of 26% over revenues of $3,624,707 for the prior period.
Sales of the Company's PCMobile rugged laptop computers increased to $3,138,148,
as compared to $1,462,312 in the prior period. However, sales of secure
computing products were $1,013,117, a decrease of $632,846 from the prior
period. These two product lines, which comprise the computer products segment,
accounted for 91% of total revenue, as compared to 86% in the prior period. The
remaining revenue of $432,074 is related the communications security products
segment, and reflects a decrease of $84,358 from the prior period.
Cost of sales for the three months ended March 31, 1998 were $3,238,229 as
compared to cost of sales of $2,515,425 for the prior period. This increase is a
result of the increased sales volume of PCMobile products, offset by the
decrease in sales volume for secure computing products. Cost of sales for the
computer products segment was $2,986,881, resulting in a gross margin of 28%, as
compared to cost of sales of $2,180,410 and gross margin of 30% in the prior
period. The gross margin in the communications security products segment was 42%
in the current period, as compared to 35% in the prior period.
9
<PAGE> 10
Operating expenses increased to $2,559,462 for the period ended March 31, 1998
as compared to $1,946,742 in the prior period. Selling, general and
administrative expenses increased $269,247 to $1,797,712 for the current period.
This change is a result of increases in the size of the PCMobile personnel, and
increased facilities costs due to increased production capabilities. Research
and development costs increased to $371,914 as compared to $227,454 in the prior
period. These costs are related to the final stages of engineering for the
PCMobile Pentium computer, and the development of new products for the Company's
secure computing product line. Depreciation and amortization increased to
$389,836 for the three months ended March 31, 1998 as compared to $190,823 in
the prior period. This increase is primarily the result of amortization of
goodwill related to the acquisitions of XL Computing Corporation and XL Canada
and the accelerated depreciation of PCMobile demonstration units ("demos").
Interest expense for the three months ended March 31, 1998 was $188,715 as
compared to $326,672 for the prior period. While there has been increased debt
financing obtained by the Company in the form of convertible debentures and
credit lines, interest expense has decreased due to reduced convertible debt
interest charges. Included in interest expense are charges of $13,889 and
$217,145 for the three months ended March 31, 1998 and the three months ended
March 31, 1997, respectively. These are non-recurring, non-cash charges related
to convertible debt financing that give effect to beneficial conversion
features.
The net loss of $1,388,310, or ($0.14) per share, for the three months ended
March 31, 1998 represents an increase from $1,152,315, or ($0.14) per share for
the three months ended March 31, 1997. The increase in net loss is a result of
increased losses in the secure computing product line offset by the improved
performance of the PCMobile product line.
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,
1998, the Company had cash and cash equivalents of $760,071.
In the three months ended March 31, 1998, cash used in operations amounted to
$853,931. Cash used in investing activities during the three months ended March
31, 1998 totaled $92,536. Cash provided by financing activities was $1,088,902
for the three months ended March 31, 1998. Included in the cash provided by
financing activities is the private placement of Series B Convertible Redeemable
Preferred Stock, for net proceeds of $900,000. The Company increased the amounts
drawn on its bank credit lines in an amount of $227,494 during the three months
ended March 31, 1998.
The Company's net working capital decreased to $(99,076) at March 31, 1998, from
$3,000,654 at December 31, 1997. The decrease in net working capital is a result
of $3,000,000 of convertible debentures being reclassified from long term to
current obligations of the Company.
The Company anticipates that its computer products segment will be able to fund
operations from working capital, secured lines of credit and funding from the
parent company. The operations of the communications products segment have
improved through the results of certain restructurings; accordingly, this
business segment will require only minimal financing through funding from the
parent company. As compared to prior periods, the Company has shown revenue
growth while narrowing losses. The Company anticipates continued improvement to
achieve profitability in the near term. The Company believes that it has the
10
<PAGE> 11
capital resources available through additional debt and equity financings to
develop and market its products and to make acquisitions. The Company believes
that it will be able to meet its obligations over the near term. 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:
None.
11
<PAGE> 12
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 1, 1998 /s/ Albert I. Hawk
------------------------
Albert I. Hawk
President and
Chief Executive Officer
Date: May 1, 1998 /s/ Michael R. Skoff
------------------------
Michael R. Skoff
Chief Financial Officer
12
<PAGE> 13
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 ____________, 1998
--------------------------------
Albert I. Hawk
President and
Chief Executive Officer
Date: ____________, 1998
--------------------------------
Michael R. Skoff
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 760,071
<SECURITIES> 0
<RECEIVABLES> 4,903,920
<ALLOWANCES> (40,554)
<INVENTORY> 6,014,917
<CURRENT-ASSETS> 11,734,883
<PP&E> 2,404,928
<DEPRECIATION> 843,016
<TOTAL-ASSETS> 16,252,724
<CURRENT-LIABILITIES> 11,833,959
<BONDS> 6,203,896
0
900,000
<COMMON> 47,765,581
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,252,724
<SALES> 4,583,339
<TOTAL-REVENUES> 4,583,339
<CGS> 3,238,229
<TOTAL-COSTS> 3,238,229
<OTHER-EXPENSES> 2,559,462
<LOSS-PROVISION> 50,000
<INTEREST-EXPENSE> 188,715
<INCOME-PRETAX> (1,388,310)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,388,310)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,388,310)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
