<PAGE>
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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 September 30, 2000
____ 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)
Wyoming 54-1779046
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
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 November 1, 2000, the Registrant had 28,545,982 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.
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....... 6
Condensed Consolidated Statement of Stockholders'
Equity................................................ 7
Notes to Condensed Consolidated Financial Statements.. 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.................... 16
PART II - Other Information
Item 1. Legal Proceedings..................................... 19
Item 2. Changes in Securities................................. 19
Item 3. Default Upon Senior Securities........................ 19
Item 4. Submission of Matters to a Vote of Security Holders... 19
Item 5. Other Information..................................... 20
Item 6. Exhibits and Reports on Form 8-K...................... 20
Signatures ...................................................... 21
<PAGE>
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<TABLE>
<CAPTION>
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
September 30, December 31,
2000 1999
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $202,416 $22,867
Accounts receivable, less allowance for doubtful
accounts of $199,000 and $254,000, respectively 184,814 1,200,771
Inventories, net of allowance for obsolete
inventory of $111,513 and $131,339, respectively 1,567,530 844,057
Deposits with suppliers 310,035 283,449
Foreign taxes receivable 274,934 216,621
Other current assets 127,592 76,824
--------- ---------
Total current assets 2,667,321 2,644,589
Fixed assets, net 238,311 269,780
Other assets 3,993 30,648
---------- ----------
$2,909,625 $2,945,017
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable- trade $1,061,090 $2,416,883
Accrued liabilities 453,771 692,324
Acquisition earn-out obligation 500,000 700,000
Deferred revenue --- 770,122
Dividends payable on preferred stock 25,945 33,575
Current portion of capital lease obligations 3,280 2,785
Revolving credit facility 305,131 915,104
--------- ---------
Total current liabilities 2,349,217 5,530,793
Capital lease obligations, less current portion 5,709 8,041
Convertible debentures --- 3,500,000
Stockholders' equity:
Series B Preferred Stock, $50,000 par value,
unlimited authorized shares, 2 shares issued
and outstanding at September 30, 2000 and
December 31, 1999 90,000 90,000
Series C Preferred Stock, $50,000 par value,
unlimited authorized shares, no shares and 5
shares issued and outstanding at September 30, 2000
and December 31, 1999 --- 206,250
Common Stock, no par value, unlimited authorized
shares, 27,014,475 and 16,807,696 shares issued
and outstanding at September 30, 2000 and
December 31, 1999 63,120,977 54,315,402
Notes receivable - stockholders (64,816) (60,511)
Accumulated deficit (62,591,462) (60,644,958)
----------- -----------
Total stockholders' equity 554,699 (6,093,817)
----------- -----------
$2,909,625 $2,945,017
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
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<TABLE>
<CAPTION>
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999 (UNAUDITED)
Quarter Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Sales $454,711 $219,822 $3,167,705 $2,123,815
Cost of sales 607,927 186,297 2,579,573 1,737,069
------- ------- --------- ---------
Gross profit (153,216) 33,525 588,132 386,746
Expenses
Selling, general and
administrative 943,447 755,386 2,687,228 2,847,453
Research and product
development 158,904 103,118 533,546 457,257
Depreciation and
amortization 36,842 86,826 91,962 531,860
--------- ------- --------- ---------
1,139,193 945,330 3,312,736 3,836,570
--------- ------- --------- ---------
Loss from Operations (1,292,409) (911,805) (2,724,604) (3,449,824)
Other Income (Expense)
Interest income 7,084 1,661 37,129 10,694
Interest expense (99,113) (138,207) (307,655) (338,736)
Other income --- 110,000 4,585 110,000
------- ------- -------- --------
(92,029) (26,546) (265,941) (218,042)
Loss from continuing
operations $(1,384,438) $(938,351) $(2,990,545) ($3,667,866)
=========== ========= =========== ===========
Discontinued operations
Income from operations of
discontinued operation
Val-Comm Inc. --- 4,872 --- 112,163
Gain on disposal of
Val-Comm Inc. --- 265,746 --- 265,746
Income (loss) from
operations of discontinued
operation Cycomm Secure
Solutions, Inc. --- --- --- (1,613,044)
Loss on disposal of
discontinued operation:
Cycomm Secure Solutions Inc. --- --- --- (1,535,643)
Gain on dissolution of
discontinued operation:
Cycomm Secure Solutions,
Inc. --- --- 1,119,273 ---
---------- -------- ---------- ----------
Net income (loss) (1,384,438) (667,733) (1,871,272) (6,438,644)
========== ======== ========== ==========
Beneficial return on
preferred shares --- (54,333) --- (63,666)
----------- --------- ---------- ----------
Net income (loss)
attributable to
common stockholders ($1,384,438) $(722,066) $(1,871,272) $(6,502,310)
=========== ========= =========== ===========
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Earnings Per Share
Loss per share from
continuing operations ($0.05) ($0.07) ($0.12) ($0.29)
Income (loss) per share
from discontinued
operations: Val-Comm
Inc. --- $0.00 --- $0.01
Income per share on
disposal of
Val-Comm Inc. --- $0.02 --- $0.02
Loss per share from
discontinued Cycomm
operations:
Secure Solutions --- --- --- ($0.13)
Loss per share on
disposal of Cycomm
Secure Solutions --- --- --- ($0.12)
Income per share on
dissolution of
discontinued operation:
Cycomm Secure
Solutions, Inc. --- --- $0.04 ---
Net loss per share
attributable to
beneficial return on
preferred shares --- $0.00 --- $0.00
----- ----- ----- -----
Net income (loss) per share
attributable to common
shareholders $(0.05) $(0.05) $(0.07) $(0.51)
====== ====== ====== ======
Weighed average number
of common
shares outstanding 27,628,343 13,345,435 25,136,885 12,760,550
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
(UNAUDITED)
Nine Months Ended
September 30, September 30,
2000 1999
Operating activities
<S> <C> <C>
Net loss from continuing operations ($2,990,544) (3,667,866)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 91,962 531,861
Non-cash compensation --- 88,000
Change in operating assets and
liabilities (1,191,221) 2,643,811
---------- ---------
Cash provided by (used in)
operating activities (4,089,803) (404,194)
---------- ---------
Investing activities
Acquisition of fixed assets (33,838) ---
Increase in notes receivable --- (4,000)
Decrease in notes receivable --- 2,000
Proceeds from sale of marketable
securities --- 361,260
------- -------
Cash used in investing activities (33,838) 359,260
------- -------
Financing activities
Issuance of common stock 4,840,000 999,329
Exercise of stock options 74,999 ---
Issuance of preferred stock --- 516,000
Borrowings under revolving credit
facility (609,973) (1,317,416)
Borrowings under convertible
debentures --- 500,000
Repayment of notes payable --- (15,777)
Repayment of obligations under
capital leases (1,836) (8,878)
--------- -------
Cash (used in) provided by
financing activities 4,303,190 673,258
--------- -------
Discontinued operations
Proceeds from sale of
discontinued operation:
Cycomm Secure Solutions Inc. --- 800,000
Cash used in discontinued
operation: Cycomm Secure
Solutions Inc. --- (1,743,677)
Proceeds from sale of
discontinued operation:
Val-Comm, Inc. --- 188,000
Cash provided by
discontinued operation:
Val-Comm, Inc. --- 68,788
------- -------
Decrease (increase) in cash
and cash equivalents
during the period 179,549 (58,565)
Cash and cash equivalents,
beginning of period 22,867 567,977
-------- --------
Cash and cash equivalents, end of period $202,416 $509,412
======== ========
Supplemental cash flow information:
Interest paid $330,314 $281,000
Income taxes paid $ --- $ ---
Non-cash investing and
financing activities:
Conversion of convertible
debentures to common stock $517,452 $ ---
Conversion of preferred
stock to common stock $3,289,112 $346,590
Conversion of convertible
debentures to preferred stock $3,000,000 $ ---
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE UNAUDITED PERIOD ENDED SEPTEMBER 30, 2000
AND THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Preferred Preferred Common Common Accumulated
Shares Stock Shares Stock Deficit
Balance,
December 31,
<S> <C> <C> <C> <C> <C>
1998 8 $360,000 12,210,311 $51,674,618 $(51,600,647)
===== ======== ========== =========== ===========
Net Loss --- --- --- --- (9,012,481)
Issuance of
common stock:
Private placement -
Common stock --- --- 3,626,907 1,765,987 ---
Value of options
issued to
non-employees --- --- --- 263,458 ---
Issuance of
preferred stock:
Issuance - Series
C preferred
stock 6 247,500 --- --- ---
Issuance - Series
D preferred
stock 6 268,500 --- --- ---
Reversal of
conversion of
Series B
preferred stock 1 45,000 (21,745) (46,753) ---
Conversion of
preferred
stock (14) (624,750) 992,223 658,092 ---
Dividends on
preferred
stock --- --- --- --- (31,830)
----- -------- ---------- ----------- -----------
Balance,
December 31,
1999 7 $296,250 16,807,696 $54,315,402 $(60,644,958)
===== ======== ========== =========== ===========
Net Loss (1,871,271)
Issuance of
common stock:
Private placement -
Common stock --- --- 8,400,000 4,840,000 ---
Shares cancelled
related to vendor
obligation --- --- (205,717) (77,144) ---
Shares issued in
settlement of
vendor
obligation --- --- 400,000 161,156 ---
Exercise of
stock options --- --- 145,833 74,999 ---
Conversion of
debenture
into common
stock --- --- 1,034,904 517,452 ---
Issuance of
preferred
stock:
Conversion of
debentures
into preferred
stock 30 3,000,000 --- --- ---
Conversion of
preferred
stock (35) (3,206,250) 1,963,266 3,289,112
Dividends on
preferred
stock --- --- --- --- (75,233)
------ -------- ---------- ----------- -----------
Balance,
September 30,
2000 2 $ 90,000 28,545,982 $63,120,977 $(62,591,462)
====== ======== ========== =========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2000
NOTE 1 - GENERAL
The interim financial information furnished herein was prepared from the
books and records of Cycomm International Inc. and its subsidiaries
("Cycomm") as of September 30, 2000 and for the periods ended September 30,
2000 and 1999, 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
Cycomm's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1999. The interim financial information presented is not necessarily
indicative of the results from operations expected for the full fiscal year.
Recent Pronouncements
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, (SAB 101). SAB 101 requires that four basic
criteria must be met before revenue can be recognized: (1) persuasive evidence
of an arrangement exists, (2) delivery has occurred or services rendered, (3)
the fee is fixed and determinable, and (4) collectibility is reasonably assured.
Cycomm is required to comply with SAB 101 no later than the fourth fiscal
quarter of fiscal years beginning after December 15, 1999, but does not expect
it to have a material impact on Cycomm's financial statements.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", an amendment of SFAS No. 133, which
is effective for fiscal years beginning after June 15, 2000. Cycomm does not
anticipate that the adoption of SFAS No. 133, as amended, will have a
significant effect on its financial statements.
<PAGE>
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NOTE 2: DISCONTINUED OPERATIONS
Cycomm Secure Solutions Inc.
On March 4, 1999, Cycomm signed a letter of intent for the sale of the assets
of its secure computing subsidiary, Cycomm Secure Solutions Inc. ("CSS").
The asset sale was completed on June 21, 1999. The results of operations for
CSS are reported as discontinued operations for all periods presented. For
the period ended March 4, 1999, the results of CSS included a write-off of
goodwill of $1,220,190. The results of operations for Cycomm Secure
Solutions Inc. for the period ended March 4, 1999 are summarized as follows:
<TABLE>
<CAPTION>
January 1, 1999
to March 4, 1999
<S> <C>
Revenue $1,837,889
Cost of Sales 1,354,200
---------
Gross profit (loss) 483,689
Operating Expenses 2,096,733
----------
Net loss ($1,613,044)
===========
Net loss per share ($0.12)
======
</TABLE>
The assets sold included inventory, fixed assets and various intangibles and
other assets and had a carrying value of $2,333,779 as of June 21, 1999.
Proceeds on the sale of CSS's assets were used to repay a portion of CSS'
bank debt and to satisfy CSS' lease and property tax obligations. Cycomm
recognized a net loss on disposal of $1,535,643 on the sale of CSS' assets.
Included in the net loss was a gain of $278,297 on the settlement of an
operating lease obligation.
On June 29, 2000, Cycomm completed the legal dissolution of its CSS
subsidiary. As a result of the dissolution, Cycomm is not entitled to
receive any assets generated in the future by CSS, and is not liable for any
present or future unsatisfied claims of CSS' creditors. Cycomm recognized a
gain of $1,119,273 related to the dissolution of CSS.
Val-Comm Inc.
In April 1999, the Company entered into an agreement to sell its secure
telecommunications subsidiary, Val-Comm Inc. to an individual investor in
Val-Comm's geographical area. The transaction was structured as a stock
purchase, and was completed on August 21,1999. The results of operations for
Val-Comm are reported as discontinued operations for the quarter ended
September 30, 1999 and the nine months ended September 30, 1999, and are
summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1999 1999
<S> <C> <C>
Revenue $209,132 $1,001,733
Cost of Sales 121,107 570,510
------- -------
Gross profit (loss) 88,025 431,223
Operating Expenses 83,153 319,060
------ --------
Net income $ 4,872 $112,163
======== ========
Net income per share $0.00 $0.01
===== =====
</TABLE>
The net book value of Val-Comm's assets on August 21, 1999 was $484,254. The
selling price of Val-Comm consisted of an initial payment of $750,000 and a
contingent promissory note of $1.5 million. The promissory note is
contingent upon Val-Comm getting a follow-on award to an existing contract.
The contingent promissory note bears interest at 7%, and is payable over two
years should payment be required, with 50% of the note due on August 21, 2000
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and the balance of the note due on August 21, 2001. Cycomm recognized a gain
on the sale of Val-Comm of $265,746.
The initial payment of $750,000 was made with $188,000 in cash and with stock
in the purchaser's company that was valued at $900,000 at the time of the
purchase. The stock was to be sold by an independent third party, and the
proceeds were to be paid to Cycomm. As of September 30, 2000, Cycomm had
received proceeds of $496,034 from the sale of the purchaser's stock. The
total amount due from the purchaser on the initial payment is $65,966 as of
September 30, 2000 and is included in other current assets.
As of September 30, 2000, Val-Comm has not been awarded the follow-on
contract specified in the contingent promissory note. Val-Comm's management
is not confident that this contract this contract will be awarded to their
company.
NOTE 3: ACQUISITION EARN-OUT
In connection with the purchase price paid for the Company's acquisition of
its Cycomm Mobile Solutions subsidiary, the Company entered into an
acquisition earn-out agreement with the seller, M3i Technologies Inc. and M3i
Systems Inc. (collectively the "Seller"). The earn-out provision of the
purchase price was to be paid in Cycomm common stock, up to a maximum value
of $4,000,000, subject to provisions based on the achievement of certain unit
sales volumes for a five year period. Common stock issued under the earn-out
provisions was to be issued at the average current market price of the last
month for the quarter in which it was earned. As of September 30, 2000,
Cycomm had paid $1,354,796 of contingent consideration, which was paid in
444,862 shares of common stock.
The Company and the seller were parties to a lawsuit regarding the
interpretation of the earn-out agreement. On May 24, 1999, the Company and
the seller entered into a complete settlement of the litigation. Under the
terms of the agreement, the Company could fulfil its obligation to the Seller
if payments were made before certain dates as specified in the agreement.
The Company could elect to pay $700,000 by April 30, 2000, $1,100,000 by
April 30, 2001 or $1,500,000 prior to April 30, 2002. The settlement
agreement was amended on February 3, 2000 to allow Cycomm until December 31,
2000 to pay $700,000 in full and final settlement of the obligation, to be
paid in accordance with a payment schedule. Management anticipates that the
liability to the Seller will be paid prior to December 31, 2000 in accordance
with the payment schedule. The first scheduled payment of $100,000 was made
on February 7, 2000, and the second payment of $100,000 was made on May 11,
2000. Cycomm has recorded an accrued liability of $500,000 as of September
30, 2000. In conjunction with the settlement, the Company issued 200,000
warrants to the seller with a fair value on the date of issuance of
$88,000. It was considered part of the purchase price and subsequently
written off in conjunction with goodwill impairment charge (See Note 6:
Impairment of Goodwill).
NOTE 4: DELISTING FROM THE AMERICAN STOCK EXCHANGE
On January 21, 1999, Cycomm was notified by the American Stock Exchange that
it no longer met continued listing criteria and would be delisted.
Specifically, Cycomm had incurred losses in its last five fiscal years and
therefore failed to meet the American Stock Exchange listing requirement of
pre-tax income of at least $750,000 in its last fiscal year, or in two of its
<PAGE>
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last three fiscal years. Additionally, Cycomm failed to satisfy the minimum
stockholders' equity requirement of $4 million. Trading of Cycomm's stock
was suspended on April 13, 1999 and Cycomm was delisted from the AMEX on
April 30, 1999. Cycomm began trading on the Over-the-Counter Bulletin Board
(OTCBB) on May 5, 1999 under the symbol "CYII".
NOTE 5: DEFERRED REVENUE
Cycomm recorded deferred revenue related to sales in which customers were
shipped PCMobiles with 586 processors (the "586s") to be used until PCMobiles
with Pentium processors (the "Pentiums") became available. At the time the
shipments 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 shipment, which was recorded as deferred revenue. When the
Pentiums became available, the customers could trade in the 586s for Pentiums
at no additional charge. The customers retained the right to return the 586s
at any time before they received the Pentiums. Upon the return of the 586s,
the customers would be entitled to a full refund, and the entire sale would
be cancelled.
The 586s were classified as demonstration units, and were recorded in
inventory and depreciated over a one year period. All demonstration units
were fully depreciated during the year ended December 31, 1999. No
depreciation expense was recorded on the demonstration units for the quarter
ended September 30, 1999. Depreciation expense on demonstration units was
$208,075 for the nine months ended September 30, 1999.
Revenue on the sales is recognized when the Pentium units are shipped to the
customers. No Pentium units were shipped to customers in the quarters ended
September 30, 2000 and September 30, 1999. For the nine months ended
September 30, 2000 and September 30, 1999, Cycomm recognized revenue of
$185,207 and $168,606, respectively.
On April 4, 2000, Cycomm entered into an agreement under which a customer
agreed to keep the 586 units originally delivered, instead of trading the
units for Pentiums. The customer agreed to forfeit its right to trade in the
units in exchange for the forgiveness of $278,818 owed to Cycomm. Cycomm
also provided the customer with 15 additional PCMobile units at no additional
cost. As a result of this settlement, Cycomm recognized deferred revenue of
$581,134 in the nine months ended September 30, 2000.
NOTE 6: IMPAIRMENT OF GOODWILL
In 1999, Cycomm made the determination that the value of goodwill related to
the acquisition of Cycomm Mobile Solutions ("CMS") was impaired.
CMS has a history of losses and negative cash flows from operations.
Cycomm recorded an impairment charge of $838,202 in the year ended December
31, 1999 to fully write down goodwill related to CMS due to the fact that the
carrying value of that asset was in excess of its fair value.
<PAGE>
Page 12
NOTE 7: INVENTORIES
The following is a summary of inventories at September 30, 2000 and December
31, 1999:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
<S> <C> <C>
Raw materials $1,284,802 $841,910
Work in process and sub-assemblies 339,589 122,160
Finished goods 54,652 11,326
Allowance for obsolete inventory (111,513) (131,339)
---------- --------
$1,567,530 $844,057
========== ========
</TABLE>
Cycomm continually evaluates inventory for obsolescence or impairment in
value. The impairment loss is measured by comparing the carrying amount of
the inventory to its fair value with any excess of carrying value over fair
value reserved. Fair value is based on market prices where available, or on
an estimate of market value, or determined by various valuation techniques
including discounted cash flow.
NOTE 8: NOTES PAYABLE AND CONVERTIBLE DEBENTURES
Notes payable and convertible debentures are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
<S> <C> <C>
7% convertible debentures, due May 1, 2000 $ --- $3,000,000
7% convertible debenture, due September 20, 2004 --- 500,000
Revolving credit facility, prime + 3% 305,131 915,104
- ------- -------
305,131 4,415,104
Less current portion 305,131 915,104
-------- ----------
$ --- $3,500,000
======== ==========
</TABLE>
On February 28, 1997, Cycomm issued $3,000,000 of 10% convertible debentures
due February 28, 1999 which were convertible at the option of the holders
into Cycomm"s common stock. On March 31, 2000, Cycomm entered into an
agreement with the debenture holders under which the debentures were sold to
a third party, who was assigned all rights privileges and obligations of the
original holders. Concurrent with the sale, Cycomm entered into an agreement
with the new holders under which the debentures were converted into preferred
stock of Cycomm. The debentures were converted into 30 shares of Series E
convertible redeemable preferred stock ("Series E preferred stock") with a
conversion value of $100,000 per share. The Series E preferred stock was
convertible at any time at the option of the holder. The conversion price
was equal to the average closing bid price of Cycomm's stock for the 20 days
prior to the date of conversion. The Series E preferred stock could not be
converted for less than $2.00 per share. The Series E preferred stock
accrued dividends at 7% per annum, which could be paid in cash or in common
<PAGE>
Page 13
stock at the option of the Company. The Series E preferred stock was
redeemable at Cycomm's option at a price equal to conversion price on the
date of redemption. The Series E preferred stock had no mandatory redemption
provisions. See Note 9: Capital Stock for further discussion of the Series E
preferred stock.
On September 20, 1999, the Company issued a $500,000 7% convertible debenture
due September 20, 2004 which was convertible at the option of the holder into
Cycomm's common stock at the lesser of $0.50 per share or the average closing
bid price of Cycomm's common stock for the 5 days prior to conversion. On
March 30, 2000, the debenture and was converted. At the time of conversion,
the debenture had earned accrued interest of $17,452. The principal and
accrued interest were converted into 1,034,904 shares of common stock.
Cycomm has a revolving credit facility from a lender under which Cycomm may,
at its option, borrow and repay amounts up to a maximum of $4,000,000. As of
September 30, 2000, the available borrowing base on the revolving credit
facility was $348,625. Borrowings under this credit facility bear interest
at prime plus 3%. The credit facility is collateralized by the trade
accounts receivable, inventory and other assets of Cycomm Mobile Solutions.
As of September 30, 2000, the amount outstanding on the credit facility was
$305,131.
NOTE 9: CAPITAL STOCK
Common Stock
In January 2000, Cycomm raised capital through three separate private equity
placements of its common stock. The equity placements were priced at the
market price of Cycomm's common stock on the date of the letter of intent.
The market price of Cycomm's common stock increased prior to the date of
issuance, causing the private equity placements to be issued at a discount to
the market price. In total, the Cycomm issued 6,200,000 shares of common
stock for gross proceeds of $3,170,000. Cash proceeds, after commissions and
issue costs were $3,060,000. In conjunction with these private placements,
Cycomm issued 5,000,000 warrants to the purchasers, with a fair value on the
date of issuance of approximately $8,736,500.
On May 8, 2000, Cycomm raised capital through a private equity placement of
its common stock. The stock was issued at a discount to the market price on
the date of the issuance. In total, Cycomm issued 1,200,000 shares of common
stock for gross proceeds of $1,200,000. Cash proceeds, after commissions and
issue costs were $1,080,000.
Five shares of Series B convertible preferred shares and related accrued
dividends were converted into 431,759 shares of common stock during the nine
months ended September 30, 2000. There are two shares of Series B
convertible preferred stock outstanding as of September 30, 2000, with a
combined face value of $100,000 and accrued dividends of $25,945. Dividends
can be paid in cash or in common stock at the option of Cycomm.
On March 30, 2000, the $500,000 7% convertible debenture due September 20,
2004 was converted into common stock of the Company. At the time of
conversion, the debenture had earned accrued interest of $17,452. The
principal and accrued interest were converted into 1,034,904 shares of common
stock.
<PAGE>
Page 14
On January 21, 2000, Cycomm cancelled 205,717 shares of its common stock that
had been issued in settlement of a vendor obligation of $77,144, and issued
400,000 shares in full settlement of an obligation of $161,223.
On January 13, 2000, Cycomm issued 145,833 shares of common stock upon the
exercise of non-employee stock options for proceeds of $74,999.
On July 31, 2000, Cycomm raised capital through a private equity placement of
its common stock. The stock was issued at a discount to the market price on
the date of the issuance. Cycomm issued 333,334 shares of common stock for
proceeds of $250,000. In conjunction with this private placements, Cycomm
issued 33,000 warrants to the purchasers, with an exercise price of $0.75 per
share.
On September 11, 2000, Cycomm raised capital through a private equity
placement of its common stock. The stock was issued at a discount to the
market price on the date of the issuance. Cycomm issued 666,666 shares of
common stock for gross proceeds of $500,000. Cash proceeds, after
commissions and issue costs were $450,000.
Preferred Stock
On March 31, 2000, Cycomm issued 30 shares of Series E convertible redeemable
preferred stock ("Series E preferred stock") with a conversion value of
$100,000 in conjunction with the conversion of the $3,000,000 7% convertible
debentures due May 1, 2000 (See Note 8: Notes Payable and Convertible
Debentures). The conversion price was equal to the average closing bid price
of the Company's stock for the 20 days prior to the date of conversion. The
Series E preferred stock could not be converted for less than $2.00 per
share. The Series E preferred stock accrued dividends at 7% per annum, which
could be paid in cash or in common stock at Cycomm's option. The Series E
preferred stock was redeemable at Cycomm's option at a price equal to
conversion price on the date of redemption. The Series E preferred stock had
no mandatory redemption provisions.
In the quarter ended September 30, 2000, 10 shares of Series E preferred
stock were converted into 500,000 shares of Cycomm's common stock. Accrued
dividends of $63,017 were paid with the issuance of 31,507 shares of Cycomm's
common stock. As of September 30, 2000, no shares of Series E preferred
stock were outstanding.
<PAGE>
Page 15
NOTE 10: SEGMENT AND RELATED INFORMATION
The results of operations by geographic region for the quarters ended
September 30, 2000 and 1999, and the six months ended September 30, 2000 and
1999 are as follows:
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
Sales
<S> <C> <C> <C> <C>
United States $438,394 $ 199,886 $2,786,758 $2,034,786
Canada 16,317 19,936 380,947 89,029
-------- --------- ---------- ----------
$454,711 $ 219,822 $3,167,705 $2,123,815
======== ========= ========== ==========
Loss from Operations
United States $(794,559) $(627,759) $(1,795,245) $(2,377,608)
Canada (497,850) (284,046) (929,359) (1,072,216)
---------- --------- ---------- ----------
$(1,292,409) $(911,805) $(2,724,604) $(3,449,824)
========== ========= ========== ==========
</TABLE>
NOTE 11: EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net earnings by the
weighted average number of common shares outstanding during the related
periods. Diluted earnings per share is calculated by dividing net earnings
by the weighted average number of common shares outstanding during the
related periods plus the incremental shares that would have been outstanding
upon the assumed exercise of eligible stock options, warrants and the
conversion of convertible preferred stock. For the periods ended September
30, 2000 and September 30, 1999, the effect of the exercise of stock options,
warrants and the conversion of preferred stock would be anti-dilutive,
causing diluted earnings per share to equal basic earnings per share as
disclosed in the consolidated statements of operations.
NOTE 12: SUBSEQUENT EVENTS
On October 31, 2000, Cycomm entered into an agreement with the Seller of its
Cycomm Mobile Solutions subsidiary (See Note 3: Acquisition Earn Out). Under the
terms of this agreement, the parties amended the settlement payment schedule to
allow Cycomm to satisfy its October 31, 2000 payment obligation in stock instead
of cash. Under the original terms of the payment plan, Cycomm was required to
pay $200,000 in cash to the seller on October 31, 2000. Cycomm and the Seller
are currently negotiating the number of shares to be issued in satisfaction of
this payment.
On November 13, 2000, Cycomm raised capital through a private equity placement
of its common stock. The stock was issued at a discount to the market price on
the date of the issuance. In total, Cycomm issued 1,000,000 shares of common
stock for total proceeds of $500,000. Cash proceeds, after commissions and issue
costs were $450,000. In conjunction with this private equity placement, Cycomm
issued 100,000 warrants to purchase Cycomm's common stock with an exercise price
of $0.65 per share.
<PAGE>
Page 16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Results of Continuing Operations
During 1999, Cycomm sold two of its subsidiaries: Cycomm Secure Solutions Inc.
("CSS") and Val-Comm, Inc. The operating results of CSS and Val-Comm for the
quarter and the nine months ended September 30, 1999 are not included in results
from continuing operations, and are classified on separate line items on the
income statement.
The results of continuing operations for the quarters ended September 30, 2000
and September 30, 1999 reflect only the results of Cycomm's PCMobile product
line and the results of the parent company.
Quarters Ended September 30, 2000 and September 30, 1999
Revenues for the quarter ended September 30, 2000 were $454,711 as compared to
revenues of $219,822 for the quarter ended September 30, 1999. Although sales
increased, sales for both periods were below Cycomm's targeted levels. For the
quarter ended September 30, 1999, Cycomm was constrained by limited financial
resources, which caused a decrease in production. In the quarter ended September
30, 2000, the award of a significant order was delayed, which pushed the
delivery date for the order into the fourth quarter of 2000.
Cost of sales for the quarter ended September 30, 2000 were $607,927 as compared
to cost of sales of $186,297 for the prior period. Gross margins for the quarter
ended September 30, 2000 were (34%), which decreased from 15% in the quarter
ended September 30, 1999. The decrease in gross margins is a result of premiums
required by Cycomm's vendors resulting from lower than anticipated purchasing
levels, and warranty costs incurred in the quarter ended September 30, 2000.
Operating expenses increased to $1,139,193 for the quarter ended September 30,
2000 as compared to $945,330 in the quarter ended September 30, 1999. Selling,
general and administrative expenses ("SG&A") increased $188,061 to $943,447 for
the current quarter. Research and development costs ("R&D") were $158,904 for
the quarter ended September 30, 2000, as compared to $103,118 in the quarter
ended September 30, 1999. Both SG&A and R&D expenses were lower than normal in
the quarter ended September 30, 1999 as a result of limited financial resources
available to Cycomm. Depreciation and amortization decreased to $36,842 for the
quarter ended September 30, 2000 as compared to $86,826 in the quarter ended
September 30, 1999. Depreciation and amortization for the quarter ended
September 30, 1999 contained expenses not included in the current quarter. These
expenses were related to the amortization of goodwill of Cycomm's PCMobile
division, which totaled $41,400 for the quarter ended September 30, 1999 (See
Note 6: Impairment of Goodwill).
Interest expense for the quarter ended September 30, 2000 was $99,113 as
compared to $138,207 for the quarter ended September 30, 1999. Interest expense
for the quarter ended September 30, 1999 included interest on convertible
debentures issued by Cycomm. These debentures were converted into preferred
stock of Cycomm on March 31, 2000.
<PAGE>
Page 17
Net loss from continuing operations increased to $1,384,438, or $0.05 per share,
for the quarter ended September 30, 2000 from $938,351, or $0.07 per share for
the quarter ended September 30, 1999. The increase in net loss from continuing
operations is primarily the result of an increased level of activity from the
quarter ended September 30, 1999. Cycomm was awarded a significant contract in
the quarter ended September 30, 2000, and began preparing for delivery in the
fourth quarter of 2000.
Income from discontinued operations from the Company's Val-Comm subsidiary was
$4,872 for the quarter ended September 30, 1999. Cycomm recognized a gain on the
disposal of Val-Comm Inc. of $265,746 in the quarter ended September 30, 1999.
Nine Months Ended September 30, 2000 and September 30, 1999
Revenues for the nine months ended September 30, 2000 were $3,167,705 as
compared to revenues of $2,123,815 for the nine months ended September 30, 1999.
The increase in sales is primarily the result of the recognition of $766,341 in
deferred revenue (See Note 5: Deferred Revenue) in the nine months ended
September 30, 2000.
Cost of sales for the nine months ended September 30, 2000 were $2,579,573 as
compared to cost of sales of $1,737,069 for the nine months ended September 30,
1999. Gross margins for the nine months ended September 30, 2000 were 19%, which
represents an increase from 18% in the prior period. The increase in gross
margins is a result of $766,341 in deferred revenue (See Note 5: Deferred
Revenue) being recognized in the nine months ended September 30, 2000, while the
corresponding cost of sales was recognized during 1999.
Operating expenses decreased to $3,312,736 for the nine months ended
September 30, 2000 as compared to $3,836,570 in the prior period.
Selling, general and administrative expenses decreased $160,225 to
$2,267,228 for the nine months ended September 30, 2000. This decrease
is mainly the result of reductions in facilities costs and headcount
reductions. Research and development costs increased to $533,546 as
compared to $457,257 in the prior period. The research and development
expenses in the current period relate to engineering of the Pentium II
and Pentium III versions of our PCMobile and the further development
of our multimedia docking station. Depreciation and amortization
decreased to $91,962 for the nine months ended September 30, 2000 as
compared to $531,860 in the prior period. Depreciation and
amortization for the nine months ended September 30, 1999 contained
expenses not included in the period, including depreciation of
PCMobile demonstration units totaling $208,075 (See Note 5: Deferred
Revenue), and amortization of goodwill related to PCMobile's division,
Cycomm Mobile Solutions totaling $124,200 (See Note 6: Impairment of
Goodwill).
Interest expense for the nine months ended September 30, 2000 was
$307,655 as compared to $338,736 for the prior period. Interest
expense for the nine months ended September 30, 1999 included interest
on convertible debentures held by Cycomm. These debentures were
converted into preferred stock of Cycomm on March 31, 2000.
Net loss from continuing operations decreased to $2,990,545, or $0.12
per share, for the nine months ended September 30, 2000 from
$3,667,866, or $0.29 per share for the nine months ended September 30,
1999. The decrease in net loss from continuing operations is primarily
<PAGE>
Page 18
the result of the recognition of $766,341 in deferred revenue,
reductions in SG&A expenses and decreases in depreciation and
amortization costs.
Income from discontinued operations from the Company's Val-Comm
subsidiary was $112,163 for the nine months ended September 30, 1999.
Cycomm recognized a gain on the disposal of Val-Comm Inc. of $265,746
in the nine months ended September 30, 1999.
Cycomm's loss from its discontinued operation Cycomm Secure Solutions
Inc. was $1,613,044 for the nine months ended September 30, 1999.
Included in this loss is a write-off of goodwill of $1,220,190. The
loss on the sale of Cycomm Secure Solutions' assets was $1,535,643.
Cycomm legally dissolved its Cycomm Secure Solutions ("CSS")
subsidiary in the nine months ended September 30, 2000. As a result of
the dissolution, Cycomm eliminated CSS' liabilities and recognized a
gain of $1,119,273, or $0.05 per share, for the nine months ended
September 30, 2000.
Liquidity and Capital Resources
Cycomm has satisfied working capital requirements through cash on
hand, available lines of credit and various equity related financings.
At September 30, 2000, Cycomm had cash and cash equivalents of
$202,416.
In the nine months ended September 30, 2000, cash used in operations
was $4,089,803, as Cycomm reduced its current liabilities by
$3,181,576, increased inventories by $723,473, and reduced accounts
receivable by $1,015,957. Cash used in investing activities during the
nine months ended September 30, 2000 was $33,838. Cash provided by
financing activities totaled $4,303,190 for the nine months ended
September 30, 2000. Cycomm raised $4,840,000 through private equity
placements and decreased the amounts drawn on its bank credit lines in
an amount of $609,973 during the nine months ended September 30, 2000.
Cycomm's net working capital at September 30, 2000 was $318,104 as
compared to ($2,886,204) at December 31, 1999. The increase in net
working capital is a direct result of Cycomm raising $4,840,000 in
private equity placements. The additional capital was used to fund
operations, purchase inventory and reduce outstanding payables.
Cycomm's auditors modified their audit report on the Company's
consolidated financial statements for the year ended December 31, 1999
to include an explanatory paragraph regarding doubt over the Company's
ability to continue as a going concern. Management is addressing the
going concern issue with several actions, including expanding its
sales force, adding resellers, evaluating potential acquisitions and
strategic partnerships, and further capitalizing the Company through
borrowings and private equity placements.
<PAGE>
Page 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 24, 1999, Cycomm entered into a settlement agreement with the
trustee in bankruptcy of M3i Technologies, Inc., a Quebec corporation. Cycomm
was the defendant in a case alleging breach of contract and misrepresentation in
connection with the "earn out" provision of the asset purchase agreement in
Cycomm's purchase of its Cycomm Mobile Solutions subsidiary. Under the terms of
the agreement, Cycomm can fulfill its obligation to the Seller if payments are
made before certain dates as specified in the agreement. Cycomm can elect to pay
$700,000 by December 31, 2000, $1,100,000 by April 30, 2001 or $1,500,000 prior
to April 30, 2002. Cycomm is currently on a payment schedule with the Seller. As
of November 15, 2000, Cycomm has paid $200,000 in cash, and is negotiating an
amendment to the payment plan under which Cycomm will issue $200,000 in Cycomm
common stock to the seller in satisfaction of the payment due October 31, 2000.
Cycomm intends to pay $700,000 to the Seller by December 31, 2000 in full
satisfaction of the obligation.
On June 15, 1999 Cycomm entered into a settlement agreement with
Infotech International, a Florida corporation involved in the resale
of Cycomm's PCMobile computers. Cycomm was the plaintiff in a case
alleging breach of contract and conversion of funds. Cycomm agreed to
a payment plan in which Infotech would pay $592,959 plus interest and
costs according to a fixed schedule prior to September 15, 2000.
Infotech did not adhere to the terms of the payment plan, and owes
Cycomm $702,948 as of November 1, 2000. Infotech is pursuing a
business combination under which Infotech plans to merge with another
company. Cycomm is negotiating with Infotech to satisfy the settlement
agreement and to receive payment contemporaneously with the business
combination.
A lawsuit was instituted against Cycomm on August 3, 1999 in the
Circuit Court of the Nineteenth Judicial Circuit in and for Indian
River County, FL by G.T. Gangemi, former President of the Cycomm
Secure Solutions subsidiary. The lawsuit alleges breach of contract in
connection with the severance provisions of Mr. Gangemi's employment
agreement with Cycomm Secure Solutions. Cycomm International denies
any wrongdoing and liability and intends to vigorously defend the
allegations.
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.
<PAGE>
Page 20
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
<PAGE>
Page 21
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: November 20, 2000 /s/ Albert I. Hawk
Albert I. Hawk
President and
Chief Executive Officer
Date: November 20, 2000 /s/ Robert M. Hutton
Robert M. Hutton
Vice President of Finance
