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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _________________
Commission file number 1-11686
CYCOMM INTERNATIONAL INC.
(Name of Small Business Issuer in Its Charter)
Wyoming 54-1779046
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1420 Springhill Road, Suite 420, McLean, Virginia 22102
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (703) 903-9548
Securities registered under Section 12(b) of the Exchange Act:
Common Stock, without par value
(Title of Class)
Securities registered under Section 12(g) of the Exchange Act:
Common Stock without par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 __
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year. $3,432,129
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant on March 30, 2001 was approximately
$7,356,757 (based on the closing sale price of $0.22 per share at which the
stock was sold on March 30, 2001).
The number of shares outstanding of the issuer's class of Common Stock, no
par value, as of March 30, 2001, 33,439,808 shares
Documents Incorporated by Reference
(1) Definitive Proxy Statement for 2001 Annual Meeting of Stockholders ---
Part III - Items 9, 10, 11 and 12.
Transitional Small Business Disclosure Format (check one):
Yes No X
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TABLE OF CONTENTS
PAGE
Part I
Item 1. Description of Business ............................... 3
Item 2. Description of Property................................ 11
Item 3. Legal Proceedings...................................... 11
Item 4. Submission of Matters to a Vote of Security Holders.... 12
Part II
Item 5. Market for Common Equity and Related Stockholder Matters 13
Item 6. Management's Discussion and Analysis or Plan of Operation 14
Item 7. Financial Statements................................... 18
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure........................... 18
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section16(a) of the Exchange Act....... 19
Item 10. Executive Compensation.................................. 19
Item 11. Security Ownership of Certain Beneficial Owners and
Management ............................................. 19
Item 12. Certain Relationships and Related Transactions.......... 19
Item 13. Exhibits and Reports on Form 8-K........................ 19
Signatures........................................................ 20
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Introduction
Cycomm International Inc. ("Cycomm") designs, manufactures and sells wireless
rugged computing products and provides wireless services. Our products are
specifically manufactured and designed to function in harsh environments such as
extreme weather, shock, moisture and vibration, and are sold primarily to police
agencies, fire departments, utilities, field services and other wireless mobile
applications. All of Cycomm's products are designed for wireless use on multiple
platforms. Cycomm offers a wireless turn-key solution for public safety and
other mobile worker vertical markets.
History
Cycomm was formed on April 30, 1986 by the amalgamation of two Ontario
corporations under the laws of Ontario. Historically, our company has operated
under various names, however, the name was changed to Cycomm International Inc.
on February 20, 1992. Cycomm continued its incorporation on October 31, 1995
from Ontario, Canada to the State of Wyoming.
At its formation in 1986, Cycomm was involved in the manufacturing and
marketing of sonar activated marine buoyancy devices. Through a series of
acquisitions, Cycomm's product line grew to include voice privacy and encryption
technologies, engineering services for the U.S. government, secure computing
devices, and ruggedized mobile laptop computers.
In 1999, management decided to focus all of Cycomm's resources on the
PCMobile line of ruggedized mobile laptop computers. Cycomm sold its
other divisions and used the proceeds to repay debt and fund the
growth of PCMobile.
The wireless mobile computing market is growing rapidly. Our primary
focus has been in the public safety industry, but we plan sell more
into utility, field service, and other vertical markets. Our products
are designed for wireless use, allowing users to access information
through multiple wireless platforms.
Locations
Executive Office. Cycomm's executive offices are located in McLean,
Virginia. Our management is based in this office, along with sales, marketing,
customer support, administration, financial, investment, and investor relations.
Cycomm Mobile Solutions Inc. This subsidiary has two facilities, one
located in Montreal, Quebec and the other in Melbourne, Florida. Design and
manufacturing is completed at the Montreal facility. The Melbourne, Florida
facility handles all repair and maintenance of Cycomm's products.
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Product Description and Market
Ruggedized Computers.
Cycomm manufactures a wireless ruggedized laptop computer line branded
under the name "PCMobile" that is specifically designed for the public safety
market. We currently market the PCMobile to police and fire departments and
other public safety agencies as well as utility, commercial and industrial
markets. The PCMobile is designed to withstand the extreme operating
conditions in which off the shelf products would fail or become inoperable.
Cycomm's products allow users to stay connected while operating away from the
traditional office environment.
The proprietary design and ruggedization of our product protects it
from extreme conditions, or at least minimizes their adverse impact, enabling it
to function in harsh environments. Computers are ruggedized by the selection
and mounting of components, the design, configuration and fabrication of
enclosures and electronics, and the application of special casings, seals and
coatings. The encasement and keyboard are built with tougher materials, and the
unit is sealed to protect the components against moisture, humidity, particles
and temperature extremes.
The PCMobile is designed to withstand a three foot drop onto concrete,
and to operate in temperatures ranging from -22 to +140 degrees Fahrenheit. Our
unit can also withstand, as well as severe moisture and humidity conditions and
the infiltration by flying or wind-borne debris, such as sand, dust or other
particles. In the operational area, the hazards involve strong vibrations and
shocks that result from rough handling and transportation as well as electric
interference or internal thermal conditions. In certain situations, the signals
emitted by other electronic equipment may interfere with and distort the proper
functioning of computers. In addition, as increasingly more computing power is
inserted into small spaces and containers, the heat generated by the
computer itself may cause the processor to malfunction or fail.
Public Safety Market
A significant market for ruggedized computers is the public safety
market. New computer and ruggedization technologies have enabled public safety
organizations to advance into mobile computing as a way to increase
effectiveness and efficiency of the officers on the street. Cycomm's market
research indicates that in the United States, the addressable market represents
approximately 450,000 public safety vehicles in approximately 19,000 local
police, sheriff and special police agencies. This represents a market of over
$2.1 billion.
The growth in the U.S. public safety market for rugged mobile computers
is driven by several factors. There has been an increase in federal funding
made available to local public safety agencies through the COPS MORE and other
programs which are designed to increase the number of police on the street.
There is also an effort to integrate dispatch, field data and communications
systems. Also, there are currently more rugged mobile computer options,
including the PCMobile, available to public safety organizations. As public
safety agencies become more familiar and comfortable with the use and benefits
of new technology, management believes that the market will continue to grow.
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Cycomm believes that there is a significant opportunities for its
products internationally, and has begun efforts to address these markets.
Cycomm has also begun to pursue the field service and utilities markets, which
the Company believes will become a large component of future revenue.
Product Lines and Services
The Company manufactures and sells a complete line of rugged computers
and peripherals. Transmission options include both wired and a variety of
wireless modes including satellite and terrestrial links such as cellular packet
data ("CDPD") and Specialized Mobile Radio ("SMR").
PCMobile. The PCMobile is a "ruggedized" mobile computer
specifically developed for optimal mobility, flexibility and performance under
severe operating conditions. It is ideal for public safety and field service.
The PCMobile is certified to be used almost anywhere, performing reliably in
spite of extreme conditions. The rugged magnesium housing makes the PCMobile
spill and shock-proof and preserves the unit's structural integrity even at high
temperatures. The light blue casing reflects rather than absorbs light, helping
to maintain the electronic circuitry at lower operating temperatures. The
screens are either transflective monochrome or color and can be seen in direct
sunlight. Rubber gaskets are fitted around door openings and between case mating
parts. All external connectors have been rain-tested. The PCMobile also stands
up to vibration and protects against electrostatic discharge.
Wireless Services
Cycomm's products are wireless communications devices with secure
capabilities. Cycomm offers a radio frequency ("RF") independent internet
protocol ("IP") wireless platform for public safety agencies with less than 50
vehicles. The wireless platform is a turn-key solution, which is ideal for
small agencies, which rarely possess the technical expertise to develop and
build out an entire automated system.
Cycomm has signed a partnership agreement to provide internet services,
purchase wireless bulk time, and development integration. In addition, the
wireless platform offered by Cycomm can support a number of applications in
other markets, such as real estate, financial services and automotive. We
believe that the market for these services is growing and will be an integral
part of Cycomm's future growth.
Repair Services
Cycomm Mobile Solutions Customer Service Group. Cycomm provides
superior on-site and return-to-factory product support for its PCMobiles through
its Customer Service Group. All Cycomm Field Technicians and Engineers are
required to complete "A+ Certification" and in-house factory training courses in
order to repair our products. We provide 24 hour toll free technical support
to ensure our customers' problems are resolved quickly.
Cycomm currently has an installed base of over 5,000 PCMobiles, many of
which are reaching the end of the original warranty. We are aggressively
pursuing extended warranty contracts with our customers, and view this as a
valuable revenue source for our company.
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Manufacturing and Supply
Cycomm's design, engineering and manufacturing facilities are located
in Montreal, Quebec, Canada. We design, engineer and test our rugged computers
in-house. We design our own printed circuit boards, which are manufactured by
Original Equipment Manufacturers ("OEM's"). Cycomm purchases its circuit boards
and other components from OEM's and tests and assembles the final products.
Cycomm uses surface mount technology ("SMT") to attach components to
the computer boards which enhances durability and ruggedness over conventional
mounting technology. In SMT, the components are glued to the board by means of
a chemical adhesion process and are then soldered instead of being inserted into
holes in the board and soldered. SMT is a more precise manufacturing technique
and offers better insulation against vibration and shock. Cycomm fabricates the
prototype of the board, tests it, purchases all the necessary components for the
board and then provides them in kit form to a specialized board fabricator for
both pilot and production runs.
Our approach to design and outsourcing differs from that followed by
most other rugged computer manufacturers which, we believe, purchase more
commercial off the shelf circuit boards and components, then attempt to
"ruggedize" the boards and components. Cycomm's approach to board fabrication
allows it to maintain better control of the quality and delivery of the boards,
and to produce a computer that can withstand more extreme operating conditions.
We anticipate that we will continue to outsource board fabrication.
Given the rapid changes in computer technology, Cycomm is not capable of keeping
abreast of the costly purchase requirements for new production equipment
necessary in the precise placement of electronic components on boards.
Outsourcing allows Cycomm's products to receive the benefit of the latest
technological developments at an acceptable cost. Once the boards are
completed, they are tested by the fabricator and, upon satisfactory completion
of such tests, are shipped to Cycomm. When delivered, Cycomm further tests the
complete boards and other components and then assembles the computers. Apart
from the printed circuit boards, the components that Cycomm purchases from
external sources include chassis, wire harnesses, computer chips, keyboards,
displays and metal cases.
Cycomm does not assemble its products on a continuous mass-production
basis. Instead, our computers are usually assembled on a batch basis in which
products move irregularly from station to station. Because our production runs
rarely reach the volume levels of commercial production, there are no or few
economies of scale and related cost reductions that are achievable. Tests are
performed at various stages of the process according to the Cycomm's standards
or as requested by specific customers. Further testing of products is generally
accomplished at the end of the assembly process.
Generally, Cycomm is not a party to any formal written contract
regarding the deliveries of its hardware, supplies and components
or their fabrication. It usually purchases such items pursuant to
written purchase orders of both individual and blanket variety.
Blanket purchase orders usually entail the purchase of a larger
amount of items at fixed prices for delivery and payment on
specific dates.
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Cycomm relies on one board fabricator located within the same
geographical area as its design, engineering and assembly facilities. Certain
components used in our computers are obtained from sole sources, such as C-MAC
and Performag. Cycomm has also licensed its software from sole sources,
including Microsoft and Phoenix Technology. Cycomm has occasionally experienced
delays in deliveries of components and may experience similar problems in the
future. In an attempt to minimize such problems, Cycomm has developed and keeps
an inventory of parts that are generally more difficult to obtain. However, any
interruption, suspension or termination of component deliveries from our
suppliers could have a material adverse effect on business. Although management
believes that in nearly every case alternate sources of supply can be located,
inevitably a certain amount of time would be required to find substitutes.
During any such interruption in supplies, the Cycomm may have to curtail the
production and sale of its computers for an indefinite period.
Cycomm has entered into licensing arrangements for certain hardware and
software elements contained in, or used in conjunction with, its computers.
These agreements are usually non-exclusive, provide for minimum fees and
royalties related to sales to be paid by Cycomm to the particular licenser, run
for a limited term and are subject to other terms, conditions and restrictions.
Cycomm receives its basic operating software system MS-DOS with various
Windows versions from Microsoft, Inc. pursuant to such licensing arrangements.
Cycomm also obtains from Phoenix Technologies, Inc. its BIOS (Basic Input/Output
System) pursuant to a separate license agreement. Under either arrangement,
Cycomm may modify such software and occasionally alter the BIOS for special
situations. The termination, suspension or curtailment of these or other
licensing arrangements to which Cycomm is a party may have a material adverse
impact on its business and operations.
Although Cycomm relies on a limited number of companies in the
manufacture of our products, we believe that the specific parts employed in the
manufacturing process are available from a variety of suppliers. Further, we
believe that additional manufacturing sources could be found if necessary. We
believe that our relationships with our suppliers are satisfactory.
Marketing and Sales
Cycomm markets and sells its products through an internal sales force
of ten individuals, approximately fifty resellers in the United States and
approximately four resellers internationally. Our resellers cover approximately
all fifty states, including Washington, DC, and our foreign distributors operate
in ten countries, including England, France, Israel, Japan, Germany, South Korea
and Portugal.
Cycomm's relationship with its resellers is generally governed by a
written contract, terminable on 30 days' prior notice. These contracts usually
provide for non-exclusive territorial and product representation and discounts
off the list price on standard products based on the individual resellers annual
sales volume. Discounts on non-standard products and custom engineering are
usually subject to negotiation between the parties in accordance with the terms
of the contract and are priced on a case-by-case basis dependent upon the level
of effort in design, test, manufacture, warranty and support.
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Cycomm's resellers typically purchase our products and then resell them
to their customers. These resellers accounted for an aggregate of approximately
67% of the Company's sales. Cycomm has reseller agreements with Unisys, TRW,
Ericcson, GE Capital, PRC/Litton, NTT, GTE and Matra for its rugged computers.
The loss of certain of such resellers may have a material negative effect
on Cycomm's business.
We promote our rugged computing products through the dissemination of
product literature, attendance and exhibition at trade shows and the
distribution of news releases on special developments to trade magazines and
newsletters to an extensive customer list. We also advertise in trade
periodicals. Management believes that, to date, most of Cycomm's sales leads
have been generated by trade shows, our web sites and word-of-mouth referrals.
In the public safety and government market, the sales cycle for
Cycomm's products usually involves a number of complicated steps and can take
from three months to one year. Sales to the public safety and government
markets are greatly influenced by special budgetary and spending factors
pertinent to these organizations.
Warranty and Customer Service
Cycomm usually provides a one to three year limited warranty on all
its products covering both parts and labor, however extended warranties may be
purchased by customers. Additionally, Cycomm offers a lifetime warranty on the
magnesium cases of the PCMobile. We repair or replace products that are
defective during the warranty period if proper usage and preventive maintenance
procedures have been followed by its customers. Repairs that are necessitated
by misuse of such products or are required beyond the warranty period are not
covered by its normal warranty.
In cases of defective products, the customer typically returns them to
Cycomm's repair and maintenance facility. Service personnel replace or repair
the defective items and ship them back to the customer. Generally, all
servicing is done at our repair facility and customers are charged a fee for
those service items that are not covered by warranty. In addition to extended
warranties, we offer maintenance and service contracts.
Cycomm's customer service personnel answer technical questions from
customers and offer solutions to their specific applications problems. In
certain instances, customer service personnel receive and process orders for
product demonstrations, disseminate pricing information and accept purchase
orders for computers.
Backlog
On December 31, 2000, the Company had a backlog of contracts and
purchase orders of approximately $20.0 million in its mobile computing
segment as compared to $3.1 million at December 31, 1999. Backlog consists
of contracts and purchase orders for computer equipment and peripherals to be
manufactured and delivered usually during the upcoming 12 to 18 months. The
contracts and purchase orders define the price and specifications of the
equipment to be delivered. However, due to the nature of the business, the
backlog at any particular date may not be indicative of Cycomm's revenues
or other operating results for any subsequent fiscal period. Cycomm cannot,
therefore, assure that the backlog will be realized as revenue.
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Reliance Upon Certain Customers
Cycomm is not dependent upon any single customer that purchases its
products. However, sales to one major customer comprised 23% of sales for the
year ended December 31, 2000. Sales to three major customers comprised 22%,
15% and 13% respectively, of sales for the year ended December 31, 1999.
Research and Development
The markets served by Cycomm are characterized by rapid technological
advances, changes in customer requirements and frequent new product
introductions and enhancements. Our business requires substantial ongoing
research and development efforts and expenditures. Cycomm's future success
will depend in large measure on its ability to enhance its current products, and
develop and introduce new products that keep pace with technological
developments in response to evolving customer requirements. Cycomm's research
and development activities are primarily accomplished on an in-house basis,
sometimes supplemented by third-party subcontractors and consultants.
During the years ended December 31, 2000 and December 31, 1999, Cycomm
spent $784,296 and $824,353, respectively, on research and product development,
primarily for development of new products and products complementary to the
existing line of wireless rugged computer products. Cycomm anticipates
additional research and development expenditures on future development of
products.
Regulatory Approvals
Some of our products are subject to approval by the Federal
Communications Commission ("FCC") in the United States. The FCC requires that
products not exceed certain levels of radio wave emanation so that they will not
interfere with other electronic equipment. Furthermore, telephone products must
meet certain standards for interfacing into the telephone line, such as
impedance matching and isolation. All of Cycomm's products have received FCC
approval for both radiation and telephone connection.
Under certain circumstances, Cycomm is also subject to certain U.S.
State Department and U.S. Department of Commerce requirements involving prior
clearance of foreign sales. Such export control laws and regulations either ban
the sale of certain equipment to specified countries or require U.S.
manufacturers and others to obtain necessary federal government approvals and
licenses prior to export. As a part of this process, Cycomm generally requires
its foreign distributors to provide documents that indicate that the equipment
is not being transferred to, or used by, unauthorized parties abroad.
Cycomm and its agents are also governed by the restrictions of the
Foreign Corrupt Practices Act of 1977, as amended ("FCPA"), which prohibits the
promise or payment of any money, remuneration or other items of value to foreign
government officials, public office holders, political parties and others with
regard to the obtaining or preserving of commercial contracts or orders.
These restrictions may hamper Cycomm in its marketing efforts abroad.
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To date, Cycomm has been able to comply with all governmental
requirements without incurring significant costs. However, Cycomm cannot
determine the extent to which future earnings may be affected by new legislation
or regulations affecting its industry.
Competition
Cycomm competes in the wireless rugged computer business with a wide
variety of computer manufacturers and repackagers, some of which are larger,
better known and have more resources in finance, technology, manufacturing
and marketing. We compete based on customization capabilities, price,
performance, delivery and quality.
Typically, the companies that market and sell ruggedized computers are
repackagers having little or no input in the design of their electronics and the
selection and mounting of components on printed circuit boards. They usually
purchase the computer boards and sub-assemblies in an "as is" condition from
commercial manufacturers. The major contribution of the repackagers to the
protection of the computer is a tougher box in which the computer is housed.
However, in many cases even this stronger covering fails to shield the computer
from the penetration of rain, snow, fog, dust or other particles. In contrast,
Cycomm uses industrial-type or customized components for most of its computers
rather than strictly ordinary commercial components, which are used by many of
our competitors. In addition, Cycomm designs its boards, the computer's outer
case, keyboards, subassemblies and other elements in order to maximize the
ruggedness of its products, to furnish customization of electronics and software
to give the customer greater control over configuration and components.
In the public safety markets, Cycomm will often be engaged, directly or
indirectly, in the process of seeking competitive bid or negotiated contracts
with government departments and agencies. These government contracts are
ubject to specific rules and regulations with which Cycomm must comply. However,
Cycomm is often one of only a few companies whose products meet the required
specifications designated by such customers.
In most cases, Cycomm tends to be the higher priced bidder for public
safety bids. The reasons for this situation are numerous. We design our
computers on an overall basis to assure their ruggedness and use in the most
demanding circumstances. Accordingly, we generally use more expensive components
than our competitors. These generally more expensive components consist of
industrial or higher-level commercial type instead of ordinary commercially
available parts. Cycomm's computers are custom built to our customers
specifications. Consequently, our products are more expensive, but generally
function at a higher level of performance and reliability than the products of
our competitors.
For those applications in which harsh environmental and operational
conditions exist, customers are sometimes willing to pay higher prices,
especially where few, if any, other companies offer similar devices. In those
less demanding circumstances, Cycomm's products sell at a competitive
disadvantage and are often not purchased because the applications do not
justify its higher prices.
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Environmental Issues
Compliance cost with environmental laws is not expected to materially
adversely affect the business of the Company.
Employees
We currently employ approximately 70 people, of whom approximately 20
are employed in the United States and 50 are employed in Canada. Approximately
15 employees work in customer sales and service, 18 employees work in
administration, 14 employees work in research and development and 23 employees
work in manufacturing.
Cycomm's employees are not covered by a collective bargaining agreement
or represented by a labor union. Cycomm considers its relationship with its
employees to be satisfactory.
The design and manufacture of our equipment requires substantial
technical capabilities in many disparate disciplines from mechanics and computer
science to electronics and mathematics. While management believes that the
capability and experience of our technical employees compares favorably with
other similar manufacturers, there can be no assurance that we can retain
existing employees or attract and hire the highly capable technical employees
necessary in the future on terms deemed favorable to our company.
ITEM 2. DESCRIPTION OF PROPERTY
As of December 31, 2000, the Company leased the following facilities:
Approximate
Location Type of Facility Condition Square Ft.
McLean, VA Executive Office Excellent 4,000
Melbourne, FL Repair and Service Excellent 6,200
Montreal, QB Manufacturing, R&D Excellent 10,300
and Distribution
Management believes that its manufacturing facility in Montreal, QB and
its repair facility in Melbourne, FL will meet its operational needs for the
foreseeable future. In the event that additional facilities are needed to
accommodate the continued growth in revenues and market share, facilities are
available in the immediate vicinity of the current locations. See the
accompanying financial statements for further discussion of leased facilities.
ITEM 3. 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 the
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 April 30, 2000, $1,100,000 by April 30, 2001 or $1,500,000 prior
to April 30, 2002. On February 3, 2000, the settlement was amended to allow
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Cycomm until December 31, 2000 to pay $700,000 in full satisfaction of its
obligation to the seller. As of December 31, 2000, Cycomm had paid $400,000 to
the seller. On March 28, 2001, the settlement was amended to allow Cycomm until
June 30, 2001 to pay the remaining $300,000 in full settlement of the
obligation. Cycomm agreed to issue 100,000 shares of common stock to M3i as
consideration for agreeing to this amendment.
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 paid $110,000 to Cycomm before
defaulting on the payment schedule. Infotech subsequently merged with another
company to form MobileTec International. On March 6, 2001, Cycomm agreed to a
new settlement in which MobileTec paid Cycomm $150,000 in cash, and Cycomm
received 500,000 shares of MobileTec common stock in full settlement of all
obligations outstanding. MobileTec is privately held, and Cycomm has assigned
no value to the shares received.
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 our Cycomm Secure Solutions subsidiary.
The lawsuit alleged breach of contract in connection with the severance
provisions of Mr. Gangemi's employment agreement with Cycomm Secure Solutions.
On January 24, 2001, Mr. Gangemi was awarded damages of $101,500 plus interest.
Cycomm is currently appealing the judgment.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Cycomm did not submit any matters to a vote of security holders during
the fourth quarter of the fiscal year ended December 31, 2000.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Cycomm's common stock is traded on the Over-the-Counter Bulletin
Board ("OTCBB") under the symbol "CYII". Cycomm began trading on the OTCBB on
May 5, 1999. Previously, Cycomm's common stock had been traded on the American
Stock Exchange ("AMEX"), however on April 30, 1999, Cycomm was delisted from the
AMEX for failure to meet the minimum listing criteria. Specifically, Cycomm
did not meet the minimum stockholder's equity requirement and had incurred
consistent net losses in the prior five fiscal years.
The following tables set forth the reported high and low sales prices as
reported by OTCBB or AMEX for the periods indicated:
High Low
Year Ended December 31, 2000
First quarter $3.56 $0.66
Second quarter 2.31 0.88
Third quarter 1.31 0.63
Fourth quarter 1.12 0.29
Year Ended December 31, 1999
First quarter $1.88 $0.63
Second quarter $0.81 0.25
Third quarter 0.90 0.38
Fourth quarter 0.72 0.40
On March 28, 2001, as reported by Cycomm's transfer agent, shares of
common stock were held by 989 persons, based on the number of record
holders, including holders who are nominees for an undetermined number of
beneficial owners.
Cycomm has not paid any dividends and has no present intention of
paying dividends on the common stock in the foreseeable future as it intends to
retain any future earnings to fund operations and the continued development of
its business. The declaration and payment of dividends and the amount paid, if
any, is subject to the discretion of Cycomm's Board of Directors and will be
dependent on the earnings, financial condition, and capital requirements of
Cycomm and any other factors the Board of Directors may consider relevant.
Cycomm is required to pay dividends on its 10% convertible redeemable preferred
stock. Dividends on the preferred stock can be paid in either cash or in shares
of Cycomm's common stock. To date, all dividends have been paid in shares of
common stock.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
The following discussion should be read in conjunction with the
financial statements and related notes, which are included elsewhere in this
report. Statements made below which are not historical facts are forward-
looking statements. Forward-looking statements involve a number of risks and
uncertainties including, but not limited to, general economic conditions, our
ability to ability to execute our plans to increase revenues and market share,
competitive factors and other risk factors, not all of which are
detailed here.
Results of Continuing Operations
On June 21, 1999 Cycomm completed the sale of its secure computing
segment, Cycomm Secure Solutions Inc. ("CSS"). CSS had a history of losses,
including losses from operations of $1.6 million in the period from January 1,
1999 to the date of the sale. The CSS subsidiary had been a significant drain
on Cycomm's cash resources. The operating results of CSS for the year ended
December 31, 1999 are not included in results from continuing operations, and
are classified on a separate line item on the income statement.
Cycomm completed the sale of its secure communications equipment
subsidiary, Val-Comm Inc. on August 21, 1999. Val-Comm had been slightly
profitable, and had net income of $112,163 in the period from January 1, 1999 to
the date of the sale. Results of operations from Val-Comm have been excluded
from results from continuing operations, and are classified separately on the
income statement.
The results of continuing operations for the years ended December 31,
2000 and December 31, 1999 reflect only the results of Cycomm's PCMobile product
line and the results of the parent company.
The revenues for the year ended December 31, 2000 were $3,432,129,
which represents an increase of $168,951 from revenues of $3,263,178 for the
prior year. Sales for both periods were below management's expectations.
Cycomm had anticipated that deliveries under its $16 million contract with
Montgomery County, Maryland would begin in the year ended December 31, 2000,
however the project was delayed and Cycomm did not receive the first purchase
order under the contract until January 2001.
Cost of sales for the year ended December 31, 2000 was $3,461,560 as
compared to cost of sales of $3,012,410 for the prior year. Cycomm had gross
margins of (1%) in the year ended December 31, 2000, as compared to gross
margins of 8% in the prior year. Cycomm's cost of sales for 2000 includes
warranty costs of $639,165, as compared to warranty costs of $364,150 in 1999.
Warranty costs related primarily to the replacement of defective hard drives
from one of our suppliers, and the correction of an error with our real-time
clocks in units with 586 processors. Cycomm's cost of sales for 2000
also includes a write-off of $351,895 related to motherboards with 586
processors. For both the year ended December 31, 2000 and December 31, 1999,
Page 15
margins were below management's expectations. Cycomm prices its PCMobiles to
attain gross margins within a range of 30% to 40%, however at low sales levels,
manufacturing overhead is spread over fewer products, increasing the cost of
production per unit and lowering margins.
Operating expenses decreased to $4,708,284 for the year ended December
31, 2000 as compared to $5,325,866 for the prior year. Selling, general and
administrative ("SG&A") expenses were $3,835,302 for the year ended December 31,
2000, as compared to $3,889,300 for the year ended December 31, 1999. The
decrease was a result of reductions in managerial and overall headcount, lower
facilities costs from the relocation of Cycomm's repair and maintenance
facility and other cost reductions.
Depreciation and amortization decreased from $612,213 in 1999 to
$88,686 in 2000. The decrease of $523,527 is primarily the result of the
write-off of goodwill related to the Cycomm Mobile Solutions subsidiary in 1999,
and the amortization of PCMobile demonstration units in 1999. Amortization of
goodwill in 1999 totaled $144,800, and amortization of the demonstration units
was $316,616 in 1999.
Research and development ("R&D") costs were $784,296 for the year ended
December 31, 2000 as compared to $824,353 for the year ended December 31, 1999.
The 2000 R&D expenditures consisted of development of the Pentium III PCMobile
and our multimedia docking station.
Interest expense for the year ended December 31, 2000 was $431,473 as
compared to $456,651 for the prior year. Interest on convertible debentures in
2000 was $60,229, as compared to convertible debenture interest of $257,222 in
1999. However, this decrease in interest was offset by increased interest
charges paid to certain suppliers in 2000 totaling $114,969. No interest
charges were paid to vendors in 1999.
In 1999, Cycomm made the determination that the goodwill related to the
purchase its Cycomm Mobile Solutions ("CMS") subsidiary was impaired. CMS had a
history of operating losses and negative cash flows from operations. Cycomm
wrote off $838,202 related to the impairment of CMS goodwill in the year ended
December 31, 1999.
Net loss from continuing operations was $5,143,095, or $0.20 per share,
for the year ended December 31, 2000 as compared to $6,241,703, or $0.46 per
share for the year ended December 31, 1999. The decrease in net loss from
continuing operations is the result of the factors discussed above.
The loss from discontinued operations from the Company's Cycomm Secure
Solutions ("CSS") subsidiary was $1,613,044 for the year ended December 31,
1999. The 1999 results are for the period ended March 4, 1999, the date of the
decision to sell the assets of CSS. Prior to the date of the sale, production
was decreased and certain cost reductions were made. The loss on the sale of
Cycomm Secure Solutions' assets was $1,535,643.
Income from discontinued operations from the Company's Val-Comm
subsidiary was $112,163 for the year ended December 31, 1999. The 1999 results
are for the period ended August 21, 1999, the date of the sale of Val-Comm.
Page 16
Cycomm recognized a gain of $265,746 on the disposal of Val-Comm Inc.
Cycomm legally dissolved its Cycomm Secure Solutions ("CSS") subsidiary
in the year ended December 31, 2000. As a result of the dissolution, Cycomm
eliminated CSS' liabilities and recognized a gain of $1,119,273, or $0.04 per
share, for the year ended December 31, 2000.
Liquidity and Capital Resources
Cycomm has satisfied working capital requirements through cash on hand,
available lines of credit and various debt and equity related financings. At
December 31, 2000, Cycomm had cash and cash equivalents of $301,110.
In the year ended December 31, 2000, cash used in operations amounted
to $5,147,685, largely due to Cycomm's loss from continuing operations of
$5,143,095. Cash used in investing activities was $47,698, related
to the purchase of fixed assets. Cash provided by financing activities was
$5,473,626 for the year ended December 31, 2000. Cycomm obtained cash totaling
$5,364,999 as a result of seven separate private equity placements of common
stock and the exercise of non-employee stock options. Additionally, during 2000
Cycomm obtained $353,000 from the issuance of its Series F convertible
preferred stock. Cycomm had a net decrease of $239,584 in borrowings under the
secured credit facility during 2000.
Cycomm's net working capital increased to ($801,871) at December 31,
2000, from ($2,851,188) at December 31, 1999. The increase is primarily the
result of the dissolution of our Cycomm Secure Solutions ("CSS") subsidiary. On
June 29, 2000, CSS was legally dissolved, which allowed Cycomm to eliminate
liabilities of $1,119,273, and recognize a gain on the dissolution. Cash
increased by $278,243, as Cycomm raised funds in excess of cash used in
operations and in the acquisition of fixed assets. Inventories increased by
$763,002 in the year ended December 31, 2000 as Cycomm prepared to begin
delivery on its $16 million contract with Montgomery County, Maryland. However
these increases in assets were largely offset by the decrease in accounts
receivable of $678,652, due to collections and low sales volumes. Liabilities
decreased as Cycomm recognized deferred revenue of $770,122 in the year ended
December 31, 2000. Cycomm repaid amounts due on its revolving line of credit by
$239,584. Accrued liabilities increased by $582,745 in 2000, due to increased
accruals for potential legal losses and for employee vacation and sick
leave. The acquisition earn-out obligation decreased, as Cycomm made payments
in cash and common stock totaling $400,000 towards the settlement in 2000.
Cycomm's auditors modified their report to include an explanatory
paragraph regarding 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 17
ITEM 7. FINANCIAL STATEMENTS
Cycomm's financial statements are located in a separate section of this Annual
Report on Form 10-KSB. See Item 13. Exhibits and Reports on Form 8-K and the
Financial Statements commencing on page F-1 of this Annual Report on Form
10-KSB.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSRUES ABOUT MARKET RISK
While Cycomm is exposed to changes in interest rates as a result of its
outstanding debt, Cycomm does not currently utilize any derivative financial
instruments related to its interest rate exposure. Total debt outstanding at
December 31, 2000 was $675,520, related to borrowings on a variable rate secured
line of credit. At this level of variable rate borrowing, a hypothetical 10%
increase in interest rates would have increased Cycomms net loss by
approximately $26,000 for the year December 31, 2000.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Page 18
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by Item 9 relating to directors of the Company
is presented under the caption "Nomination and Election of Directors" of the
Company's definitive Proxy Statement for the 2001 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission (the "Commission") no
later than April 30, 2001.
Section 16 Reports
The information required by this Item is present under the caption
"Other Matters -- Compliance with Section 16(a) of the Exchange Act" of the
Company's definitive Proxy Statement to be filed with the Commission no later
than April 30, 2001.
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 is presented under the caption
"Executive Compensation" of the Company's definitive Proxy Statement to be filed
with the Commission no later than April 30, 2001.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 11 is present under the caption
"Security Ownership of Certain Beneficial Owners and Management" of the
Company's definitive Proxy Statement to be filed with the Commission no later
than April 30, 2001.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is presented under the caption "
Certain Transactions" of the Company's definitive Proxy Statement to be filed
with the Commission no later than April 30, 2001.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(1) See the financial statements of the Company and the report
thereon included in Item 7 of Part II of this Annual Report
on Form 10-KSB. No individual items included in accrued
expenses on the balance sheet was greater than 5% of the
respective total on the balance sheet.
(2) The following exhibits are filed as part of this Annual Report
on Form 10-KSB and incorporated by reference herein to the
extent possible.
Page 19
Page Number
1.1 Certificate of Incorporation (1)
1.2 Certificate of Incorporation on Change of Name (1)
1.3 Certificate of Continuance (1)
1.4 Amended Articles of Incorporation ___
10.6 Asset Purchase Agreement among and between (4)
9036-8028 Quebec, Inc., Cycomm International Inc.
and M3i Technologies, Inc. and M3i Systems Inc.
date June 21, 1996
10.7 Management Services Agreement - Albert I. Hawk (5)
10.11 Commercial Revolving Loan, Additional Loan and
Security Agreement by and among the Company
and American Commercial Finance Corp. (7)
10.12 Cycomm International Inc. 1997 Stock Option Plan (7)
10.13 Stock Purchase Agreement and Certificate of
Designation of Series B Convertible Redeemable
Preferred Stock (7)
21.1 Subsidiaries of the Registrant ___
23.1 Consent of Independent Auditors ___
27 Financial Data Schedule ___
(1) Previously filed as an Exhibit to Form 20-F Registration Statement
(as amended), Form 20-F Annual Reports and Form 6-K Reports of Foreign
Issuer and incorporated by reference herein.
(2) Previously filed as an Exhibit to Form F-1 Registration Statement filed
on May 9, 1995 and incorporated by reference herein.
(3) Previously filed as an Exhibit to Form 8-K dated March 21, 1996 and
incorporated by reference herein.
(4) Previously filed as an Exhibit to Form 8-K dated June 21, 1996 and
incorporated by reference herein.
(5) Previously filed as an Exhibit to Form 10-KSB for the year ended
May 31, 1996 dated September 12, 1996 and incorporated by reference
herein.
(6) Previously filed as an Exhibit to Form 10-KSB for the year ended
December 31, 1997 dated March 31, 1998 and incorporated by
reference herein.
(b) Reports on Form 8-K:
None
Page 20
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CYCOMM INTERNATIONAL INC.
Date: March 30, 2001 By:
Albert I. Hawk
President and
Chief Executive Officer
(Principal Executive Officer)
By:
Robert M. Hutton
Vice President of Finance
(Principal Accounting Officer)
In accordance with the requirements of the Exchange Act, this report
has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
By: March 30, 2001
Albert I. Hawk, President and
Chief Executive Officer
By: March 30, 2001
Hubert Marleau, Director
By: March 30, 2001
Lt. Gen. Thomas A. Stafford,
Director (USAF - ret)
By: March 30, 2001
Steven Sparks, Director
Page 21
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-45882, Form SB-2 No. 333-54052 and Form SB-2/A
No. 333-37056) of Cycomm International Inc., of our report dated March 28, 2001,
with respect to the consolidated financial statements of Cycomm International
Inc. included in this Annual Report (Form 10-KSB) for the year ended December
31, 2000.
McLean, Virginia
March 28, 2000
Page F-1
Cycomm International Inc. and Subsidiary
Index to Consolidated Financial Statements
For the Year Ended December 31, 2000,
and the Year Ended December 31, 1999
Report of Independent Auditors F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Cash Flows F-5
Consolidated Statements of Stockholders' Deficit F-6
Notes to Consolidated Financial Statements F-7
Page F-2
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Cycomm International Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Cycomm
International Inc. and subsidiary as of December 31, 2000 and 1999 and the
related consolidated statements of operations, stockholders' deficit and cash
flows for each of the two years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Cycomm International Inc. and subsidiaries at December 31, 2000 and 1999 and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more fully
described in Note 1, the Company has incurred recurring losses from operations
and has a working capital deficiency and an accumulated deficit. Further, the
Company was not in compliance with the terms of its debt agreements at December
31, 2000. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The consolidated financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that might result from the outcome of this uncertainty.
McLean, Virginia
March 28, 2001 /s/ Ernst & Young LLP
Page F-3
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2000 1999
ASSETS
Current assets:
Cash and cash equivalents $301,110 $22,867
Accounts receivable, less allowance for doubtful
accounts of $50,000 and $254,000, respectively 522,119 1,200,771
Inventories, net of allowance for obsolete
inventory of $127,227 and $131,339, respectively 1,607,059 844,057
Deposits with materials suppliers 283,449 283,449
Amount due from private placement --- 125,000
Foreign taxes receivable 96,948 84,020
Amount due from sale of Val-Comm, Inc. --- 65,966
Prepaid expenses 78,192 6,823
Other assets 14,520 42,284
--------- ---------
Total current assets 2,903,397 2,675,237
Equipment, net 227,728 269,780
---------- ---------
Total assets $3,131,125 $2,945,017
========= ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable - trade $1,396,182 $2,416,883
Accrued liabilities 1,296,382 685,952
Acquisition earn-out obligation 300,000 700,000
Deferred revenue --- 770,122
Dividends payable on preferred stock 28,466 33,575
Current portion of capital lease obligations 8,718 4,789
Revolving credit facility 675,520 915,104
--------- ---------
Total current liabilities 3,705,268 5,526,425
Capital lease obligations, less current portion 25,127 12,409
Convertible debentures, subsequently converted into
preferred stock --- 3,000,000
Convertible debentures, subsequently converted into
common stock --- 500,000
Stockholders' deficit:
Convertible preferred stock, $50,000 par value,
unlimited authorized shares, 11 and 7 shares
issued and outstanding at December 31, 2000 and
December 31, 1999, respectively 560,500 296,250
Common stock, no par value, unlimited authorized
shares, 34,145,982 and 16,807,696 shares issued and
30,145,982 and 16,807,696 outstanding at December
31, 2000 and December 31, 1999, respectively 63,653,477 54,315,402
Notes receivable - stockholders (66,714) (60,511)
Accumulated deficit (64,746,533) (60,644,958)
----------- -----------
Total stockholders' deficit (599,270) (6,093,817)
---------- ----------
Total liabilities and stockholders' equity deficit $3,131,125 $2,945,017
========== ==========
(See accompanying notes)
Page F-4
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended Year ended
December 31, December 31,
2000 1999
----- -----
Sales $3,432,129 $3,263,178
Cost of sales 3,461,560 3,012,410
--------- ---------
Gross profit (29,431) 250,768
Expenses:
Selling, general and administrative 3,835,302 3,889,300
Research and product development 784,296 824,353
Depreciation and amortization 88,686 612,213
--------- ---------
4,708,284 5,325,866
---------- ----------
Loss from Operations (4,737,715) (5,075,098)
Other Income (Expense)
Interest income 44,008 18,248
Interest expense (431,473) (456,651)
Loss on disposal of fixed assets (22,500) ---
Goodwill impairment --- (838,202)
Other income 4,585 110,000
-------- ----------
(405,380) (1,166,605)
-------- ----------
Loss from Continuing Operations (5,143,095) (6,241,703)
Discontinued Operations:
Income from operations of discontinued
operation: Val-Comm, Inc. --- 112,163
Gain on disposal of discontinued operation:
Val-Comm, Inc. --- 265,746
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 loss (4,023,822) (9,012,481)
Beneficial return on preferred shares (117,500) (100,000)
----------- -----------
Net loss attributable to common stockholders $(4,141,322) $(9,112,481)
=========== ===========
Earnings per share - basic and diluted
Loss per share from continuing operations $(0.20) $(0.46)
Income per share from discontinued operation --- 0.01
Val-Comm, Inc.
Income per share on disposal of Val-Comm, Inc. --- 0.02
Loss per share from discontinued operation
Cycomm Secure Solutions Inc. --- (0.12)
Loss per share on disposal of Cycomm Secure --- (0.11)
Solutions Inc.
Gain per share on dissolution of Cycomm Secure 0.04 ---
Solutions Inc.
Net loss per share attributable to beneficial
return on preferred shares (0.00) (0.01)
----- -----
Net loss per share attributable to common
stockholders $(0.16) $(0.67)
====== ======
Shares used in the calculation of basic and diluted
net loss per share 26,138,625 13,694,064
========== ==========
(See accompanying notes)
Page F-5
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended
December 31, December 31,
2000 1999
Operating activities
Net loss $(5,143,095) $(6,241,703)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 88,686 612,213
Non-cash compensation --- 263,458
Goodwill impairment --- 838,202
Loss on disposal of fixed assets 22,500 ---
Change in operating assets and liabilities (115,776) 2,490,637
---------- ----------
Cash used in operating activities (5,147,685) (2,037,193)
---------- ----------
Investing activities
Purchase of equipment (47,698) ---
Net increase in notes receivable --- (2,000)
Proceeds from sale of marketable securities --- 496,034
------- -------
Cash (used in) provided by investing activities (47,698) 494,034
------- -------
Financing activities
Issuance of common stock, net of issuance costs 5,364,999 1,738,842
Issuance of preferred stock, net of issuance
costs 353,000 516,000
Net borrowings under revolving credit
facilities (239,584) (1,044,441)
Proceeds from issuance of convertible
debentures --- 500,000
Repayment of notes payable and convertible
debentures --- (15,777)
Repayment of obligations under capital leases (4,789) (9,686)
--------- ---------
Cash provided by financing activities 5,473,626 1,684,938
--------- ---------
Proceeds from sale of discontinued operation:
Cycomm Secure Solutions Inc. --- 800,000
Cash provided by (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
------ --------
Increase (decrease) in cash and cash equivalents
during the year 278,243 (545,110)
Cash and cash equivalents, beginning of year 22,867 567,977
-------- -------
Cash and cash equivalents, end of year $301,110 $22,867
======== =======
(See accompanying notes)
Page F-6
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Preferred Preferred Common Common Accumulated
Shares Stock Shares Stock Deficit
Balance,
December 31, 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 --- --- --- --- (4,023,822)
Issuance of
common stock:
Sale of
common stock --- --- 9,400,000 5,290,000 ---
Shares issued
in settlement
of vendor
obligation --- --- 194,283 84,012 ---
Shares issued
in settlement of
obligation of
acquisition
earn-out --- --- 400,000 200,000 ---
Conversion of
debenture
into common
stock --- --- 1,034,904 517,452 ---
Exercise of
stock
options and
warrants --- --- 345,833 74,999 ---
Issuance of
preferred stock:
Conversion of
debentures
into Series E
preferred stock 30 3,000,000 --- --- ---
Issuance -
Series F
preferred stock 9 353,000 --- --- ---
Conversion of
preferred stock (35) (3,206,250) 1,963,266 3,289,112 ---
Beneficial
conversion
rights on
preferred stock --- 117,500 --- (117,500) ---
Dividends on
preferred stock --- --- --- --- (77,753)
---- -------- ---------- ----------- ------------
Balance,
December 31, 2000 11 $560,500 30,145,982 $63,653,477 ($64,746,533)
==== ======== ========== =========== ============
(See accompanying notes)
Page F-7
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 1: NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Cycomm International Inc. ("Cycomm") is a manufacturer of wireless, ruggedized
mobile computers, branded under the name "PCMobile". Cycomm is based in McLean,
Virginia, with a manufacturing facility in Montreal, Quebec and a repair and
maintenance facility in Melbourne, Florida.
Our consolidated financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. We incurred a net
loss from continuing operations of $5.1 million for the year ended December 31,
2000 and as of that date had a working capital deficit of approximately $800,000
and an accumulated deficit of $64.7 million. Further, we were not in compliance
with the terms of our debt agreements at December 31, 2000. These factors
raise substantial doubt about Cycomm's ability to continue as a going concern.
Management has taken several steps towards addressing the going concern issue.
In 2000, we expanded our sales force from two regional sales representatives and
one inside sales person, to four sales representatives, four inside sales
people, a vice president of sales and a manager of new business development. We
increased our attendance at industry trade shows and increased our marketing.
We have raised additional capital, which was used to fund operations, including
the growth of our sales force. Looking forward, Cycomm intends to grow its
PCMobile division by implementing plans to increase market share and revenue.
We plan to fund operations through working capital, borrowings on our secured
line of credit and through private equity placements.
Cycomm has historically been able to raise capital through private equity
placements and debenture issuances. During 2000, we raised $5,718,000 in
private equity placements. Subsequent to December 31, 2000, Cycomm has raised
$761,500 in private equity placements (See Note 20: Subsequent Events for
further detail).
These consolidated financial statements do not give effect to any adjustments
which would be necessary should Cycomm be unable to continue as a going concern
and therefore be required to realize its assets and discharge its liabilities in
other than the normal course of business and at amounts different from those
reflected in the accompanying consolidated financial statements. In the event
that Cycomm is unable to achieve its plans to fund operations, Cycomm will
consider further cost reductions and may be required to seek protection under
the United States Bankruptcy Code.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of Cycomm and its
wholly-owned subsidiary after elimination of intercompany accounts and
transactions.
Cash and Cash Equivalents
Cycomm considers all short-term deposits with a maturity of three months or less
to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method. Market is determined by the replacement cost
method for raw materials and the net realizable value method for work in process
and sub-assemblies and finished goods.
Page F-8
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, accounts payable, accrued
liabilities, capital lease obligations, notes payable and convertible
debentures approximate their fair values.
Equipment and Depreciation
Equipment is carried at the lower of cost or market less accumulated
depreciation and amortization. Depreciation is calculated on a straight-line
basis over the estimated useful lives of the fixed assets as follows:
Equipment under capital lease Term of the respective lease
Furniture and fixtures 5 to 7 years
Research equipment 3 to 10 years
Computer equipment 3 to 7 years
Office equipment 5 to 7 years
Manufacturing equipment 3 to 7 years
Amortization of leasehold improvements is calculated on a straight-line basis
over the term of the respective lease.
Research and Product Development Costs
Research and product development costs are expensed as incurred.
Deferred Financing Costs
Costs relating to obtaining debt financing are deferred and amortized on a
straight line basis over the term of the debt. The unamortized portion of the
deferred financing costs related to convertible debentures is recorded against
stockholders' equity at the time of conversion.
Leases
Equipment acquired under leases which transfer substantially all of the benefits
of ownership to the lessee are recorded as the acquisition of assets and the
assumption of a related obligation. Under this method, assets are depreciated
over their expected useful lives, and obligations, including interest thereon,
are extinguished over the life of the lease.
All other leases are accounted for as operating leases wherein rental payments
are charged to operations as incurred.
Revenue Recognition
Product sales, less estimated returns and allowances, are recorded at the time
of shipment. Revenue is recognized when it meets four basic criteria:
(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.
Product Warranty
Cycomm provides a three year warranty for its PCMobile computers which excludes
certain components. The rechargeable batteries and some hard drives are covered
by a one year warranty, while the magnesium casing of the PCMobile comes with a
limited lifetime warranty. A reserve is established to cover estimated warranty
costs during this period. Warranty reserves are included in accrued liabilities
and for the years ended December 31, 2000 and 1999 were $677,100 and $233,739
respectively and are included in accrued liabilities.
Page F-9
Advertising Costs
Cycomm expenses advertising costs as incurred. Such costs were insignificant in
2000 and 1999.
Foreign Currency Transactions
The Company considers the functional currency of its foreign subsidiary to be
the U.S. dollar. Exchange adjustments from foreign currency transactions are
recognized in income and were insignificant in 2000 and 1999.
Earnings Per Share
The Financial Accounting Standards Board's Statement No. 128, "Earnings per
Share", requires companies to report basic earnings per share (EPS) and diluted
EPS. 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. Included in EPS for 2000 and 1999
are charges of $117,500 and $100,000 related to the beneficial conversion
feature of Cycomm's convertible preferred stock. For the years ended December
31, 2000 and 1999, the effect of the exercise of stock options, warrants and the
conversion of preferred stock and 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.
A summary of the Company's components of earnings per share are as follows:
For the year December 31,
2000 1999
------ ------
Loss before discontinued operations (5,143,095) (6,241,703)
Beneficial return on Preferred Shares (117,500) (100,000)
---------- ----------
Loss available to common stockholders
before discontinued operations (5,260,595) (6,341,703)
Income from operations of discontinued
operation: Val-Comm, Inc. --- 112,163
Gain on disposal of discontinued
operation: Val-Comm, Inc. --- 265,746
Loss from 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
operations 1,119,273 ---
---------- ----------
Net loss available to common stockholders $(4,141,322) $(9,112,481)
========== ==========
Loss per share
Basic and diluted before discontinued
operations $(0.20) $(0.47)
Income from operations of discontinued
operation: Val-Comm, Inc. --- 0.01
Gain on disposal of discontinued
operation: Val-Comm Inc. --- 0.02
Loss from discontinued operation:
Cycomm Secure Solutions Inc. --- (0.12)
Loss on disposal of discontinued
operation: Cycomm Secure Solutions Inc. --- (0.11)
Gain on dissolution of discontinued
operations 0.04 ---
------ ------
Basic and diluted $(0.16) $(0.67)
======= ======
Page F-10
Stock-based compensation
The provisions of Financial Accounting Standard No. 123, Accounting for
Stock-Based Compensation, allow companies to either expense the estimated fair
value of stock options or to continue their current practice but disclose the
pro forma effects on net income and earnings per share had the value of the
options been expensed. Cycomm has elected to continue its practice of
recognizing compensation expense for its stock option and warrant incentive
plans under Accounting Principles Board Statement No, 25 ("APB 25"), and to
provide the required pro forma information for stock options and warrants
granted after June 1, 1995. Under APB 25, compensation cost is the excess, if
any, of the quoted market price of the stock at the grant date, or other
measurement date, over the exercise price.
Reclassification
Certain items previously reported in specific financial statement captions have
been reclassified to conform with the 2000 presentation.
NOTE 3: DISCONTINUED OPERATIONS
Cycomm Secure Solutions Inc.
On March 4, 1999, the Company 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 include 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:
January 1, 1999 to
March 4, 1999
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)
======
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 1999 net loss is 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.
Page F-11
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 all periods presented, and
are summarized as follows:
January 1, 1999 to
August 21, 1999
Revenue $1,001,733
Cost of Sales 570,510
-------
Gross profit (loss) 431,223
Operating Expenses 319,060
-------
Net income 112,163
=======
Net income per share $0.01
=====
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 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 December 31, 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 December 31, 2000. Cycomm
does not believe that this amount is collectible, and has established a reserve
against the amount due.
As of December 31, 2000, Val-Comm has not been awarded the follow-on contract
specified in the contingent promissory note. Cycomm does not anticipate that
the contingency will be satisfied in order to require payments to be made
pursuant to the contingent promissory note.
NOTE 4: ACQUISITION EARN-OUT
In connection with the purchase price paid for Cycomm's acquisition of its
Cycomm Mobile Solutions subsidiary in 1996, Cycomm 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 December 31, 2000, Cycomm had paid
$1,354,796 of contingent consideration, which was paid in 444,862 shares of
common stock.
Cycomm and the Seller were parties to a lawsuit regarding the interpretation of
the earn-out agreement. On May 24, 1999, Cycomm and the Seller entered into a
complete settlement of the litigation. Under the terms of the agreement and a
subsequent amendment, Cycomm could fulfil its obligation to the Seller if
payments were made before certain dates as specified in the agreement. Cycomm
could 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. As of December 31, 2000, Cycomm has paid
$400,000 to the Seller. On March 28, 2001, the settlement agreement was amended
to allow Cycomm until June 30, 2001 to pay the remaining $300,000 in full
satisfaction of its obligation to the seller. If Cycomm does not satisfy the
obligation by June 30, 2001, Cycomm will be obligated to pay $1.1 million to the
Seller by April 30, 2002. There can be no assurances that Cycomm will be able
to secure future amendments to the settlement agreement if the obligation is
not satisfied by June 30, 2001. Cycomm has an accrued liability of $300,000 as
of December 31, 2000 related to this agreement.
In conjunction with the 2000 settlement and amendments, Cycomm 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
Page F-12
Goodwill). Additionally, in consideration of the March 28, 2001 amendment to
the settlement agreement, Cycomm has agreed to issue 100,000 shares of common
stock to the Seller.
NOTE 5: 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 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 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.
NOTE 7: INVENTORIES
Inventories by categories are as follows:
December 31, December 31,
2000 1999
Raw materials $1,376,206 $841,910
Work in process and sub-assemblies 133,106 122,160
Finished goods 224,974 11,326
Allowance for obsolete inventory (127,227) (131,339)
-------- --------
$1,607,059 $844,057
========== =========
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.
Page F-13
NOTE 8: EQUIPMENT
Equipment and accumulated depreciation and amortization by categories are as
follows:
Accumulated
depreciation and Net book
Cost amortization value
December 31, 2000
Equipment under capital leases 14,754 8,494 6,260
Furniture and fixtures 30,177 18,954 11,223
Research equipment 47,251 21,071 26,180
Computer equipment 163,704 101,251 62,453
Office equipment 80,835 58,847 21,988
Manufacturing equipment 142,783 61,375 81,408
Leasehold improvements 69,958 51,742 18,216
------- ------- -------
549,462 321,734 227,728
======= ======= =======
December 31, 1999
Equipment under capital leases 14,754 5,812 8,942
Furniture and fixtures 34,026 17,628 16,398
Research equipment 36,697 15,895 20,802
Computer equipment 207,119 114,730 92,389
Office equipment 77,380 50,704 26,676
Manufacturing equipment 117,441 46,170 71,271
Leasehold improvements 69,958 36,656 33,302
-------- -------- --------
$557,375 $287,595 $269,780
======== ======== ========
Depreciation expense for the years ended December 31, 2000 and 1999 was $88,686
and $92,323, respectively
NOTE 9: NOTES PAYABLE AND CONVERTIBLE DEBENTURES
Notes payable and convertible debentures are as follows:
December 31, December 31,
2000 1999
Revolving credit facility, prime + 3% 675,520 915,104
7% convertible debentures, due May 1, 2000 --- $3,000,000
7% convertible debenture, due
September 20, 2004 --- 500,000
675,520 4,415,104
Less current portion 675,520 915,104
------- ----------
--- $3,500,000
======= ==========
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. 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 December 31, 2000, the amount outstanding on
the credit facility was $675,520. As of December 31, 2000, Cycomm was not in
compliance with the terms of its loan agreement as total borrowings under the
revolving credit facility exceeded the available borrowing base of the
underlying collateral by $81,669. As of March 28, 2001, Cycomm was in compliance
with the terms of its loan agreement. The revolving credit facility was renewed
subsequent to year end (See Note 20: Subsequent Events).
Page F-14
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 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. The Series E preferred stock was converted into
1,500,000 shares of Cycomm's common stock during the year ended December 31,
2000. See Note 12: 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 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.
NOTE 10: 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 year ended December 31, 2000.
Depreciation expense on demonstration units was $208,075 for the year
ended December 31, 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 year ended
December 31, 2000. For the year ended December 31, 1999, Cycomm recognized
revenue of $164,826 related to the shipment of Pentium units to customers in
exchange for the 586 units.
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 previously deferred revenue of
$770,122 in the year ended December 31, 2000.
Page F-15
NOTE 11: COMMITMENTS AND CONTINGENCIES
Lease Commitments
Cycomm leases equipment, included in fixed assets, under leases which are
classified as capital leases. Total payments under these capital leases are due
in monthly installments with imputed interest in a range of 10.3% to 12.7%
through December 31, 2005. Cycomm occupies office space at various locations
under non-cancellable operating leases. Certain leases contain escalation
clauses and require the Company to pay its share of any increase in operating
expenses and real estate tax. Future minimum lease payments under
Cycomm's capital and non-cancellable operating leases are as follows:
Capital Operating
Year ending December 31, Leases Leases
2001 $12,909 $193,953
2002 12,112 140,956
2003 8,230 141,891
2004 9,387 140,176
2005 --- 141,148
------ ----------
42,638 $758,124
====== ==========
Less: amount representing interest on
capital leases 8,793
-------
Present value of future minimum capital
lease payments $33,845
=======
Total rental expense under the various operating leases for continuing
operations amounted to $275,459 and $236,795 for the years ended December 31,
2000 and 1999, respectively.
Cycomm is engaged in ordinary and routine litigation incidental to its business.
Management does not anticipate that any amounts which it may be required to pay
by reason thereof will have a material effect on Cycomm's financial position or
results of operation.
NOTE 12: CAPITAL STOCK
Authorized Capital
The authorized capital of the Company consists of an unlimited number of common
shares without par value and an unlimited number of preferred shares without par
value, issuable in series.
Common Stock
During 2000, Cycomm raised capital through 7 separate private equity placements
of its common stock. The stock was issued at a discount to the market price on
the date of the issuance. In total, the Company issued 9,400,000 shares of
common stock for gross proceeds of $5,620,000. Cash proceeds, after commissions
and issue costs were $5,290,000. In conjunction with these private placements,
the Company issued 6,919,999 warrants with an exercise price of $0.75.
In conjunction with the issuance of its Series F Convertible Preferred Stock
(see Preferred Stock section below), Cycomm placed 4,000,000 shares of common
stock in an escrow account to be available upon conversion of the Series F
Convertible Preferred Stock.
During 1999, Cycomm raised capital through 8 separate private equity placements
of its common stock. The stock was issued at a discount to the market price on
the date of issuance. In total, Cycomm issued 3,421,190 shares of common stock
for gross proceeds of $1,767,142. Cash proceeds after commissions and issue
costs were $1,738,842. In conjunction with these private placements, the
Company issued 195,833 options with a fair value on the date of issuance of
approximately $263,000 as calculated under the Black-Scholes model.
Additionally, during 1999, Cycomm issued 205,717 shares of common stock in
settlement of an obligation of $27,145.
Page F-16
Convertible preferred shares and related accrued dividends were converted into
1,963,266 and 992,223 shares of common stock for the years ended December 31,
2000 and 1999, respectively. Convertible debentures and related accrued
interest were converted into 1,034,904 shares of common stock during the year
ended December 31, 2000. No convertible debentures were converted into common
stock during 1999.
Cycomm issued 194,283 shares in full settlement of an obligation of $84,012.
Cycomm issued 400,000 shares of its common stock to fulfill a $200,000
obligation due to M3i Technologies Inc. and M3i Systems Inc. as part of the
settlement to a lawsuit regarding the interpretation of the earn-out agreement
related to Cycomm's acquisition of its Cycomm Mobile Solutions subsidiary.
Cycomm also issued an additional 200,000 shares of common stock to M3i
Technologies and M3i Systems upon their exercise of stock options issued under
the settlement.
Cycomm issued 145,833 shares of common stock upon the exercise of non-employee
stock options for proceeds of $74,999.
Preferred Stock
On February 26, 1998, Cycomm issued 20 shares of Series B convertible redeemable
preferred stock ("Series B preferred stock") with a conversion value of $50,000
per share for net proceeds of $900,000. The Series B preferred stock is
convertible at the option of the holder into Cycomm common stock. 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
Cycomm's common stock is trading at or below $1.50 per share at the conversion
date, Cycomm has the right to redeem the preferred shares at a premium of 18%
over the conversion price. If Cycomm does not exercise this right, the holder
may convert 10% of its preferred shares, and up to a further 10% every 20 days
thereafter. The Series B preferred stock has no voting rights. In the event of
the liquidation of the Company, the Series B preferred stock has preferences
entitling the holders to the original face value of outstanding shares, plus
accrued dividends. No shares of Series B preferred stock were converted during
2000. During 1999, 7 shares of preferred stock and related accrued dividends
were converted into 282,617 shares of common stock. In the year ended December
31, 1999, Cycomm also reversed an earlier conversion of 1 share of preferred
stock, canceling the 21,745 shares of common stock that had previously been
issued. As of December 31, 2000, 18 shares of Series B preferred stock have
been converted into 547,926 shares of common stock, and 2 shares of Series B
preferred stock are outstanding.
On May 5, 1999, Cycomm issued 6 shares of Series C convertible redeemable
preferred stock ("Series C preferred stock") with a conversion value of $50,000
per share for net proceeds of $247,500. The Series C preferred stock was
convertible at the option of the holder into common stock pursuant to a
conversion schedule as set forth in the agreement. The holder could convert 50%
of its preferred shares after four months from the issuance date, and the
balance after nine months from the issuance date. The conversion price was the
lesser of $0.63, or a 15% discount of the five-day average closing bid price
prior to the date of conversion. The Series C preferred stock had no voting
rights. In the event of the liquidation of the Company, the Series C preferred
stock had preferences entitling the holders to the original face value of
outstanding shares, plus accrued dividends. In the year ended December 31,
2000, 5 shares of Series C preferred stock and related accrued dividends were
converted into 431,759 shares of common stock. During 1999, 1 share of Series C
preferred stock and related accrued dividends were converted into 109,606 shares
of common stock. As of December 31, 2000, no shares of Series C preferred stock
are outstanding.
On July 14, 1999, Cycomm issued 6 shares of Series D convertible redeemable
preferred stock ("Series D preferred stock") with a conversion value of $50,000
per share for net proceeds of $268,500. The Series D preferred stock was
convertible at the option of the holder into common stock pursuant to a
conversion schedule as set forth in the agreement. The holder could convert 25%
of its preferred shares after 30 days from the issuance date, and a further 25%
every 30 days thereafter. The conversion price was the lesser of $0.74, or a 20%
discount of the five-day average closing bid price prior to the date of
conversion. The Series D preferred stock had no voting rights. In the event of
the liquidation of the Company, the Series D preferred stock had preferences
entitling the holders to the original face value of outstanding shares, plus
accrued dividends. Cycomm could redeem the Series D preferred shares at any
time prior to conversion at a price equal to the conversion value of the shares.
At the time the Series D preferred stock was issued, Cycomm placed 600,000
shares of its common stock in an escrow account, to be issued upon conversion of
the preferred shares. On December 31, 1999, Cycomm reached an agreement with the
holders of the Series D preferred stock under which the holders would convert
the 6 shares of preferred stock for the 600,000 shares held in escrow.
On March 31, 2000, Cycomm issued 30 shares of Series E convertible redeemable
preferred stock ("Series E preferred stock") in conjunction with the
Page F-17
conversion of the $3,000,000 7% convertible debentures due May 1, 2000 (See
Note 9: Notes Payable and Convertible Debentures). 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. The Series
E preferred stock had no voting rights. In the event of the liquidation of the
Company, the Series E preferred stock had preferences entitling the holders to
the original face value of outstanding shares, plus accrued dividends. In the
year ended December 31, 2000, 30 shares of Series E preferred stock were
converted into 1,500,000 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 December 31, 2000, no shares of Series E preferred stock were outstanding.
On December 29, 2000, Cycomm issued 9 shares of Series F convertible preferred
stock ("Series F preferred stock") with a conversion value of $50,000 per share
for net proceeds of $353,000. In connection with the issuance of the Series F
preferred stock, Cycomm placed 4,000,000 shares of its common stock in an escrow
account to be available upon conversion of the Series F preferred stock. The
Series F preferred stock is convertible at the option of the holder into shares
of Cycomm common stock. The Series F preferred stock has no voting rights. In
the event of the liquidation of the Company, the Series F preferred stock has
preferences entitling the holders to the original face value of outstanding
shares, plus interest of 8% per annum. The conversion price is the lesser of
$0.32, or a 25% discount of the three-day average closing bid price prior to the
date of conversion. No shares of Series F preferred stock were converted during
2000. The shares had beneficial conversion rights of $117,500 on the date of
issuance.
Subsequent to December 31, 2000, Cycomm issued an additional 13 shares of Series
F preferred stock for net proceeds of $611,500. See Note 20: Subsequent Events
for further discussion of the Series F preferred stock.
NOTE 13: STOCK OPTIONS AND WARRANTS
Stock Options
Cycomm has historically granted non-qualified stock options to directors,
officers, employees and other parties which generally become exercisable
immediately and have expiration terms ranging from two to five years. The
options are granted at an exercise price that equals the fair market value on
the date each option is granted.
On January 24, 2000, Cycomm issued 500,000 warrants to the Chief Executive
Officer, and 500,000 warrants to a member of the Board of Directors at $0.75 per
share related to their participation in a private placement of common stock.
On June 21, 1999, Cycomm granted 1,896,438 options to its directors, officers
and employees at $0.375 per share, which approximated the market price on the
date of the grant. These options were not covered under the 1997 plan.
In November 1997, Cycomm adopted the 1997 Stock Option Plan ("1997 Plan") under
which a maximum aggregate of 1,000,000 shares were reserved for grant to all
eligible employees of the Company. The stock options granted under the 1997
Plan are exercisable at the fair market value of the common stock on the date of
grant with 25% vesting on each of the four successive anniversary dates from the
date of grant. The stock options have a term of ten years. No options were
issued under this plan in 2000 or 1999. As of December 31, 2000, 530,000
options are available under the 1997 Plan.
Page F-18
The following table summarizes the activity in common shares subject to
options and warrants for the relevant periods ended December 31, 2000:
Weighted Average Weighted Average
Options Exercise Price Warrants Exercise Price
Balance,
December 31, 1998 3,470,000 $0.85 150,000 $2.58
========= ===== ========= =====
Granted 2,217,271 $0.39 200,000 $0.00
Exercised --- --- --- ---
Terminated (1,956,062) $1.12 --- ---
---------- ----- --------- -----
Balance,
December 31, 1999 3,731,209 $0.44 350,000 $1.10
========= ===== ========= =====
Granted --- $ --- 6,919,999 $0.75
Exercised (145,833) $0.51 (200,000) $0.00
Terminated (50,000) $6.24 (150,000) $2.58
--------- ----- --------- -----
Balance,
December 31, 2000 3,535,376 $1.31 6,919,999 $0.75
========= ===== ========= =====
Options were exercisable with respect to 3,139,488 shares at December 31, 2000.
The weighted average contractual life of options outstanding as of December 31,
2000 was 3.35 years. The weighted average exercise price of options exercisable
at December 31, 2000 was $1.40.
Warrants were exercisable with respect to 6,919,999 shares at December 31, 2000.
The weighted average contractual life of warrants outstanding as of December 31,
2000 was 4.09 years. The weighted average exercise price of options exercisable
at December 31, 2000 was $0.69.
During the year ended December 31, 2000, Cycomm issued 6,919,999 warrants to
purchase its common stock for services related to the private placement of
equity securities with exercise prices within a range of $0.40 to $2.25. During
1999, Cycomm issued 200,000 warrants in conjunction with the purchase of its
Cycomm Mobile Solutions subsidiary from M3i Technologies, which were exercised
during 2000. At December 31, 2000, there were 6,919,999 warrants to purchase
Cycomm's common stock with a weighted average exercise price of $0.75 per share.
The weighted average contractual life of warrants outstanding was 4.09 years.
Had compensation expense for Cycomm's stock options granted after June 1, 1995
been determined based on the fair value at the grant dates for awards under
those plans, the Company's pro forma net loss and net loss per share for the
reported periods would have been as follows:
Year Ended Year Ended
December 31, 2000 December 31, 1999
Net loss attributable to common
stockholders $(4,141,322) $(9,112,481)
Compensation expense (464,273) (5,084,380)
---------- ----------
Pro forma net loss attributable to
common stockholders $(4,605,595) $(14,196,861)
=========== ============
Pro forma net loss per share
attributable to common
stockholders $(0.18) $(1.04)
====== ======
The effects on pro forma net loss per share of expensing the estimated fair
value of stock options and warrants are not necessarily representative of the
effects on reported net income for future years due to such things as the
vesting period of the stock options and warrants and the potential for issuance
of additional stock options and warrants in future years.
The fair value of options and warrants granted after June 1, 1995, used as a
basis for the above pro forma disclosures, was estimated at the date of grant
using the Black-Scholes option pricing model. The option and warrant pricing
assumptions for 2000 include a dividend yield of 0%, an expected volatility of
1.512 and a risk free interest rate of 6.50% over the life of the options. The
expected life of the options was 5.00 years for 2000. The option and warrant
Page F-19
pricing assumptions for 1999 include a dividend yield of 0%, an expected
volatility of 1.268 and a risk free interest rate of 6.36% over the life of the
options. The expected life of the options was 4.88 years for 1999.
For the years ended December 31, 2000 and 1999, the Company recognized $0 and
$263,458 in compensation expense related to stock options issued to
non-employees.
The weighted average fair values and exercise prices are as follows:
Year Ended Year Ended
December 31, 2000 December 31, 1999
Weighted-average fair
value per option --- $2.63
granted
Weighted-average fair
value per warrant $0.69 ---
granted
NOTE 14: SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the relevant periods are summarized as
follows:
Year ended Year ended
December 31, December 31,
2000 1999
Cash flow effects of changes in operating assets
and liabilities, net of acquisitions:
Accounts receivable $ 672,449 $1,436,066
Inventories (763,002) 612,169
Prepaid expenses and other current
assets 134,433 15,006
Accounts payable, accrued liabilites
and other current liabilities 610,466 565,077
Dividends payable on preferred stock --- 27,145
Deferred revenue (770,122) (164,826)
-------- ----------
$(115,776) $2,490,637
======== ==========
Non-cash investing and financing activities:
Conversion of convertible debentures to
common stock $517,452 $ ---
Conversion of preferred stock to common stock $3,289,412 $658,092
Marketable securities received from sale of
discontinued operation: Val-Comm, Inc. --- $496,034
Cash paid during the period:
Interest paid $396,070 $394,822
Income taxes paid --- ---
Page F-20
NOTE 15: INCOME TAXES
Cycomm accounts for income taxes under the liability method required by FAS
Statement No. 109, "Accounting for Income Taxes". Deferred income taxes reflect
the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. For consolidated financial statement purposes, a
valuation allowance has been recognized to offset certain deferred tax assets
for which realization is uncertain due to the Company's history of losses.
Cycomm's ability to use these losses in future periods may also be limited by
certain provisions in the Internal Revenue Code. Significant components of
Cycomm's deferred tax liabilities and assets as of December 31, 2000 and 1999
are as follows:
December 31, December 31,
2000 1999
Deferred tax assets
Deferred revenue --- 300,348
Non-employee stock options 278,249 278,249
Book over tax depreciation and amortization 321,363 315,513
Net operating loss carryforward 17,096,895 17,234,308
Nondeductible expense and reserves 824,399 225,903
----------- ----------
Total deferred tax assets 18,520,906 18,354,321
Valuation allowance for deferred tax assets (18,520,906) (18,354,321)
----------- -----------
Net deferred tax asset $ --- $ ---
=========== ===========
There was no provision for income taxes in the years ended December 31, 2000 and
1999 as Cycomm incurred losses in those years and a valuation allowance was
provided for the increase in the deferred tax asset.
A reconciliation between federal statutory income tax rates and the effective
tax rate of Cycomm at December 31 is as follows:
December 31, December 31,
2000 1999
US federal statutory benefit rate (35.0)% (35.0)%
US state tax benefit, net of federal income
tax effect (6.7) (4.0)
Permanent items (4.7) ---
Change in valuation allowance 46.4 39.0
---- ----
Effective rate on operating loss --- ---
==== ====
Cycomm has US net operating loss carryfowards available at December 31, 2000 of
approximately $43.8 million for US tax purposes to offset income in future
years. These carryfowards will expire in the years 2016 through 2020, unless
previously utilized. The tax attributes identified above may be subject to
limitation arising from changes of ownership over the three year statutory
testing period. Cycomm has Canadian net operating loss carryforwards available
at December 31, 2000 of approximately $8.3 million; these carryforwards will
expire in the years 2004 and 2007 if not used.
In addition, Cycomm has future deductible research and development costs for
Canadian federal tax purposes of $1.4 million. These costs have an indefinite
carryover period.
NOTE 16: RELATED PARTY TRANSACTIONS
In April 1997, Cycomm loaned certain officers, directors and employees an
aggregate of $184,000 in order to purchase 92,000 shares of the Company's
common stock in a private transaction. At December 31, 2000, amounts
outstanding under these loans total $127,520 in principal and $27,664 in accrued
interest receivable. The loans are secured by the common stock, bear interest
at 5.9% and are due April 30, 2002. Cycomm has recorded a valuation allowance
of $88,470 against the receivable and the net balance of $66,714 is reflected as
a contra equity account in the accompanying balance sheet.
Page F-21
Cycomm subleases office space from Corstone Corporation, which previously
employed Cycomm's Chief Executive Officer and former Chief Financial Officer.
Corstone is a merchant banking firm that provided consulting services to Cycomm
prior to 1998. These consulting services included financial, legal and
administrative services. No consulting fees were paid to Corstone for the years
ended December 31, 2000 and 1999. In the year ended December 31, 2000, Cycomm
paid $102,780 in rent and office expenses to Corstone. The Chief Executive
Officer and former Chief Financial Officer have no direct or indirect ownership
interest in Corstone Corporation.
On September 20, 1999, Cycomm received an investment of $500,000 from Stephen
Sparks in the form of a convertible debenture. On March 31, 2000, the
convertible debenture and related accrued interest were converted into 1,034,904
shares of Cycomm's common stock. (See Note 6: Notes Payable and Convertible
Debentures). In connection with this investment, Mr. Sparks was appointed to
Cycomm's Board of Directors. Mr. Sparks owns several businesses in the
Washington, DC area including a temporary employee staffing company. Cycomm
occasionally uses Mr. Sparks' company for temporary employee staffing, and is
charged standard rates for their services.
Cycomm has an employee staff leasing agreement with ProLease, a company in which
Cycomm's Chief Executive Officer holds a minority ownership interest. Under
this agreement, ProLease is the employer of record for Cycomm's U.S. employees
and handles payroll processing, payroll tax and benefit administration, and
other human resources functions. Cyomm's U.S. employees are eligible to
participate in ProLease's 401(K) plans and health insurance benefits packages.
Cycomm is charged standard rates for ProLease's services.
NOTE 17: SEGMENT AND RELATED INFORMATION
In 1998, Cycomm adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, to report the results of its three business
segments: Mobile Computing, Secure Computing and Communications Security.
During 1999, Cycomm sold its Secure Computing and Communications Security
segments resulting in the Company having only one reporting segment (See Note 2:
Discontinued Operations). The results from continuing operations on Cycomm's
financial statements for the years ended December 31, 2000 and 1999 present
the results of the Mobile Computing segment.
Geographic Region Data December 31, December 31,
1999 1999
Sales
United States $2,998,342 $3,125,903
Canada 433,787 137,275
---------- ----------
$3,432,129 $3,263,178
========== ==========
Loss from Operations
United States $2,831,039 $2,877,253
Canada 1,906,676 2,197,845
---------- ----------
$4,737,715 $5,075,098
========== ==========
Identifiable Assets
United States $1,242,547 $1,842,812
Canada 1,955,292 1,162,716
---------- ----------
$3,197,839 $3,005,528
========== ==========
NOTE 18: MAJOR CUSTOMERS
Cycomm is not dependent upon any single customer that purchases its products.
However, sales to one major customer comprise 23% of consolidated sales for
the year ended December 31, 2000. Sales to three major customers comprise 22%,
15% and 13%, respectively of consolidated sales for the year ended December
31, 1999.
NOTE 19: CREDIT RISK
Financial instruments which potentially subject Cycomm to concentrations of
credit risk consist principally of trade receivables. Concentration of credit
risk with respect to trade receivables exists at year end as approximately
$358,933 or 69% of the outstanding accounts receivable related to two customers.
Cycomm performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses which, when realized, have been within
the range of management's expectations.
Page F-22
NOTE 20: SUBSEQUENT EVENTS
On January 5, 2001, Cycomm issued 6 shares of Series F convertible preferred
stock ("Series F preferred stock") for gross proceeds of $300,000. On
January 23, 2001, Cycomm issued 7 shares of Series F preferred stock for gross
proceeds of $350,000. Net proceeds, after issuance costs for these transactions
totaled $611,500. The Series F preferred stock is convertible at the option of
the holder into common stock of the Company. The conversion price is the lesser
of $0.32, or a 25% discount of the three-day average closing bid price prior to
the date of conversion. On January 4, 2001, 4 shares of Series F preferred stock
and related accrued dividends were converted into 790,990 shares of common
stock. On February 23, 2001, 3 shares of Series F preferred stock and related
accrued dividends were converted into 680,616 shares of common stock. On March
16, 2001, 1 share of Series F preferred stock and related accrued dividends was
converted into 259,950 shares of common stock. On March 22, 2001, 2 shares of
Series F preferred stock and related accrued dividends were converted into
590,002 shares of common stock. As of March 31, 2001, 12 shares of Series F
preferred stock with a total face amount of $600,000 were outstanding. See
Note 12: Capital Stock for further discussion of the Series F preferred stock.
On January 21, 2001, a judgment was ordered against Cycomm in the breach of
contract lawsuit between Cycomm and G.T. Gangemi, former president of the
Company's discontinued operation, Cycomm Secure Solutions, Inc. Cycomm was
ordered to pay Mr. Gangemi $105,100, plus pre-judgment interest from June 23,
1999 in connection with the severance provisions of Mr. Gangemi's employment
agreement. Cycomm has appealed the judgment, and is currently waiting for the
appeal to be heard. As of December 31, 2000, Cycomm had recorded an accrued
liability of $120,000 related to the judgment.
On February 28, 2001, Cycomm renewed its revolving credit facility through
February 28, 2003. In conjunction with the renewal, Cycomm restructured the
revolving credit facility to allow borrowings up to a maximum of $2,000,000.
The credit facility is collateralized by the trade accounts receivable,
inventory and other assets of Cycomm Mobile Solutions, and bears interest at
prime plus 3%.
On March 1, 2001, 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 672,268 shares of common stock
for cash proceeds of $150,015.
On March 6, 2001, Cycomm entered into a settlement agreement with Mobiletec
International Inc. ("Mobiletec"), formerly known as Infotech International Inc.
("Infotech"), under which Mobiletec paid Cycomm $150,000 in cash and 500,000
shares of Mobiletec common stock in full settlement of all Mobiletec obligations
to Cycomm. The settlement relates to the June 2, 1999 judgment against Infotech
under which Infotech was ordered to pay Cycomm $592,959 plus interest and costs
for breach of contract and conversion of funds by Infotech. On June 15, 1999,
Cycomm entered into a settlement agreement under which Infotech would pay the
amount of the judgment on a fixed payment schedule prior to September 15, 2000.
Under the June 15, 1999 settlement, Infotech paid a total of $110,000 to Cycomm
before defaulting on the payment plan. Mobiletec is a privately held company,
and Cycomm has assigned no value to the shares of Mobiletec common stock
received.
On March 14, 2001, Cycomm issued 300,000 shares of its common stock in full
satisfaction of $52,500 in accrued interest due on Cycomm's $3,000,000 10%
convertible debentures. This amount represented unpaid interest for the period
of January 1, 2000 through March 31, 2000, at which time the debentures were
converted into Series E preferred stock on March 31, 2000 (See Note 10: Notes
Payable and Convertible Debentures).
On March 28, 2001, the settlement agreement regarding the amount of acquisition
earn-out owed by Cycomm to M3i Systems Inc. was amended to allow Cycomm until
June 30, 2001 to pay the remaining $300,000 in full satisfaction of its
obligation to M3i. If Cycomm does not satisfy the obligation by June 30, 2000,
Cycomm will be obligated to pay $1.1 million to M3i by April 30, 2002. There
can be no assurances that Cycomm will be able to secure future amendments to the
settlement agreement if the obligation is not satisfied by June 30, 2001. See
Note 4:Acquisition Earn-Out for further details.