<PAGE>
Page 1
As filed with the Securities and Exchange Commission on January __, 2001
Registration No. 333-_____
---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CYCOMM INTERNATIONAL INC.
(Exact Name of Registrant as Specified in Its Charter)
________________
WYOMING 54-1779046
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
______________ ___________
1420 Springhill Road, Suite 420, McLean, Virginia 22102, (703) 903-9548
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal
Executive Offices)
______________
ALBERT I. HAWK
President and Chief Executive Officer
Cycomm International Inc.
1420 Springhill Road, Suite 420, McLean, Virginia 22102, (703) 903-9548
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
Copy to:
DAVID J. LEVENSON, ESQ.
Troutman Sanders Mays & Valentine LLP
1660 International Drive, Suite 600
McLean, VA 22102
(703) 734-4328
________________
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. |_|
Cover of Registration Statement continued on following page
<PAGE>
Page 2
Cover of Registration Statement continued from previous page
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------
Proposed
Maximum Proposed
Aggregate Maximum
Title of Each Class of Amount to Price Per Aggregate Amount of
Securities to be be Security Offering Price Registration
Registered Registered Fee(7)
<S> <C> <C> <C> <C>
Common Shares(1) 5,400,000 $0.46 $ 2,484,000 $ 656
Common Shares(2) 1,100,000 $0.52 $ 572,000 $ 151
Common Shares(3) 1,000,000 $0.46 $ 460,000 $ 121
Common Shares(4) 100,000 $0.50 $ 50,000 $ 13
Common Shares(5) 120,000 $1.00 $ 120,000 $ 31
Common Shares(6) 100,000 $0.75 $ 75,000 $ 19
------- ------------ -----
Total 7,820,000 $ 3,761,000 $ 807
========= ============ =====
</TABLE>
(1) Shares to be issued upon the conversion of Cycomm's Series F
Convertible Redeemable Preferred Stock. The proposed maximum aggregate
price per security is calculated as of the market price of Cycomm's
stock as of January __, 2001.
(2) Issuable upon exercise of warrants. Warrants have an exercise price of
$0.52 per share.
(3) Shares issued under a private equity placement at a share price of
$0.50 per share. The proposed maximum aggregate price per
security is calculated as of the market price of Cycomm's stock as of
January __, 2001.
(4) Issuable upon exercise of warrants. Warrants have an exercise price of
$0.50 per share.
(5) Issuable upon exercise of warrants. Warrants have an exercise price of
$1.00 per share.
(6) Issuable upon exercise of warrants. Warrants have an exercise price of
$0.75 per share.
(7) Fee is $250 million or 0.00025, as of December 21, 2000.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
Page 1
The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities in any state where the
offer or sale is not permitted.
PROSPECTUS
CYCOMM INTERNATIONAL INC.
7,820,000 Shares of Common Stock,
__________________________________
This prospectus relates to 7,820,000 shares of our common stock that
may be sold by the selling stockholders named under "Selling Shareholders" on
page 16. The shares of common stock offered under this prospectus are
comprised of 5,400,000 shares underlying preferred stock that is convertible
into common stock, 1,000,000 shares with registration rights, 1,100,000
shares underlying warrants to purchase common stock at $0.52 per share,
120,000 shares underlying warrants to purchase common stock at $1.00 per
share, 100,000 shares underlying warrants to purchase common stock at $0.75
per share and 100,000 shares underlying options to purchase common stock at
$0.50 per share. We will not receive any additional proceeds from the sale
of the 5,400,000 shares to be issued upon the conversion of preferred stock
or from the sale of the 1,000,000 shares. We will receive up to $817,000
upon the exercise of the 1,420,000 warrants to purchase common stock.
Shares of Cycomm's common stock are quoted on the OTC Bulletin Board
("OTCBB") under the symbol "CYII." The reported closing per share price for
the common stock of Cycomm on January 18, 2000 was $0.46.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
These securities involve a High Degree of Risk. You should carefully
consider the "Risk Factors" beginning on page 5.
The date of this prospectus is January 12, 2001
RELY ONLY ON THIS PROSPECTUS
You should rely only on the information incorporated by reference or
presented in this prospectus. We have not authorized anyone else to provide
you with different information. We are only offering these securities in
states where the offer is permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date
on the cover page of this prospectus.
<PAGE>
Page 2
TABLE OF CONTENTS
PAGE NUMBER
SUMMARY............................................................. 3
FORWARD LOOKING STATEMENTS.......................................... 3
RISK FACTORS........................................................ 3
DILUTION............................................................ 4
USE OF PROCEEDS..................................................... 4
MARKET FOR COMMON STOCK............................................. 5
DIVIDEND POLICY..................................................... 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................... 6
DESCRIPTION OF BUSINESS............................................. 10
MANAGEMENT.......................................................... 11
PRINCIPAL STOCKHOLDERS............................................. 13
RELATED PARTY TRANSACTIONS.......................................... 14
DESCRIPTION OF SECURITIES........................................... 14
PLAN OF DISTRIBUTION................................................ 15
SELLING SHAREHOLDERS................................................ 16
EXPERTS............................................................. 16
LEGAL............................................................... 16
DESCRIPTION OF PROPERTY............................................. 17
LEGAL PROCEEDINGS................................................... 17
WHERE YOU CAN FIND MORE INFORMATION................................. 17
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES..................................................... 17
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.......................... 18
<PAGE>
Page 3
CYCOMM INTERNATIONAL INC.
SUMMARY
We manufacture mobile, rugged computers with wireless communication
capabilities. Rugged computers are 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 mobile workers. All of our products are designed for
wireless use. We are currently developing a wireless platform and solution
for public safety and other markets for mobile workers. During 1999, we sold
two of our subsidiaries: Cycomm Secure Solutions Inc. and Val-Comm, Inc. The
proceeds of the sales were used to pay down debt and to provide working
capital. The sale also reduced our overhead costs and allowed us to focus on
the rugged computer markets and to further develop wireless solutions for our
customers.
Cycomm International Inc. is a Wyoming corporation with its principal
office located at 1420 Springhill Road, Suite 420, McLean, VA 22102. The
telephone number is (703) 903-9548.
FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about our business and
our industry. These forward-looking statements involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors, as more fully described above and elsewhere in this prospectus. We
undertake no obligation to update publicly any forward-looking statements for
any reason, even if new information becomes available or other events occur
in the future.
RISK FACTORS
You should consider carefully the following risks before you decide to
buy our common stock. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties also may
impair our business operations. Any of the following risks may cause our
business, financial condition and results of operations to suffer. This could
cause the trading price of our common stock to decline and you may lose all
or part of the money paid to buy our common stock.
WE MAY NOT BE PROFITABLE IN THE FUTURE
We have accumulated net losses from inception through September 30, 2000
of approximately $63 million. Our losses have resulted principally from the
operations of subsidiaries that were sold or shut down prior to December 31,
1999. We have shifted all of our resources to our subsidiary that
manufactures rugged, wireless computers. This market has shown potential,
but this subsidiary has not been profitable on a stand-alone basis. If we
are not profitable, the market price of our stock may decline. Profitable
operations depend on a number of factors, many of which are beyond our direct
control. The factors include:
23 The demand for our products
24 Our ability to manufacture our products efficiently and to control
production costs
25 Our ability to increase our manufacturing capacity
26 The level of product and price competition
27 General economic conditions
WE RELY ON SINGLE SOURCES FOR SOME OF OUR RAW MATERIALS
AND OUR BUSINESS COULD SUFFER IF THESE MATERIALS WERE
NOT AVAILABLE FROM CURRENT SOURCES
We rely on sole sources for some of our raw materials and components.
If these raw materials or components were no longer available, our
manufacturing operations could be interrupted until another supplier could be
identified, its products validated and trading terms with it negotiated. We
cannot be sure that an alternative supplier could be identified in a timely
manner, or at all, or that favorable terms could be negotiated with an
<PAGE>
Page 4
alternative supplier. Any disruptions in our manufacturing operations from
the loss of a supplier could have a material adverse effect on our results of
operations, and potentially damage our relations with our customers.
WE DEPEND ON KEY PERSONNEL AND MUST CONTINUE TO
ATTRACT AND RETAIN KEY PERSONNEL
Our success depends upon the continued contributions of our executive
officers and engineering personnel. The departure of any one of these key
individuals could result in setbacks that could adversely affect our success
and continuing operations. The success and growth of our company depends
upon our ability to identify, recruit and retain key management personnel.
The competition for qualified personnel is intense, and there are no
assurances that we will be successful in our efforts.
OUR COMPETITION IS SOMETIMES LARGER AND BETTER KNOWN, WITH
MORE RESOURCES IN FINANCE, MANUFACTURING AND MARKETING
We compete in the rugged, wireless computer business with a wide variety
of computer manufacturers and repackagers, some of which are larger, better
known and have more resources in finance, manufacturing and marketing. We
compete based on customization capabilities, price, performance, delivery and
quality.
In the public safety market, we are often required to enter into
competitive bids or negotiated contracts with government departments and
agencies. In many cases, we are the higher priced bidder for public safety
bids. We use many custom made components, which can be more expensive than
parts used by our competitors. The parts we use are designed to be much more
rugged than parts available commercially. We also make extensive
modifications and refinements to our computers in order to meet our
customers' needs. While our products are more expensive, they generally
function at a higher level of performance and reliability than similar
products offered by our competitors.
WE RELY ON KEY RESELLERS TO MARKET AND DISTRIBUTE OUR PRODUCTS
Many of our sales are made through resellers. Our resellers approach
municipalities and government agencies with total solutions for their mobile
computing needs. These resellers typically handle the software integration
and installation of our computers into public safety vehicles. Our resellers
are an important distribution channel and marketing source for our products.
Maintaining good working relationships with our resellers is critical to the
success of our company. The loss of one or any of our major resellers could
adversely affect our company's success in the future.
DILUTION
On September 30, 2000, Cycomm had a net tangible book value of $554,699
or $0.02 per share (based on 28,545,982 shares outstanding). The net
tangible book value per share is calculated by dividing the net tangible book
value (total assets less intangible assets and total liabilities) by the
number of outstanding shares of common stock. We will not receive any
additional proceeds from the sale of the 5,400,000 shares to be issued upon
conversion of our preferred stock, or from the sale of the 1,000,000 shares
that have previously been issued under private equity placements. Without
considering the possible exercise of the 1,420,000 warrants to purchase
common stock included in the prospectus, there will be no dilutive effect
related to the sale of the common shares included in the prospectus.
USE OF PROCEEDS
The selling shareholders will receive the proceeds from the sale of
6,400,000 shares of common stock included in this prospectus. If the
1,420,000 warrants to purchase common stock are exercised, we will receive up
to $817,000. Cycomm intends to use the proceeds from the exercise of the
warrants and options for working capital and for general corporate purposes.
We will not receive any proceeds from the sale of shares by the selling
shareholders.
<PAGE>
Page 5
MARKET FOR COMMON STOCK
As of December 31, 1998, Cycomm's common stock was traded on The
American Stock Exchange ("AMEX") under the symbol "CYI". As of May 5, 1999,
the common stock was quoted on the Over-the-Counter Bulletin Board ("OTCBB")
under the symbol "CYII".
The quotations set forth below reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions. The following tables set forth the reported high and low sales
prices as reported by AMEX or OTCBB for the periods indicated:
<TABLE>
<CAPTION>
High Low
Year Ended December 31, 2000
<S> <C> <C>
First quarter $3.56 $0.66
Second quarter 2.31 0.88
Third quarter 1.31 0.63
Fourth quarter 1.12 0.40
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
Year Ended December 31, 1998
First quarter $2.69 $1.63
Second quarter 3.56 1.88
Third quarter 4.06 1.56
Fourth quarter 2.31 1.69
</TABLE>
On December 31, 2000, as reported by Cycomm's transfer agent, shares of
common stock were held by ____ persons, based on the number of record
holders, including holders who are nominees for an undetermined number of
beneficial owners.
DIVIDEND POLICY
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 the Cycomm and any other factors Cycomm's 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.
<PAGE>
Page 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Continuing Operations
During 1999, Cycomm sold two of its subsidiaries: Cycomm Secure Solutions
Inc. ("CSS") and Val-Comm, Inc. The operating results of CSS and Val-Comm
for the quarter and the nine months ended September 30, 1999 are not included
in results from continuing operations, and are classified on separate line
items on the income statement.
The results of continuing operations for the quarters ended September 30,
2000 and September 30, 1999 reflect only the results of Cycomm's PCMobile
product line and the results of the parent company.
Quarters Ended September 30, 2000 and September 30, 1999
Revenues for the quarter ended September 30, 2000 were $454,711 as compared
to revenues of $219,822 for the quarter ended September 30, 1999. Although
sales increased, sales for both periods were below Cycomm's targeted levels.
For the quarter ended September 30, 1999, Cycomm was constrained by limited
financial resources, which caused a decrease in production. In the quarter
ended September 30, 2000, the award of a significant order was delayed, which
pushed the delivery date for the order into the fourth quarter of 2000.
Cost of sales for the quarter ended September 30, 2000 were $607,927 as
compared to cost of sales of $186,297 for the prior period. Gross margins
for the quarter ended September 30, 2000 were (34%), which decreased from 15%
in the quarter ended September 30, 1999. The decrease in gross margins is a
result of premiums required by Cycomm's vendors resulting from lower than
anticipated purchasing levels, and warranty costs incurred in the quarter
ended September 30, 2000.
Operating expenses increased to $1,139,193 for the quarter ended September
30, 2000 as compared to $945,330 in the quarter ended September 30, 1999.
Selling, general and administrative expenses ("SG&A") increased $188,061 to
$943,447 for the current quarter. Research and development costs ("R&D")
were $158,904 for the quarter ended September 30, 2000, as compared to
$103,118 in the quarter ended September 30, 1999. Both SG&A and R&D expenses
were lower than normal in the quarter ended September 30, 1999 as a result of
limited financial resources available to Cycomm. Depreciation and
amortization decreased to $36,842 for the quarter ended September 30, 2000 as
compared to $86,826 in the quarter ended September 30, 1999. Depreciation
and amortization for the quarter ended September 30, 1999 contained expenses
not included in the current quarter. These expenses were related to the
amortization of goodwill of Cycomm's PCMobile division, which totaled $41,400
for the quarter ended September 30, 1999.
Interest expense for the quarter ended September 30, 2000 was $99,113 as
compared to $138,207 for the quarter ended September 30, 1999. Interest
expense for the quarter ended September 30, 1999 included interest on
convertible debentures issued by Cycomm. These debentures were converted
into preferred stock of Cycomm on March 31, 2000.
Net loss from continuing operations increased to $1,384,438, or $0.05 per
share, for the quarter ended September 30, 2000 from $938,351, or $0.07 per
share for the quarter ended September 30, 1999. The increase in net loss
from continuing operations is primarily the result of an increased level of
activity from the quarter ended September 30, 1999. Cycomm was awarded a
significant contract in the quarter ended September 30, 2000, and began
preparing for delivery in the fourth quarter of 2000.
Income from discontinued operations from the Company's Val-Comm subsidiary
was $4,872 for the quarter ended September 30, 1999. Cycomm recognized a
gain on the disposal of Val-Comm Inc. of $265,746 in the quarter ended
September 30, 1999.
<PAGE>
Page 7
Nine Months Ended September 30, 2000 and September 30, 1999
Revenues for the nine months ended September 30, 2000 were $3,167,705 as
compared to revenues of $2,123,815 for the nine months ended September 30,
1999. The increase in sales is primarily the result of the recognition of
$766,341 in deferred revenue (See Note 5: Deferred Revenue) in the nine
months ended September 30, 2000.
Cost of sales for the nine months ended September 30, 2000 were $2,579,573 as
compared to cost of sales of $1,737,069 for the nine months ended September
30, 1999. Gross margins for the nine months ended September 30, 2000 were
19%, which represents an increase from 18% in the prior period. The increase
in gross margins is a result of $766,341 in deferred revenue being recognized
in the nine months ended September 30, 2000, while the corresponding cost of
sales was recognized during 1999.
Operating expenses decreased to $3,312,736 for the nine months ended
September 30, 2000 as compared to $3,836,570 in the prior period. Selling,
general and administrative expenses decreased $160,225 to $2,267,228 for the
nine months ended September 30, 2000. This decrease is mainly the result of
reductions in facilities costs and headcount reductions. Research and
development costs increased to $533,546 as compared to $457,257 in the prior
period. The research and development expenses in the current period relate
to engineering of the Pentium II and Pentium III versions of our PCMobile and
the further development of our multimedia docking station. Depreciation and
amortization decreased to $91,962 for the nine months ended September 30,
2000 as compared to $531,860 in the prior period. Depreciation and
amortization for the nine months ended September 30, 1999 contained expenses
not included in the period, including depreciation of PCMobile demonstration
units totaling $208,075 and amortization of goodwill related to PCMobile's
division, Cycomm Mobile Solutions totaling $124,200.
Interest expense for the nine months ended September 30, 2000 was $307,655 as
compared to $338,736 for the prior period. Interest expense for the nine
months ended September 30, 1999 included interest on convertible debentures
held by Cycomm. These debentures were converted into preferred stock of
Cycomm on March 31, 2000.
Net loss from continuing operations decreased to $2,990,545, or $0.12 per
share, for the nine months ended September 30, 2000 from $3,667,866, or $0.29
per share for the nine months ended September 30, 1999. The decrease in net
loss from continuing operations is primarily the result of the recognition of
$766,341 in deferred revenue, reductions in SG&A expenses and decreases in
depreciation and amortization costs.
Income from discontinued operations from the Company's Val-Comm subsidiary
was $112,163 for the nine months ended September 30, 1999. Cycomm recognized
a gain on the disposal of Val-Comm Inc. of $265,746 in the nine months ended
September 30, 1999.
Cycomm's loss from its discontinued operation Cycomm Secure Solutions Inc.
was $1,613,044 for the nine months ended September 30, 1999. Included in
this loss is a write-off of goodwill of $1,220,190. The loss on the sale of
Cycomm Secure Solutions' assets was $1,535,643.
Cycomm legally dissolved its Cycomm Secure Solutions ("CSS") subsidiary in
the nine months ended September 30, 2000. As a result of the dissolution,
Cycomm eliminated CSS' liabilities and recognized a gain of $1,119,273, or
$0.05 per share, for the nine months ended September 30, 2000.
Years Ended December 31, 1999 and December 31, 1998
The results of continuing operations for the years ended December 31,
1999 and December 31, 1998 reflect only the results of the Company's PCMobile
product line and the results of the parent company.
The revenues for the year ended December 31, 1999 were $3,263,178,
which represents a decrease of $9,970,494 from revenues of $13,233,672 for
the prior year. The decrease in sales was a result of reduced production of
PCMobile units caused primarily by limited financial resources available to
the Company.
Cost of sales for the year ended December 31, 1999 was $3,012,410 as
compared to cost of sales of $9,830,620 for the prior year. Gross margin for
the Company decreased to 8% for the year ended December 31, 1999 from 26% in
the prior year. The decrease in gross margin is directly attributable to the
<PAGE>
Page 8
decrease in sales volume from the prior period. The Company prices its
PCMobiles to attain gross margins within a range of 30% to 40%. Lower levels
of production cause manufacturing overhead to be spread over fewer products,
which increases the cost of production per unit and lowers margins.
Operating expenses decreased to $5,325,866 for the year ended December
31, 1999 as compared to $7,546,466 for the prior year. Selling, general and
administrative ("SG&A") expenses were $3,888,437 for the year ended December
31, 1999, a decrease of 26% from SG&A expenses of $5,234,503 for the year
ended December 31, 1998. 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 $1,471,493 in 1998 to $612,213
in 1999. The decrease of $859,280 is largely the result of depreciation of
PCMobile demonstration units, which decreased from $680,571 in 1998 to
$208,075 in 1999, and the amortization of convertible debt issue costs, which
decreased from $173,105 in 1998 to $31,700 in 1999. Research and development
("R&D") costs were $824,353 for the year ended December 31, 1999 as compared
to $929,998 for the year ended December 31, 1998. The 1999 R&D expenditures
consisted of the completion of the Pentium II PCMobile development, early
stages of Pentium III PCMobile development, and the design and testing of a
multimedia docking station for the PCMobile.
Interest expense for continuing operations for the year ended December
31, 1999 was $456,651 as compared to $292,176 for the prior year. In 1998,
total interest expense for both continuing and discontinued operations was
$778,065. The increase in interest expense for continuing operations is a
result of a restructuring of the Company's line of credit. In 1998, interest
on the revolving line of credit was allocated between the Company's mobile
computing and secure computing subsidiaries. Following the Company's June
21, 1999 sale of its secure computing subsidiary, all interest expense on the
revolving line of credit was allocated to the Company's mobile computing
subsidiary.
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 recorded a charge of $838,202 related to the impairment of CMS
goodwill in the year ended December 31, 1999.
The net loss from continuing operations was $6,241,703, or $0.46 per
share, for the year ended December 31, 1999 as compared to $4,367,709, or
$0.40 per share for the year ended December 31, 1998. The increase in the
net loss from continuing operations is a result of the significant decrease
in PCMobile sales and margins from the prior period, offset by the Company's
reductions in selling, general and administrative expenses.
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, as compared to $4,087,890 in the prior period. 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 as compared to
$159,550 in the prior period. The 1999 results are for the period ended
August 21, 1999, the date of the sale of Val-Comm. Cycomm recognized a gain
of $265,746 on the disposal of Val-Comm Inc.
Liquidity and Capital Resources
Cycomm has satisfied working capital requirements through cash on hand,
available lines of credit and various equity related financings. At
September 30, 2000, Cycomm had cash and cash equivalents of $202,416.
In the year ended December 31, 1999, cash used in operations amounted
to $2,037,193. Cash provided by investing activities was $494,034, which was
comprised of $496,034 from the sale of marketable securities related to the
sale of the Company's Val-Comm subsidiary, offset by a net of $2,000 used in
notes receivable activity. Cash provided by financing activities was
$1,684,938 for the year ended December 31, 1999. The Company obtained cash
totaling $1,738,842 as a result of eight separate private equity placements
<PAGE>
Page 9
of common stock. Additionally, during 1999, the Company obtained $247,500
from the issuance of its Series C convertible redeemable preferred stock, and
$268,500 from the issuance of its Series D convertible redeemable preferred
stock. Cycomm issued a convertible debenture during 1999 for total proceeds
of $500,000. The Company had a net decrease of $1,044,441 in borrowings
under the secured credit facility during 1999.
Cycomm's net working capital decreased to ($2,886,204) at December 31,
1999, from ($2,419,330) at December 31, 1998 as a result of several factors.
The Company's production levels decreased significantly from 1998 due to the
limited financial resources available to the Company. As a result, cash on
hand decreased $545,110, accounts receivable decreased $1,051,047 and
inventories decreased $928,804 from December 31, 1998 to December 31, 1999.
Additionally, during 1999 the Company sold its Cycomm Secure Solutions
("CSS") subsidiary in an asset sale transaction. The assets of CSS had a
carrying value of $2,333,779 and were sold for gross proceeds of $800,000.
Proceeds from the sale were used to pay down a portion of the Company"s
revolving line of credit. As of December 31, 1999 the Company carried
liabilities related to its CSS subsidiary of $1,310,837. The decreases in
current assets were offset by the reclassification of $3,000,000 of
convertible debentures from short-term to long-term liabilities and
repayments on the revolving line of credit of $1,395,786.
In the nine months ended September 30, 2000, cash used in operations
was $4,089,803, due primarily to the Company"s net los of $6,502,310 and in
part to a reduction in its current liabilities of $3,181,576, increase in
inventories of $723,473, and a reduction in accounts receivable of
$1,015,957. Cash used in investing activities during the nine months ended
September 30, 2000 was $33,838. Cash provided by financing activities
totaled $4,303,190 for the nine months ended September 30, 2000. Cycomm
raised $4,840,000 through private equity placements and decreased the amounts
drawn on its bank credit lines in an amount of $609,973 during the nine
months ended September 30, 2000.
Cycomm's net working capital at September 30, 2000 was $318,104 as
compared to ($2,886,204) at December 31, 1999. The increase in net working
capital is a direct result of Cycomm raising $4,840,000 in private equity
placements. The additional capital was used to fund operations, purchase
inventory and reduce outstanding payables.
Cycomm's auditors modified their audit report on the Company's
consolidated financial statements for the year ended December 31, 1999 to
include an explanatory paragraph regarding doubt over the Company's ability
to continue as a going concern.
Management is addressing the going concern issue with several actions,
including expanding its sales force, adding resellers, evaluating potential
acquisitions and strategic partnerships, and further capitalizing the Company
through borrowings and private equity placements. In the next twelve months,
Cycomm will continue expenditures related to sales and marketing, in order to
generate cash flows from operations. Cycomm intends to expand its sales
force and its network of reseller with an aggressive recruiting campaign in
order to expand its national and international sales coverage. Cycomm will
increase its visibility in the market through increased print and electronic
advertisements, and through attendance at national and regional trade shows.
Management is not planning to use a substantial amount of its resources
in investing activities in the next twelve months. Our manufacturing
facility currently has adequate capacity, and management does not anticipate
any material capital expenditures.
In order to fund its marketing plans, Cycomm will need to generate cash
from financing activities, and increase sales in order to access its existing
line of credit. Cycomm has historically been able to satisfy its cash
requirements through private placements of its common stock, and management
believes it will be able to raise funds in the future.
Cycomm is also exploring several strategic alternatives, such as
potential relationships and strategic transactions. Management is evaluating
transactions that would provide Cycomm with access to greater financial
resources, and strategic partnerships that would provide Cycomm with revenue
from new markets.
<PAGE>
Page 10
CYCOMM INTERNATIONAL
Cycomm was formed on April 30, 1986 by combining two Ontario
corporations. Historically, Cycomm has operated under various names;
however, it changed its name to Cycomm International Inc. on February 20,
1992. Cycomm was originally incorporated in Ontario, Canada. On October 31,
1995 Cycomm changed this status and became incorporated in the State of
Wyoming.
At its formation in 1986, Cycomm was involved in the manufacturing and
marketing of sonar activated marine buoys. In 1987, Cycomm became involved
in technologies related to telecommunication systems. In May 1990, Cycomm
acquired Cycomm Corporation, an entity engaged in the development and
marketing of specialized voice privacy communications products for the secure
communications market. In November 1993, Cycomm acquired Val-Comm, Inc., a
company engaged in performing classified government contracting for various
communications projects.
Cycomm continued to develop the voice privacy and encryption
technologies through 1996. Cycomm then made two strategic acquisitions that
allowed it to leverage existing technologies and to participate in the larger
mobile and secure computer market. Specifically, Cycomm acquired XL
Computing Corporation (later named Cycomm Secure Solutions Inc.) in March
1996 and XL Computing Canada Inc. (later named Cycomm Mobile Solutions Inc.)
in June 1996. Cycomm Secure Solutions ("CSS") was engaged in the design,
manufacture and marketing of secure computer systems. Cycomm Mobile
Solutions ("CMS") is engaged in the design, manufacture and marketing of
rugged mobile computer systems.
During 1997, Cycomm shifted its resources to expand its mobile and
secure computer products subsidiaries. Cycomm closed its voice privacy
subsidiary and concentrated working capital on its CMS and CSS subsidiaries.
The market for the Cycomm's mobile computers grew much faster than the market
for secure computers. Accordingly, Cycomm began a strategy resulting in a
further shifting of development resources to the mobile computing products.
Cycomm's mobile computing division experienced significant growth in
1998. The secure computing division, however, generated substantial losses
for the year ended December 31, 1998. Val-Comm, Cycomm's government
contracting subsidiary experienced immaterial losses for the year ended
December 31, 1998.
In January 1999, the American Stock Exchange ("AMEX") notified Cycomm
that it no longer met the AMEX continued listing criteria, and that Cycomm
would be de-listed. Cycomm underwent a significant restructuring, selling
its secure computing division and its Val-Comm subsidiary in order to focus
on the wireless mobile computing market. Proceeds from the sales were used
to repay debt and to provide working capital for the mobile computing
division.
Cycomm intends to expand its wireless mobile computing products.
Cycomm believes it is uniquely positioned from its experience in wireless
secure communications, rugged manufacturing capabilities, and knowledge of
customer requirements. In addition, Cycomm is developing an IP based
wireless platform to support internet and other applications for small to
mid-sized public safety agencies.
<PAGE>
Page 11
MANAGEMENT
ALBERT I. HAWK
Albert I. Hawk, 41, is Chairman of the Board of Directors (term expires upon
the election or assignment of a successor), President and Chief Executive
Officer of the Company since May 1996. From 1993 to May 1996, Mr. Hawk was
Managing Director of Corstone Corporation, a private merchant banking and
professional services firm specializing in telecommunications and information
technologies. Mr. Hawk has invested in and served as founder, executive
officer and director of numerous high growth companies.
HUBERT R. MARLEAU
Hubert R. Marleau, 51, has served as a director since November 1993 (term
expires upon the election or assignment of a successor) and serves as
president and Chief Executive Officer of Palos Capital Corp., a private
merchant bank, since January 1998. Mr. Marleau was a founder and Chairman
and Chief Executive Officer of Marleau Lemire Inc., a large, independent
broker dealer in Canada, from January 1989 to December 1997. Mr. Marleau
serves on the boards of numerous public and private companies, including
Cinar Films Inc., Herzfeld Caribbean Basin Fund Inc., Liquidation World Inc.,
Uni-Select Inc., US Global Strategies Fund Ltd. and US Masters Holding Ltd.
LT. GEN. THOMAS P. STAFFORD
Lt. Gen. Thomas P. Stafford (USAF-Retired), 69, has served as a director
since November 1996 (term expires upon the election or assignment of a
successor) and is Vice Chairman of Stafford, Burke & Hecker. After serving
as an astronaut and piloting Gemini VI and commanding Gemini IX and Apollo X,
the first lunar module flight to the moon, Gen. Stafford retired in 1979 from
the U.S. Air Force as Deputy Chief of Staff for Research, Development and
Acquisition. Gen. Stafford serves on the boards of numerous public and
private companies, including Allied Signal Inc., CMI, Inc., Seagate
Technologies, Tremont Inc., Wheelabrator Technologies, Inc., Timet, Inc. and
Tracer, Inc.
STEPHEN SPARKS
Stephen Sparks, 43, has served as a director since September 1999 (term
expires upon the election or assignment of a successor) and is the CEO of
Sparks Personnel. Mr. Sparks has founded and been a director and officer for
several high growth companies in the Washington, D.C. area, including
Customer Care Solutions, MedOne Staffing and Seven Locks Broadcasting Company.
EXECUTIVE COMPENSATION
The following tables set forth the compensation earned by our Chief Executive
Officer and other executive officers whose salaries exceeded $100,000 in the
fiscal years 1999 and 1998:
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Name and
Principal Other Annual All Other
Position Year Salary($) Bonus($) Compensation($) Options(#) Compensation($)(1)
<S> <C> <C> <C> <C> <C> <C>
Albert I. 1999 $240,000 --- --- 1,000,000 ---
Hawk 1998 204,833 --- $6,000 200,000 $1,675
President
and Chief
Executive
Officer
Michael D. 1999 $150,000 --- --- 175,000 $3,900
Perrine 1998 150,000 --- --- 75,000 3,900
President -
Mobile
Computing
division
</TABLE>
(1) Includes amounts contributed by the Company to the 401(k) Plan. The
Company contributes an amount equal to 50% of the eligible employees
contribution to the 401(k) Plan, not to exceed 3% of the employees earnings.
<PAGE>
Page 12
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
% of
Total Potential
Options Realizable Value
Number of Granted at Assumed Annual
Shares to Rates of Stock
Underlying Employees Exercise Price Appreciation
Options in Fiscal Price Expiration for Option Term
Name Granted(#)(1) Year(2) ($/Share) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Albert I. Hawk 1,000,000 51.4% $0.38 6/1/04 $301,429 $478,570
Michael D.
Perrine 175,000 9.0% $0.38 6/1/04 $ 52,750 $ 83,750
</TABLE>
(1) These options are granted outside of and are not part of the Option
Plan. The shares issued upon the exercise of the options are restricted
and may not be sold unless registered or exempt from registration.
(2) The Company granted options totaling 1,946,438 shares to employees in
the fiscal year ended December 31, 1999.
The following table sets forth information with respect to options
exercised by officers in the fiscal year ended December 31, 1999 and the
value of such officers' unexercised options at December 31, 1999.
<TABLE>
<CAPTION>
Aggregated Options Exercises in Last Fiscal
Year and Fiscal Year-End Option Values
Number of Shares
Shares Underlying Unexercised Value of Unexercised In-
Acquired Options at the-Money Options
On Value Fiscal Year-End(#) at Fiscal Year-End($)
Name Exercise(#) Realized($) ExercisableUnexercisable ExercisableUnexercisable
Albert I.
<S> <C> <C> <C> <C> <C> <C>
Hawk --- --- 1,800,000 --- $155,000 ---
Michael D.
Perrine --- --- 162,500 87,500 $ 13,563 ---
</TABLE>
<PAGE>
Page 13
PRINCIPAL STOCKHOLDERS
The following table shows beneficial ownership of shares of the
Company's common stock as of December 31, 2000 by: persons known to the Company
to be the beneficial owners of more than 5% of Cycomm's Common Stock; and stock
ownership of all directors and officers of the Company as a group:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class(1)(2)
<S> <C> <C>
Special Situations Funds 8,000,000(3) 17.9%
153 E. 53rd Street
51st Floor
New York, NY 10022
Thompson Kernaghan & Co., 6,500,000(4) 14.5%
Ltd.
365 Bay Street, 10th Floor
Toronto, Ontario
M5H 2V2
Albert I. Hawk 3,018,818(5) 6.8%
1420 Springhill Rd.
Suite 420
McLean, VA 22102
Stephen Sparks 2,034,904(6) 4.6%
1420 Springhill Rd.
Suite 420
McLean, VA 22102
Hubert Marleau 683,152(7) 1.5%
Lt. Gen. Thomas P. Stafford 238,734(8) *
Calvin G. Cobb 100,000(9) *
All officers and Directors 6,075,608 13.5%
as a group (5 persons)
</TABLE>
(1) Pursuant to applicable rules of the Securities and Exchange Commission,
shares of Common Stock which were not outstanding as of December 31,
2000, but which were subject to issuance within 60 days of December 31,
2000 are deemed to be outstanding for purposes of computing the
percentage ownership.
(2) Beneficial owners have sole voting and investment powers with respect
to shares of Common Stock actually held on December 31, 2000, except
where indicated otherwise.
(3) Includes stock purchase warrants to acquire an aggregate of 4,000,000
shares.
(4) Includes stock purchase warrants to acquire an aggregate of 1,100,000
shares.
(5) Includes stock purchase options to acquire an aggregate of 1,800,000
shares and stock purchase warrants to acquire an aggregate of 500,000
shares.
(6) Includes stock purchase warrants to acquire an aggregate of 500,000
shares.
(7) Includes stock options to acquire an aggregate of 165,000 shares.
(8) Includes stock options to acquire an aggregate of 180,000 shares
(9) Includes stock options, which are currently exercisable to acquire an
aggregate of 100,000 shares.
* Represents beneficial ownership of less than one percent
<PAGE>
Page 14
RELATED PARTY TRANSACTIONS
In April 1997, the Company loaned certain officers, directors and
employees an aggregate of $184,000 in order to purchase 92,000 shares
of the Company's common stock from an unrelated shareholder in a
private transaction. At December 31, 1999, amounts outstanding under
these loans totalled $128,684 in principal and $20,297 in accrued
interest receivable. The loans are secured by the common stock, bear
interest at 5.9% and are due April 30, 2002. The Company has recorded
a valuation allowance of $88,470 against the receivable and the net
balance of $62,918 is reflected as a contra equity account on Cycomm's
balance sheet. The amounts loaned to current officers and directors
and the accrued interest as of September 30, 2000 are listed below:
<TABLE>
<CAPTION>
Name of Officer or Amount of Loan Accrued Interest
Director as of 9/30/00
<S> <C> <C>
Albert I. Hawk $ 44,836 $9,059
Hubert R. Marleau 4,076 1,647
Lt. Gen. Thomas P.
Stafford 8,734 3,529
</TABLE>
On September 20, 1999, Stephen Sparks purchased a convertible debenture
from Cycomm in the amount of $500,000. In connection with this investment,
Mr. Sparks was appointed to Cycomm's Board of Directors.
In June 1999, Cycomm entered into an employee staff leasing agreement
with Professional Staff Leasing Corp. ("ProLease"), a company in which
Cycomm's Chief Executive Officer is a director and minority shareholder.
Under this agreement, ProLease handles payroll processing, payroll tax and
benefit administration, and other human resources functions for Cycomm's U.S.
employees. 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.
In January 2000, Cycomm raised capital through a private equity
placement of common stock with a group called Special Situations Funds LLC
("SSF"). In connection with this private placement, some of our officers and
directors invested money in Cycomm at the same terms offered to SSF. The
amounts invested by each officer and director are listed below:
<TABLE>
<CAPTION>
Name of Shares of Common
Officer or Director Amount Invested Stock Received Warrants Received
<S> <C> <C> <C>
Albert I. Hawk $250,000 500,000 500,000
Stephen Sparks 250,000 500,000 500,000
Palos Capital
Corp(1) 250,000 500,000 ---
</TABLE>
(1) Palos Capital Corp is an independent broker dealer in which Hubert R.
Marleau has an ownership interest
DESCRIPTION OF SECURITIES
Common Stock
Cycomm may issue an unlimited number of shares of common stock, without
par value, of which 30,145,982 shares were outstanding as of December 31,
2000. Assuming all of the warrants are exercised and all convertible
securities are converted, there will be 44,717,419 shares issued and
outstanding.
All issued and outstanding shares of common stock, including those to
be issued, will be fully paid and non-assessable. Each holder of record of
common stock is entitled to one vote for each share held on all matters
requiring a vote of shareholders, including the election of directors. There
are no preferences, conversion rights, preemptive rights, subscription
rights, or restrictions on transfers attached to the shares of common stock.
In the event of liquidation, dissolution, or winding up of Cycomm, the
holders of shares of common stock are entitled to participate in the assets
of Cycomm available for distribution after satisfaction of the claims of
creditors.
<PAGE>
Page 15
Preferred Stock
Cycomm may issue an unlimited number of shares of preferred stock,
without par value. The preferred stock may be issued at any time and from
time to time in one or more series. Except as provided in the Series B
preferred stock and the Series F preferred stock, the Board of Directors,
without further shareholder approval, may determine the rights, liabilities
and preferences of each series of preferred stock. The issuance of preferred
stock by the Board of Directors with voting conversion or other rights could
have the effect of delaying, deferring, or preventing a change in control of
Cycomm, or could adversely affect the voting power of the holders of common
stock.
Series B Preferred Stock. The Series B preferred stock is convertible at the
option of the holder into 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. As of December 31, 2000, two shares of Series B preferred stock
were outstanding, and were convertible into an aggregate of 250,000 shares of
common stock based on the conversion price at that date.
Series F Preferred Stock. The Series F preferred stock is convertible at the
option of the holder into common stock. 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. As of December 31, 2000, twenty-two shares of
Series F preferred stock were outstanding, and were convertible into an
aggregate of 3,437,500 shares of common stock based on the conversion price
at that date.
Options
Cycomm grants options to various employees, directors and service
providers. The options give the holder the right to purchase shares of
common stock of Cycomm and terms of the options being offered are described
below:
1997 Stock Option Plan. In November 1997, Cycomm adopted the 1997 Stock
Option Plan ("1997 Plan") under which 1,000,000 shares were reserved for
grant to all eligible persons of Cycomm. 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. The stock options have a term of ten years. As of December 31, 2000,
a total of 470,000 stock options have been granted under the 1997 Plan and
530,000 stock options are available for grant.
Non-qualified Options. Cycomm has granted 3,020,000 non-qualified stock
options to directors, officers, key employees and other persons as of
December 31, 2000. These options have vesting periods ranging from immediate
vesting to two years. Expiration terms range from two to ten years. The
options are granted at an exercise price that equals the fair market value on
the date each option is granted.
Warrants
Cycomm grants warrants, from time to time, to various parties in
conjunction with services rendered, acquisitions or financings . The
warrants give the holder the right to purchase shares of common stock of
Cycomm and terms of the warrants being offered herein are described below:
Warrants. In connection with the sale of common stock, Cycomm issued
1,420,000 common share purchase warrants to the investors in the offerings.
Cycomm issued 1,000,000 warrants at $0.52, which was greater than the fair
market value of Cycomm's common stock on the date the warrant grant was
authorized. These warrants expire on December 19, 2005.
Cycomm also issued 120,000 warrants at $1.00 per share which expire on May 8,
2005, 100,000 warrants at $0.75 per share which expire on July 31, 2005 and
100,000 warrants at $0.50 per share which expire on November 14, 2005. The
exercise prices for these warrants were equal to the fair market value of
Cycomm's common stock on the date the warrant grants were authorized.
<PAGE>
Page 16
PLAN OF DISTRIBUTION
The selling shareholders may offer their shares for sale from time to
time in transactions for their own accounts to or through broker-dealers on
OTCBB at prevailing market prices or at negotiated prices. The
broker-dealers may receive discounts, commissions or concessions from the
selling shareholders or from the broker-dealers' customers who purchase the
shares. The selling shareholders and the broker-dealers who sell the shares
may be deemed "underwriters" within Section 2(11) of the Securities Act of
1933 and any discounts, commissions or concessions received by them may be
deemed "underwriting compensation" under that Act. The selling shareholders
will receive all of the proceeds of the sales. We will not receive any of
these proceeds. We will bear all of the expenses of the registration
statement of which this prospectus is a part.
SELLING SHAREHOLDERS
The following table identifies the Selling Shareholders as of December
31, 2000, and indicates for each beneficial owner (i) the number of shares
and the percentage of the outstanding shares beneficially owned before the
offering, (ii) the number of shares to be offered and sold, and (iii) the
number of shares and the percentage of the outstanding shares to be owned
after the offering is complete.
<TABLE>
<CAPTION>
Name of Beneficial Shares Owned Shares to be Beneficial Shares Owned
Selling Prior to Offering(1) Offered(1) After Offering(2)
Shareholder
Number Percent Number Percent
Thompson
<S> <C> <C> <C> <C> <C>
Kernaghan 6,500,000 4.4% 6,500,000(3) 0 0%
Williams de
Broe, PLC 1,320,000 3.3% 1,320,000(4) 0 0
</TABLE>
(1) As to each person or entity named as beneficial owner, the percentage
of ownership is determined by assuming that any options, warrants and
Series B preferred stock held which are exercisable or convertible within
60 days from the date hereof have been exercised or converted, as the case
may be.
(2) Unless otherwise indicated, assumes the exercise, conversion and sale
of all shares being offered by the named Selling Security Holders.
(3) Includes up to 5,400,000 shares that may be issued upon conversion of Series
F preferred stock and 1,100,000 shares related to warrants.
(4) Includes 1,000,000 shares related to private offerings and 320,000
shares related to warrants.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1999 and 1998, and for each of the years
then ended, as set forth in their report. We've included our financial
statements in the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
LEGAL MATTERS
Hirst & Applegate, 200 Boyd Building, Cheyenne, Wyoming will pass upon
the validity of the shares of common stock offered in this prospectus.
<PAGE>
Page 17
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. The Montreal lease expires March 31,
2008, the Melbourne lease expires May 31, 2001and the McLean facility is
under a sub-lease which expires March 31, 2001.
LEGAL PROCEEDINGS
On May 24, 1999, Cycomm entered into a settlement agreement with the
trustee in bankruptcy of M3i Technologies, Inc., a Quebec corporation.
Cycomm was the defendant in a case alleging breach of contract and
misrepresentation in connection with the "earn out" provision of the asset
purchase agreement in Cycomm's purchase of its Cycomm Mobile Solutions
subsidiary. Under the terms of the agreement, Cycomm can fulfill its
obligation to the Seller if payments are made before certain dates as
specified in the agreement. Cycomm has a balance of $300,000 which was due
on December 31, 2000. Cycomm is negotiating an extension and/or payment of
this balance. If the payment is not extended, Cycomm will be obligated to pay
$700,000 by April 30, 2001 or $1,100,000 prior to April 30, 2002.
On June 15, 1999, Cycomm entered into a settlement agreement with
Infotech International, a Florida corporation involved in the resale of the
our 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 is currently in default
of this payment schedule.
A lawsuit was instituted against the 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 alleges breach of contract in connection with the
severance provisions of Mr. Gangemi's employment agreement with Cycomm Secure
Solutions, and seeks damages of approximately $77,000 and other relief.
Cycomm denies any wrongdoing and liability and intends to vigorously defend
the allegations.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC").
You may read and copy any document we file at the SEC's public reference
rooms in Washington, DC, New York, New York and Chicago, Illinois. The SEC
public reference room in Washington, DC is located at 450 Fifth Street, N.W.,
Washington, D.C. 20549-1004. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to you free of charge at the SEC's web site at http:/www.sec.gov.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Provisions of the Wyoming Business Corporation Act and Cycomm's Bylaws
provide indemnification for directors, officers and controlling persons of
Cycomm against certain liabilities, including liability under the Securities
Act of 1933, under certain circumstances. Insofar as indemnification for
liabilities arising under that Act may be permitted to such persons, Cycomm
has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in that Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
<PAGE>
Page 18
liabilities (other than the payment of expenses incurred or paid in the
successful defense of any action) is asserted by such persons in connection
with this registration statement, unless Cycomm's counsel is of the opinion
that the matter has been settled by controlling precedent, Cycomm will submit
to a court the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of that question.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
Financial Statements
Interim Financial Statements (unaudited):
Consolidated Balance Sheet as of September 30, 2000 19
Consolidated Statements of Operations for the Quarters Ended
September 30, 2000 and September 30, 1999 20
Consolidated Statements of Cash Flows for the Quarters Ended
September 30, 2000 and September 30, 1999 22
Notes to the Consolidated Interim Financial Statements 23
Annual Financial Statements:
Report of Independent Auditors 29
Consolidated Balance Sheets as of December 31, 1999 and
December 31, 1998 30
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and December 31, 1998 31
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and December 31, 1998 32
Notes to the Consolidated Financial Statements 34
<PAGE>
Page 19
<TABLE>
<CAPTION>
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
September 30,
2000
ASSETS (Unaudited)
Current assets:
<S> <C>
Cash and cash equivalents $202,416
Accounts receivable, less allowance for doubtful
accounts of $199,000 and $254,000, respectively 184,814
Inventories, net of allowance for obsolete
inventory of $111,513 and $131,339, respectively 1,567,530
Deposits with suppliers 310,035
Foreign taxes receivable 274,934
Other current assets 127,592
---------
Total current assets 2,667,321
Fixed assets, net 238,311
Other assets 3,993
----------
$2,909,625
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable- trade $1,061,090
Accrued liabilities 453,771
Acquisition earn-out obligation 500,000
Dividends payable on preferred stock 25,945
Current portion of capital lease obligations 3,280
Revolving credit facility 305,131
---------
Total current liabilities 2,349,217
Capital lease obligations, less current portion 5,709
Stockholders' equity:
Series B Preferred Stock, $50,000 par value,
unlimited authorized shares, 2 shares issued
and outstanding at September 30, 2000 and
December 31, 1999 90,000
Common Stock, no par value, unlimited authorized
shares, 27,014,475 and 16,807,696 shares issued
and outstanding at September 30, 2000 and
December 31, 1999 63,120,977
Notes receivable - stockholders (64,816)
Accumulated deficit (62,591,462)
-----------
Total stockholders' equity 554,699
-----------
$2,909,625
===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Page 20
<TABLE>
<CAPTION>
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999 (UNAUDITED)
Quarter Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Sales $454,711 $219,822 $3,167,705 $2,123,815
Cost of sales 607,927 186,297 2,579,573 1,737,069
------- ------- --------- ---------
Gross profit (153,216) 33,525 588,132 386,746
Expenses
Selling, general and
administrative 943,447 755,386 2,687,228 2,847,453
Research and product
development 158,904 103,118 533,546 457,257
Depreciation and
amortization 36,842 86,826 91,962 531,860
--------- ------- --------- ---------
1,139,193 945,330 3,312,736 3,836,570
--------- ------- --------- ---------
Loss from Operations (1,292,409) (911,805) (2,724,604) (3,449,824)
Other Income (Expense)
Interest income 7,084 1,661 37,129 10,694
Interest expense (99,113) (138,207) (307,655) (338,736)
Other income --- 110,000 4,585 110,000
------- ------- -------- --------
(92,029) (26,546) (265,941) (218,042)
Loss from continuing
operations $(1,384,438) $(938,351) $(2,990,545) ($3,667,866)
=========== ========= =========== ===========
Discontinued operations
Income from operations of
discontinued operation
Val-Comm Inc. --- 4,872 --- 112,163
Gain on disposal of
Val-Comm Inc. --- 265,746 --- 265,746
Income (loss) from
operations of discontinued
operation Cycomm Secure
Solutions, Inc. --- --- --- (1,613,044)
Loss on disposal of
discontinued operation:
Cycomm Secure Solutions Inc. --- --- --- (1,535,643)
Gain on dissolution of
discontinued operation:
Cycomm Secure Solutions,
Inc. --- --- 1,119,273 ---
---------- -------- ---------- ----------
Net income (loss) (1,384,438) (667,733) (1,871,272) (6,438,644)
========== ======== ========== ==========
Beneficial return on
preferred shares --- (54,333) --- (63,666)
----------- --------- ---------- ----------
Net income (loss)
attributable to
common stockholders ($1,384,438) $(722,066) $(1,871,272) $(6,502,310)
=========== ========= =========== ===========
<PAGE>
Page 21
Earnings Per Share
Loss per share from
continuing operations ($0.05) ($0.07) ($0.12) ($0.29)
Income (loss) per share
from discontinued
operations: Val-Comm
Inc. --- $0.00 --- $0.01
Income per share on
disposal of
Val-Comm Inc. --- $0.02 --- $0.02
Loss per share from
discontinued Cycomm
operations:
Secure Solutions --- --- --- ($0.13)
Loss per share on
disposal of Cycomm
Secure Solutions --- --- --- ($0.12)
Income per share on
dissolution of
discontinued operation:
Cycomm Secure
Solutions, Inc. --- --- $0.04 ---
Net loss per share
attributable to
beneficial return on
preferred shares --- $0.00 --- $0.00
----- ----- ----- -----
Net income (loss) per share
attributable to common
shareholders $(0.05) $(0.05) $(0.07) $(0.51)
====== ====== ====== ======
Weighed average number
of common
shares outstanding 27,628,343 13,345,435 25,136,885 12,760,550
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Page 22
<TABLE>
<CAPTION>
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
(UNAUDITED)
Nine Months Ended
September 30, September 30,
2000 1999
Operating activities
<S> <C> <C>
Net loss from continuing operations ($2,990,544) (3,667,866)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 91,962 531,861
Non-cash compensation --- 88,000
Change in operating assets and
liabilities (1,191,221) 2,643,811
---------- ---------
Cash provided by (used in)
operating activities (4,089,803) (404,194)
---------- ---------
Investing activities
Acquisition of fixed assets (33,838) ---
Increase in notes receivable --- (4,000)
Decrease in notes receivable --- 2,000
Proceeds from sale of marketable
securities --- 361,260
------- -------
Cash used in investing activities (33,838) 359,260
------- -------
Financing activities
Issuance of common stock 4,840,000 999,329
Exercise of stock options 74,999 ---
Issuance of preferred stock --- 516,000
Borrowings under revolving credit
facility (609,973) (1,317,416)
Borrowings under convertible
debentures --- 500,000
Repayment of notes payable --- (15,777)
Repayment of obligations under
capital leases (1,836) (8,878)
--------- -------
Cash (used in) provided by
financing activities 4,303,190 673,258
--------- -------
Discontinued operations
Proceeds from sale of
discontinued operation:
Cycomm Secure Solutions Inc. --- 800,000
Cash used in discontinued
operation: Cycomm Secure
Solutions Inc. --- (1,743,677)
Proceeds from sale of
discontinued operation:
Val-Comm, Inc. --- 188,000
Cash provided by
discontinued operation:
Val-Comm, Inc. --- 68,788
------- -------
Decrease (increase) in cash
and cash equivalents
during the period 179,549 (58,565)
Cash and cash equivalents,
beginning of period 22,867 567,977
-------- --------
Cash and cash equivalents, end of period $202,416 $509,412
======== ========
Supplemental cash flow information:
Interest paid $330,314 $281,000
Income taxes paid $ --- $ ---
Non-cash investing and
financing activities:
Conversion of convertible
debentures to common stock $517,452 $ ---
Conversion of preferred
stock to common stock $3,289,112 $346,590
Conversion of convertible
debentures to preferred stock $3,000,000 $ ---
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Page 23
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2000
NOTE 1 - GENERAL
The interim financial information furnished herein was prepared from the
books and records of Cycomm International Inc. and its subsidiaries
("Cycomm") as of September 30, 2000 and for the periods ended September 30,
2000 and 1999, without audit; however, such information reflects all normal
and recurring accruals and adjustments which are, in the opinion of
management, necessary for a fair presentation of financial position and of
the statements of operations and cash flows for the interim period presented.
The interim financial information furnished herein should be read in
conjunction with the consolidated financial statements included in this
report and the consolidated financial statements and notes contained in
Cycomm's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1999. The interim financial information presented is not necessarily
indicative of the results from operations expected for the full fiscal year.
The Company's 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. The Company
incurred a net loss from continuing operations of $6,241,703 for the year
ended December 31, 1999 and as of that date had a working capital deficit of
$2,886,204 and an accumulated deficit of $60,644,958. Further, the Company
was not in compliance with the terms of its debt agreements at December 31,
1999. These factors raise substantial doubt about the Company's ability to
continue as a going concern.
Management has taken several steps towards addressing the going concern
issue. In 1999, Cycomm sold two of its subsidiaries, Cycomm Secure
Solutions Inc. ("CSS"), which was based in Sebastian, Florida, and Val-Comm,
Inc. ("Val-Comm") which was based in Albuquerque, New Mexico. The sale of
these divisions provided capital to repay debt and allowed Cycomm to focus
exclusively on its PCMobile division, which has shown potential for future
growth and profitability. Cycomm has raised additional capital, which has
been used to expand production capabilities and to fund operations. The
Company has also made reductions in overhead and managerial headcount.
In order for Cycomm to improve operating results and cash flows in the year
2000, management has implemented plans to increase revenue. Cycomm's plans
include increasing overall marketing efforts, hiring additional salespeople
and allowing more resellers to offer our products. The increase in
marketing will be primarily through print and electronic advertising and by
attendance at national and regional trade shows. Management believes that
the increased visibility of the PCMobile products through our marketing
efforts will generate leads for our salespeople and resellers, which will
translate into increased sales for Cycomm.
Increased sales levels will enable Cycomm to fund its operations through
borrowings on its secured line of credit. Under this line of credit, Cycomm
can borrow up to $4,000,000. The line of credit is collateralized by
Cycomm's accounts receivable, inventory and all other assets. The line of
credit is a demand facility, which is callable by the lender.
In the event that Cycomm is unable to adequately increase sales levels to
fund itself through operations, management plans to raise capital through
private equity placements. Cycomm has historically been able to raise
capital through private equity placements and debenture issuances. During
1999, the Company raised $2,254,842 in private equity placements and $500,000
through the issuance of a convertible debenture. Subsequent to December 31,
1999, Cycomm has raised $4,840,000 in private equity placements.
These consolidated financial statements do not give effect to any adjustments
which would be necessary should the Company 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 the Company is unable to achieve its plans to
fund operations, the Company will consider further cost reductions and may be
required to seek protection under the United States Bankruptcy Code.
<PAGE>
Page 24
Recent Pronouncements
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, (SAB 101). SAB 101 requires that four
basic criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists, (2) delivery has occurred or services
rendered, (3) the fee is fixed and determinable, and (4) collectibility is
reasonably assured. Cycomm is required to comply with SAB 101 no later than
the fourth fiscal quarter of fiscal years beginning after December 15, 1999,
but does not expect it to have a material impact on the Cycomm's financial
statements.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities", an amendment of SFAS
No. 133, which is effective for fiscal years beginning after June 15, 2000.
Cycomm does not anticipate that the adoption of SFAS No. 133, as amended,
will have a significant effect on its financial statements.
NOTE 2: DISCONTINUED OPERATIONS
Cycomm Secure Solutions Inc.
On March 4, 1999, Cycomm signed a letter of intent for the sale of the assets
of its secure computing subsidiary, Cycomm Secure Solutions Inc. ("CSS").
The asset sale was completed on June 21, 1999. The results of operations for
CSS are reported as discontinued operations for all periods presented. For
the period ended March 4, 1999, the results of CSS included a write-off of
goodwill of $1,220,190. The results of operations for Cycomm Secure
Solutions Inc. for the period ended March 4, 1999 are summarized as follows:
<TABLE>
<CAPTION>
January 1, 1999
to March 4, 1999
<S> <C>
Revenue $1,837,889
Cost of Sales 1,354,200
---------
Gross profit (loss) 483,689
Operating Expenses 2,096,733
------------
Net loss ($1,613,044)
===========
Net loss per share ($0.12)
======
</TABLE>
The assets sold included inventory, fixed assets and various intangibles and
other assets and had a carrying value of $2,333,779 as of June 21, 1999.
Proceeds on the sale of CSS's assets were used to repay a portion of CSS'
bank debt and to satisfy CSS' lease and property tax obligations. Cycomm
recognized a net loss on disposal of $1,535,643 on the sale of CSS' assets.
Included in the net loss was a gain of $278,297 on the settlement of an
operating lease obligation.
On June 29, 2000, Cycomm completed the legal dissolution of its CSS
subsidiary. As a result of the dissolution, Cycomm is not entitled to
receive any assets generated in the future by CSS, and is not liable for any
present or future unsatisfied claims of CSS' creditors. Cycomm recognized a
gain of $1,119,273 related to the dissolution of CSS.
<PAGE>
Page 25
Val-Comm Inc.
In April 1999, the Company entered into an agreement to sell its secure
telecommunications subsidiary, Val-Comm Inc. to an individual investor in
Val-Comm's geographical area. The transaction was structured as a stock
purchase, and was completed on August 21,1999. The results of operations for
Val-Comm are reported as discontinued operations for the quarter ended
September 30, 1999 and the nine months ended September 30, 1999, and are
summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, 1999 September 30, 1999
<S> <C> <C>
Revenue $209,132 $1,001,733
Cost of Sales 121,107 570,510
------- -------
Gross profit (loss) 88,025 431,223
Operating Expenses 83,153 319,060
------ -------
Net income $ 4,872 $112,163
======== ========
Net income per share $0.00 $0.01
===== =====
</TABLE>
The net book value of Val-Comm's assets on August 21, 1999 was $484,254. The
selling price of Val-Comm consisted of an initial payment of $750,000 and a
contingent promissory note of $1.5 million. The promissory note is
contingent upon Val-Comm getting a follow-on award to an existing contract.
The contingent promissory note bears interest at 7%, and is payable over two
years should payment be required, with 50% of the note due on August 21, 2000
and the balance of the note due on August 21, 2001. Cycomm recognized a gain
on the sale of Val-Comm of $265,746.
The initial payment of $750,000 was made with $188,000 in cash and with
stock in the purchaser's company that was valued at $900,000 at the
time of the purchase. The stock was to be sold by an independent third
party, and the proceeds were to be paid to Cycomm. As of September 30,
2000, Cycomm had received proceeds of $496,034 from the sale of the
purchaser's stock. The total amount due from the purchaser on the
initial payment is $65,966 as of September 30, 2000 and is included in
other current assets.
As of September 30, 2000, Val-Comm has not been awarded the follow-on
contract specified in the contingent promissory note. Val-Comm's
management does not anticipate that the contingency will be satisfied
in order to require payments to be made pursuant to the contingent
promissory note.
NOTE 3: ACQUISITION EARN-OUT
In connection with the purchase price paid for the Company's acquisition of
its Cycomm Mobile Solutions subsidiary, the Company entered into an
acquisition earn-out agreement with the seller, M3i Technologies Inc. and M3i
Systems Inc. (collectively the "Seller"). The earn-out provision of the
purchase price was to be paid in Cycomm common stock, up to a maximum value
of $4,000,000, subject to provisions based on the achievement of certain unit
sales volumes for a five year period. Common stock issued under the earn-out
provisions was to be issued at the average current market price of the last
month for the quarter in which it was earned. As of September 30, 2000,
Cycomm had paid $1,354,796 of contingent consideration, which was paid in
444,862 shares of common stock.
The Company and the Seller were parties to a lawsuit regarding the
interpretation of the earn-out agreement. On May 24, 1999, the Company and
the Seller entered into a complete settlement of the litigation. Under the
terms of the agreement, the Company could fulfil its obligation to the Seller
if payments were made before certain dates as specified in the agreement.
The Company could elect to pay $700,000 by April 30, 2000, $1,100,000 by
April 30, 2001 or $1,500,000 prior to April 30, 2002. The settlement
agreement was amended on February 3, 2000 to allow Cycomm until December 31,
2000 to pay $700,000 in full and final settlement of the obligation, to be
paid in accordance with a payment schedule. Management anticipates that the
liability to the Seller will be paid prior to December 31, 2000 in accordance
with the payment schedule. The first scheduled payment of $100,000 was made
on February 7, 2000, and the second payment of $100,000 was made on May 11,
2000. Cycomm has recorded an accrued liability of $500,000 as of September
30, 2000. In conjunction with the settlement, the Company issued 200,000
warrants to the Seller with a fair value on the date of issuance of
<PAGE>
Page 26
$88,000. It was considered part of the purchase price and subsequently
written off in conjunction with goodwill impairment charge (See Note 6:
Impairment of Goodwill).
NOTE 4: DELISTING FROM THE AMERICAN STOCK EXCHANGE
On January 21, 1999, Cycomm was notified by the American Stock Exchange that
it no longer met continued listing criteria and would be delisted.
Specifically, Cycomm had incurred losses in its last five fiscal years and
therefore failed to meet the American Stock Exchange listing requirement of
pre-tax income of at least $750,000 in its last fiscal year, or in two of its
last three fiscal years. Additionally, Cycomm failed to satisfy the minimum
stockholders' equity requirement of $4 million. Trading of Cycomm's stock
was suspended on April 13, 1999 and Cycomm was delisted from the AMEX on
April 30, 1999. Cycomm began trading on the Over-the-Counter Bulletin Board
(OTCBB) on May 5, 1999 under the symbol "CYII".
NOTE 5: DEFERRED REVENUE
Cycomm recorded deferred revenue related to sales in which customers were
shipped PCMobiles with 586 processors (the "586s") to be used until PCMobiles
with Pentium processors (the "Pentiums") became available. At the time the
shipments were made, Cycomm was still in the process of developing the
Pentium PCMobile, however the customers agreed to take 586s until Cycomm was
able to deliver Pentiums. The customers paid the full price for Pentiums at
the time of the shipment, which was recorded as deferred revenue. When the
Pentiums became available, the customers could trade in the 586s for Pentiums
at no additional charge. The customers retained the right to return the 586s
at any time before they received the Pentiums. Upon the return of the 586s,
the customers would be entitled to a full refund, and the entire sale would
be cancelled.
The 586s were classified as demonstration units, and were recorded in
inventory and depreciated over a one year period. All demonstration
units were fully depreciated during the year ended December 31, 1999.
No depreciation expense was recorded on the demonstration units for the
quarter ended September 30, 1999. Depreciation expense on
demonstration units was $208,075 for the nine months ended September
30, 1999.
Revenue on the sales is recognized when the Pentium units are shipped
to the customers. No Pentium units were shipped to customers in the
quarters ended September 30, 2000 and September 30, 1999. For the nine
months ended September 30, 2000 and September 30, 1999, Cycomm
recognized revenue of $185,207 and $168,606, respectively.
On April 4, 2000, Cycomm entered into an agreement under which a
customer agreed to keep the 586 units originally delivered, instead of
trading the units for Pentiums. The customer agreed to forfeit its
right to trade in the units in exchange for the forgiveness of $278,818
owed to Cycomm. Cycomm also provided the customer with 15 additional
PCMobile units at no additional cost. As a result of this settlement,
Cycomm recognized deferred revenue of $581,134 in the nine months ended
September 30, 2000.
NOTE 6: IMPAIRMENT OF GOODWILL
In 1999, Cycomm made the determination that the value of goodwill related to
the acquisition of Cycomm Mobile Solutions ("CMS") was impaired. CMS has a
history of losses and negative cash flows from operations. Cycomm recorded
an impairment charge of $838,202 in the year ended December 31, 1999 to fully
write down goodwill related to CMS due to the fact that the carrying value of
that asset was in excess of its fair value.
<PAGE>
Page 27
NOTE 7: INVENTORIES
The following is a summary of inventories at September 30, 2000 and December
31, 1999:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
<S> <C> <C>
Raw materials $1,284,802 $841,910
Work in process and sub-assemblies 339,589 122,160
Finished goods 54,652 11,326
Allowance for obsolete inventory (111,513) (131,339)
---------- --------
$1,567,530 $844,057
========== ========
</TABLE>
Cycomm continually evaluates inventory for obsolescence or impairment in
value. The impairment loss is measured by comparing the carrying amount of
the inventory to its fair value with any excess of carrying value over fair
value reserved. Fair value is based on market prices where available, or on
an estimate of market value, or determined by various valuation techniques
including discounted cash flow.
NOTE 8: NOTES PAYABLE AND CONVERTIBLE DEBENTURES
Notes payable and convertible debentures are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
<S> <C> <C>
7% convertible debentures, due May 1, 2000 $ --- $3,000,000
7% convertible debenture, due September 20, 2004 --- 500,000
Revolving credit facility, prime + 3% 305,131 915,104
- ------- -------
305,131 4,415,104
Less current portion 305,131 915,104
-------- ----------
$ --- $3,500,000
======== ==========
</TABLE>
On February 28, 1997, Cycomm issued $3,000,000 of 10% convertible debentures
due February 28, 1999 which were convertible at the option of the holders
into Cycomm's common stock. On March 31, 2000, Cycomm entered into an
agreement with the debenture holders under which the debentures were sold to
a third party, who was assigned all rights privileges and obligations of the
original holders. Concurrent with the sale, Cycomm entered into an agreement
with the new holders under which the debentures were converted into preferred
stock of Cycomm. The debentures were converted into 30 shares of Series E
convertible redeemable preferred stock ("Series E preferred stock") with a
conversion value of $100,000 per share. The Series E preferred stock was
convertible at any time at the option of the holder. The conversion price
was equal to the average closing bid price of Cycomm's stock for the 20 days
prior to the date of conversion. The Series E preferred stock could not be
converted for less than $2.00 per share. The Series E preferred stock
accrued dividends at 7% per annum, which could be paid in cash or in common
stock at the option of the Company. The Series E preferred stock was
redeemable at Cycomm's option at a price equal to conversion price on the
date of redemption. The Series E preferred stock had no mandatory redemption
provisions. See Note 9: Capital Stock for further discussion of the Series E
preferred stock.
On September 20, 1999, the Company issued a $500,000 7% convertible debenture
due September 20, 2004 which was convertible at the option of the holder into
Cycomm's common stock at the lesser of $0.50 per share or the average closing
bid price of Cycomm's common stock for the 5 days prior to conversion. On
March 30, 2000, the debenture and was converted. At the time of conversion,
the debenture had earned accrued interest of $17,452. The principal and
accrued interest were converted into 1,034,904 shares of common stock.
<PAGE>
Page 28
Cycomm has a revolving credit facility from a lender under which Cycomm
may, at its option, borrow and repay amounts up to a maximum of
$4,000,000. As of September 30, 2000, the available borrowing base on
the revolving credit facility was $348,625. Borrowings under this
credit facility bear interest at prime plus 3%. The credit facility is
collateralized by the trade accounts receivable, inventory and other
assets of Cycomm Mobile Solutions. As of September 30, 2000, the
amount outstanding on the credit facility was $305,131.
NOTE 9: CAPITAL STOCK
Common Stock
In January 2000, Cycomm raised capital through three separate private
equity placements of its common stock. The equity placements were
priced at the market price of Cycomm's common stock on the date of the
letter of intent. The market price of Cycomm's common stock increased
prior to the date of issuance, causing the private equity placements to
be issued at a discount to the market price. In total, the Cycomm
issued 6,200,000 shares of common stock for gross proceeds of
$3,170,000. Cash proceeds, after commissions and issue costs were
$3,060,000. In conjunction with these private placements, Cycomm issued
5,000,000 warrants to the purchasers, with a fair value on the date of
issuance of approximately $8,736,500.
On May 8, 2000, Cycomm raised capital through a private equity
placement of its common stock. The stock was issued at a discount to
the market price on the date of the issuance. In total, Cycomm issued
1,200,000 shares of common stock for gross proceeds of $1,200,000.
Cash proceeds, after commissions and issue costs were $1,080,000.
Five shares of Series B convertible preferred shares and related accrued
dividends were converted into 431,759 shares of common stock during the nine
months ended September 30, 2000. There are two shares of Series B
convertible preferred stock outstanding as of September 30, 2000, with a
combined face value of $100,000 and accrued dividends of $25,945. Dividends
can be paid in cash or in common stock at the option of Cycomm.
On March 30, 2000, the $500,000 7% convertible debenture due September 20,
2004 was converted into common stock of the Company. At the time of
conversion, the debenture had earned accrued interest of $17,452. The
principal and accrued interest were converted into 1,034,904 shares of common
stock.
On January 21, 2000, Cycomm cancelled 205,717 shares of its common stock that
had been issued in settlement of a vendor obligation of $77,144, and issued
400,000 shares in full settlement of an obligation of $161,223.
On January 13, 2000, Cycomm issued 145,833 shares of common stock upon the
exercise of non-employee stock options for proceeds of $74,999.
On July 31, 2000, Cycomm raised capital through a private equity placement of
its common stock. The stock was issued at a discount to the market price on
the date of the issuance. Cycomm issued 333,334 shares of common stock for
proceeds of $250,000. In conjunction with this private placements, Cycomm
issued 33,000 warrants to the purchasers, with an exercise price of $0.75 per
share.
On September 11, 2000, Cycomm raised capital through a private equity
placement of its common stock. The stock was issued at a discount to the
market price on the date of the issuance. Cycomm issued 666,666 shares of
common stock for gross proceeds of $500,000. Cash proceeds, after
commissions and issue costs were $450,000.
Preferred Stock
On March 31, 2000, Cycomm issued 30 shares of Series E convertible redeemable
preferred stock ("Series E preferred stock") with a conversion value of
$100,000 in conjunction with the conversion of the $3,000,000 7% convertible
debentures due May 1, 2000 (See Note 8: Notes Payable and Convertible
Debentures). The conversion price was equal to the average closing bid price
of the Company's stock for the 20 days prior to the date of conversion. The
Series E preferred stock could not be converted for less than $2.00 per
share. The Series E preferred stock accrued dividends at 7% per annum, which
could be paid in cash or in common stock at Cycomm's option. The Series E
preferred stock was redeemable at Cycomm's option at a price equal to
conversion price on the date of redemption. The Series E preferred stock had
no mandatory redemption provisions.
<PAGE>
Page 29
In the quarter ended September 30, 2000, 10 shares of Series E preferred
stock were converted into 500,000 shares of Cycomm's common stock. Accrued
dividends of $63,017 were paid with the issuance of 31,507 shares of Cycomm's
common stock. As of September 30, 2000, no shares of Series E preferred
stock were outstanding.
NOTE 10: SEGMENT AND RELATED INFORMATION
The results of operations by geographic region for the quarters ended
September 30, 2000 and 1999, and the nine months ended September 30, 2000 and
1999 are as follows:
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
Sales
<S> <C> <C> <C> <C>
United States $438,394 $ 199,886 $2,786,758 $2,034,786
Canada 16,317 19,936 380,947 89,029
-------- --------- ---------- ----------
$454,711 $ 219,822 $3,167,705 $2,123,815
======== ========= ========== ==========
Loss from Operations
United States $ (794,559) $ (627,759) $(1,795,245) $(2,377,608)
Canada (497,850) (284,046) (929,359) (1,072,216)
----------- ---------- ----------- -----------
$(1,292,409) $ (911,805) $(2,724,604) $(3,449,824)
=========== ========== =========== ===========
</TABLE>
NOTE 11: EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net earnings by the
weighted average number of common shares outstanding during the related
periods. Diluted earnings per share is calculated by dividing net earnings
by the weighted average number of common shares outstanding during the
related periods plus the incremental shares that would have been outstanding
upon the assumed exercise of eligible stock options, warrants and the
conversion of convertible preferred stock. For the periods ended September
30, 2000 and September 30, 1999, the effect of the exercise of stock options,
warrants and the conversion of preferred stock would be anti-dilutive,
causing diluted earnings per share to equal basic earnings per share as
disclosed in the consolidated statements of operations.
NOTE 12: SUBSEQUENT EVENTS
On October 31, 2000, Cycomm entered into an agreement with the Seller of its
Cycomm Mobile Solutions subsidiary (See Note 3: Acquisition Earn Out). Under
the terms of this agreement, the parties amended the settlement payment
schedule to allow Cycomm to satisfy its October 31, 2000 payment obligation
in stock instead of cash. Under the original terms of the payment plan,
Cycomm was required to pay $200,000 in cash to the seller on October 31,
2000. Cycomm and the Seller are currently negotiating the number of shares
to be issued in satisfaction of this payment.
On November 13, 2000, Cycomm received $500,000 in the sale of its
common stock. The stock was issued at a discount to the market price
on the date of the issuance. In total, Cycomm issued 1,000,000 shares
of common stock for total proceeds of $500,000. Cash proceeds, after
commissions and issue costs were $450,000. In conjunction with this
private equity placement, Cycomm issued 100,000 warrants to purchase
Cycomm's common stock with an exercise price of $0.65 per share.
As of December 31, 2000, Cycomm received $1,100,000 through the sale
of Preferred Stock. The Preferred Stock accrues a dividend of 8% per annum
and may be converted into shares of common stock at a discount to market.
Cash proceeds, after commissions, was $890,000. In connection with the
private placement, Cycomm issued 1.1 million warrants to purchase Cycomm's
common stock with an exercise price of $0.32.
<PAGE>
Page 30
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Cycomm International Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Cycomm
International Inc. and subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the two years in the period ended December 31,
1999. 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, 1999 and 1998
and the consolidated results of their operations and their cash flows for
each of the two years in the period ended December 31, 1999, 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, 1999. 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
April 6, 2000 /s/ Ernst & Young LLP
<PAGE>
Page 31
<TABLE>
<CAPTION>
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1999 1998
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $22,867 $567,977
Accounts receivable, less allowance for doubtful
accounts of $254,000 and $61,000, respectively 1,200,771 2,251,818
Inventories, net of allowance for obsolete
inventory of $131,339 and $172,096, respectively 844,057 1,772,861
Net assets held for sale from discontinued
operation: Cycomm Secure Solutions Inc. --- 1,457,151
Net assets held for sale of discontinued
operation: Val Comm, Inc. --- 374,913
Other current assets 576,894 407,011
--------- ---------
Total current assets 2,644,589 6,831,731
Equipment, net 269,780 363,264
Goodwill, net of accumulated amortization of
$2,115,907 for the year ended December 31, 1998 --- 2,175,400
Other assets:
Deferred financing costs, net of accumulated
amortization of $407,978 for the year ended
December 31, 1998 --- 31,701
Other 30,648 224,850
---------- ---------
Total assets $3,005,528 $9,695,858
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable - trade $2,416,883 $2,191,026
Accrued liabilities 692,324 394,014
Acquisition earn-out obligation 700,000 700,000
Deferred revenue 770,122 934,948
Dividends payable on preferred stock 33,575 33,333
Current portion of capital lease obligations 2,785 22,418
Revolving credit facility 915,104 1,959,545
Current portion of notes payable and convertible
debentures --- 3,015,777
--------- ---------
Total current liabilities 5,530,793 9,251,061
Capital lease obligations, less current portion 8,041 10,826
Convertible debentures, subsequently converted into
preferred stock 3,000,000 ---
Convertible debentures, subsequently converted into
common stock 500,000 ---
Stockholders' equity (deficit):
Preferred stock, $50,000 par value, unlimited
authorized shares, 7 and 8 shares issued
and outstanding at December 31, 1999 and
December 31, 1998, respectively 296,250 360,000
Common stock, no par value, unlimited authorized
shares, 16,807,696 and 12,210,311 shares issued
and outstanding at December 31, 1999 and
December 31, 1998, respectively 54,315,402 51,674,618
Notes receivable - stockholders (60,511) (68,912)
Accumulated deficit (60,644,958) (51,600,647)
----------- -----------
Total stockholders' equity (deficit) (6,093,817) 365,059
---------- ---------
Total liabilities and stockholders' equity (deficit) $2,945,017 $9,626,946
========== ==========
</TABLE>
(See accompanying notes)
<PAGE>
Page 32
<TABLE>
<CAPTION>
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended Year ended
December 31, December 31,
1999 1998
<S> <C> <C>
Sales $3,263,178 $13,233,672
Cost of sales 3,012,410 9,830,620
--------- ---------
Gross profit 250,768 3,403,052
Expenses:
Selling, general and administrative 3,888,437 5,234,503
Research and product development 824,353 929,998
Depreciation and amortization 612,213 1,471,493
Other 863 (89,528)
-------- ---------
5,325,866 7,546,466
--------- ---------
Loss from Operations (5,075,098) (4,143,414)
Other Income (Expense)
Interest income 18,248 67,881
Interest expense (456,651) (292,176)
Goodwill impairment (838,202) ---
Other income
110,000 ---
--------- -------
(1,166,605) (224,295)
---------- --------
Loss from Continuing Operations (6,241,703) (4,367,709)
Discontinued Operations:
Income from operations of discontinued
operation: Val-Comm, Inc. 112,163 159,550
Gain on disposal of discontinued operation:
Val-Comm, Inc. 265,746 ---
Loss from operations of discontinued
operation: Cycomm Secure Solutions Inc. (1,613,044) (4,087,890)
Loss on disposal of discontinued operation:
Cycomm Secure Solutions Inc. (1,535,643) ---
--------- ---------
Net loss (9,012,481) (8,296,049)
Beneficial return on preferred shares (100,000) (150,000)
--------- ---------
Net loss attributable to common stockholders $(9,112,481) $(8,446,049)
=========== ===========
Earnings per share - basic and diluted
Loss per share from continuing operations $(0.46) $(0.40)
Income per share from discontinued operation
Val-Comm, Inc. 0.01 0.01
Income per share on disposal of Val-Comm, Inc. 0.02 ---
Loss per share from discontinued operation
Cycomm Secure Solutions Inc. (0.12) (0.38)
Loss per share on disposal of Cycomm Secure
Solutions Inc. (0.11) ---
Net loss per share attributable to beneficial
return on preferred shares (0.01) (0.01)
----- -----
Net loss per share attributable to common
stockholders $(0.67) $(0.78)
====== ======
Shares used in the calculation of basic and
diluted net loss per share 13,694,064 10,835,688
========== ==========
</TABLE>
(See accompanying notes)
<PAGE>
Page 33
<TABLE>
<CAPTION>
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended
December 31, December 31,
1999 1998
Operating activities
<S> <C> <C>
Net loss $(6,241,703) $(4,367,709)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 612,213 1,471,493
Non-cash compensation 263,458 450,000
Goodwill impairment 838,202 ---
Change in operating assets and liabilities 2,490,637 970,027
--------- ---------
Cash used in operating activities (2,037,193) (1,476,189)
---------- ----------
Investing activities
Acquisition of equipment --- (162,469)
Increase in notes receivable (4,000) (66,000)
Decrease in notes receivable 2,000 50,249
Proceeds from sale of marketable securities 496,034 ---
Other --- (112,874)
------- --------
Cash provided by (used in) investing activities 494,034 (291,094)
======= ========
Financing activities
Issuance of common stock, net of issuance costs 1,738,842 2,895,750
Issuance of preferred stock, net of issuance 516,000 900,000
costs
Net borrowings under revolving credit (1,044,441) (318,417)
facilities
Proceeds from issuance of convertible 500,000 ---
debentures
Repayment of notes payable and convertible (15,777) (173,575)
debentures
Deferred financing costs on convertible --- (30,000)
debentures
Repayment of obligations under capital leases (9,686) (3,998)
--------- ---------
Cash provided by financing activities 1,684,938 3,269,760
--------- ---------
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) (1,518,424)
Proceeds from sale of discontinued operation:
Val-Comm, Inc. 188,000 ---
Cash provided by discontinued operation:
Val-Comm, Inc. 68,788 74,344
-------- -------
(Decrease) increase in cash and cash equivalents
during the year (545,110) 58,397
Cash and cash equivalents, beginning of year 567,977 509,580
------- -------
Cash and cash equivalents, end of year $22,867 $567,977
======= ========
</TABLE>
(See accompanying notes)
<PAGE>
Page 34
<TABLE>
<CAPTION>
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Preferred Common Common Accumulated
Shares Stock Shares Stock Deficit
Balance,
<S> <C> <C> <C> <C> <C>
December 31, 1997 --- $ --- 9,816,877 $47,491,611 ($43,247,978)
Net Loss --- --- --- --- (8,296,049)
Issuance of
common stock:
Conversion
of debentures --- --- 236,380 273,970 ---
Private placement -
Common stock --- --- 1,870,000 2,895,750 ---
Value of options
issued to
non-employees --- --- --- 450,000 ---
Issuance of preferred
stock:
Private placement -
Preferred stock 20 900,000 --- --- ---
Conversion of
preferred stock (12) (540,000) 287,054 563,287
Dividends on
preferred stock --- --- --- --- (56,620)
--- ------- ---------- ---------- -----------
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)
=== ======= ========== =========== ===========
</TABLE>
(See accompanying notes)
<PAGE>
Page 35
CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1: NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Cycomm International Inc. (the "Company") is a manufacturer of wireless,
ruggedized mobile computers, branded under the name "PCMobile". The Company
is based in McLean, Virginia, with a manufacturing facility in Montreal,
Quebec and a repair and maintenance facility in Melbourne, Florida.
The Company's 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. The Company
incurred a net loss from continuing operations of $6,241,703 for the year
ended December 31, 1999 and as of that date had a working capital deficit of
$2,886,204 and an accumulated deficit of $60,644,958. Further, the Company
was not in compliance with the terms of its debt agreements at December 31,
1999. These factors raise substantial doubt about the Company's ability to
continue as a going concern.
Management has taken several steps towards addressing the going concern
issue. In 1999, Cycomm sold two of its subsidiaries, Cycomm Secure
Solutions Inc. ("CSS"), which was based in Sebastian, Florida, and Val-Comm,
Inc. ("Val-Comm") which was based in Albuquerque, New Mexico. The sale of
these divisions provided capital to repay debt and allowed Cycomm to focus
exclusively on its PCMobile division, which has shown potential for future
growth and profitability. Cycomm has raised additional capital, which has
been used to expand production capabilities and to fund operations. The
Company has also made reductions in overhead and managerial headcount.
In order for Cycomm to improve operating results and cash flows in the year
2000, management has implemented plans to increase revenue. Cycomm's plans
include increasing overall marketing efforts, hiring additional salespeople
and allowing more resellers to offer our products. The increase in
marketing will be primarily through print and electronic advertising and by
attendance at national and regional trade shows. Management believes that
the increased visibility of the PCMobile products through our marketing
efforts will generate leads for our salespeople and resellers, which will
translate into increased sales for Cycomm.
Increased sales levels will enable Cycomm to fund its operations through
borrowings on its secured line of credit. Under this line of credit, Cycomm
can borrow up to $4,000,000. The line of credit is collateralized by
Cycomm's accounts receivable, inventory and all other assets. The line of
credit is a demand facility, which is callable by the lender.
In the event that Cycomm is unable to adequately increase sales levels to
fund itself through operations, management plans to raise capital through
private equity placements. Cycomm has historically been able to raise
capital through private equity placements and debenture issuances. During
1999, the Company raised $2,254,842 in private equity placements and $500,000
through the issuance of a convertible debenture. Subsequent to December 31,
1999, Cycomm has raised $3,026,000 in private equity placements (See Note 22:
Subsequent Events for further detail).
These consolidated financial statements do not give effect to any adjustments
which would be necessary should the Company 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 the Company is unable to achieve its plans to
fund operations, the Company will consider further cost reductions and may be
required to seek protection under the United States Bankruptcy Code.
<PAGE>
Page 36
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries after elimination of
intercompany accounts and transactions.
Cash and Cash Equivalents
The Company 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.
Inventories also include demonstration equipment, which is stated at
amortized cost, which approximates net realizable value. Demonstration
equipment was fully depreciated at December 31, 1999, and had a net
amortized cost of $208,075 as of December 31, 1998.
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.
<PAGE>
Page 37
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.
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 for
the years ended December 31, 1999 and 1998 were $233,739 and $250,155
respectively.
Advertising Costs
The Company expenses advertising costs as incurred. Such costs were
insignificant in 1999 and 1998.
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 1999 and 1998.
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 1999 and 1998 are charges of $100,000 and
$150,000 related to the beneficial conversion feature of the Company's
convertible preferred stock. For the years ended December 31, 1999 and
1998, 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.
<PAGE>
Page 38
Goodwill
Goodwill is amortized on a straight line basis over a period of ten years.
Cycomm continually evaluates whether events or circumstances have occurred
that indicate that the remaining useful life of goodwill may warrant revision
or that the remaining balance may be unrecoverable. When factors indicate
that goodwill should be evaluated for possible impairment, the Company
assesses the impairment in accordance with Statement of Financial Statements
No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of ("SFAS 121"). SFAS 121 requires
impairment losses to be recognized for long-lived assets when indicators of
impairment are present and the undiscounted cash flows, excluding interest,
of the related business activities. The impairment loss of goodwill is
measured by comparing the carrying amount of the asset to its fair value with
any excess of carrying value over fair value written off. Fair value is
based on market prices where available, an estimate of market value, or
determined by various valuation techniques including discounted cash flow.
Stock-based compensation
The Company adopted Financial Accounting Standard No. 123 entitled
"Accounting for Stock-Based Compensation" ("FAS 123") as of June 1, 1995.
The provisions of FAS 123 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. The Company 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 1999 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"), in a management buy out ("MBO") transaction to a group of investors
led by CSS management. On May 3, 1999, prior to the closing of the sale, the
MBO group signed an agreement with Cycomm allowing the MBO group to operate
the business for the period prior to the closing of the sale. The agreement
allowed the MBO group to operate the assets of CSS and generate revenues for
the benefit of the MBO group, and made the MBO group responsible for all
expenses incurred and liabilities generated on and after May 3, 1999.
In May of 1999, the MBO group informed Cycomm that it would be unable to
complete the purchase of the assets of CSS. The MBO group identified a
company called Cortron Inc. ("Cortron") as another potential buyer for the
assets of CSS. Cycomm signed a letter of intent for the sale of the assets
of CSS to Cortron Inc. for a purchase price of $800,000. On June 21, 1999
Cycomm's secured lender foreclosed on the assets of CSS and sold the assets
to Cortron.
<PAGE>
Page 39
The results of operations for CSS are reported as discontinued operations for
all periods presented. For the year ended December 31, 1999, the results of
CSS include a write-off of goodwill of $1,220,190. The results of operations
for Cycomm Secure Solutions Inc. are summarized as follows:
<TABLE>
<CAPTION>
January 1, 1999 Year Ended
to March 4, 1999 December 31, 1998
<S> <C> <C>
Revenue $1,837,889 $4,348,376
Cost of Sales 1,354,200 4,534,110
--------- ---------
Gross profit (loss) 483,689 (185,734)
Operating Expenses 2,096,733 3,902,156
----------- -----------
Net loss ($1,613,044) ($4,087,890)
=========== ===========
Net loss per share ($0.12) ($0.38)
====== ======
</TABLE>
The assets sold included inventory, fixed assets and various intangibles and
assets. Included in the net loss is a gain of $278,297 on the settlement of
an operating lease obligation. Included in accounts payable at December 31,
1999 are $1,310,837 of unpaid amounts due to vendors of CSS.
Val-Comm Inc.
In April 1999, the Company entered into an agreement to sell its secure
telecommunications subsidiary, Val-Comm Inc. to an individual investor in
Val-Comm's geographical area. The transaction was structured as a stock
purchase, and was completed on August 21,1999. The results of operations for
Val-Comm are reported as discontinued operations for all periods presented,
and are summarized as follows:
<TABLE>
<CAPTION>
January 1, 1999 Year Ended
to August 21, 1999 December 31, 1998
<S> <C> <C>
Revenue $1,001,733 $1,409,539
Cost of Sales 570,510 817,127
------- -------
Gross profit (loss) 431,223 592,412
Operating Expenses 319,060 432,862
------- -------
Net income 112,163 159,550
======= =======
Net income per share $0.01 $0.01
===== =====
</TABLE>
The net book value of Val-Comm's assets as of 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.
Val-Comm's management is optimistic that they will receive this award. 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. As of December 31, 1999,
the Company has recorded 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, 1999 the Company
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, 1999 and is included in other current assets.
<PAGE>
Page 40
NOTE 4: ACQUISITION EARN-OUT
XL Computing (Canada) Inc.
In connection with the purchase price paid for the Company's acquisition of
its Cycomm Mobile Solutions subsidiary, the Company entered into an
acquisition earn-out agreement with the seller, M3i Technologies Inc. and M3i
Systems Inc. (collectively the "Seller"). The earn-out provision of the
purchase price was to be paid in Cycomm common stock, up to a maximum value
of $4,000,000, subject to provisions based on the achievement of certain unit
sales volumes for a five year period. Common stock issued under the earn-out
provisions was to be issued at the average current market price of the last
month for the quarter in which it was earned. As of December 31, 1999,
Cycomm had paid $1,354,796 of contingent consideration, which was paid in
444,862 shares of common stock.
The Company and the seller were parties to a lawsuit regarding the
interpretation of the earn-out agreement. On May 24, 1999, the Company and
the seller entered into a complete settlement of the litigation. Under the
terms of the agreement, the Company could fulfil its obligation to the Seller
if payments were made before certain dates as specified in the agreement.
The Company could elect to pay $700,000 by April 30, 2000, $1,100,000 by
April 30, 2001 or $1,500,000 prior to April 30, 2002. The settlement
agreement was amended on February 3, 2000 to allow Cycomm until December 31,
2000 to pay $700,000 in full and final settlement of the obligation, to be
paid in accordance with a payment schedule. See Note 22: Subsequent Events
for further description of the amended agreement. Management anticipates
that the liability to the Seller will be paid prior to December 31, 2000 in
accordance with the payment schedule, and has recorded an accrued liability
of $700,000 as of December 31, 1999. In conjunction with the settlement, the
Company issued 200,000 warrants to the seller with a fair value on the date
of issuance of $88,000. It was considered part of the purchase price and
subsequently written off in conjunction with goodwill impairment charge.
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. The Company 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.
<PAGE>
Page 41
NOTE 7: INVENTORIES
Inventories by categories are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
<S> <C> <C>
Raw materials $841,910 $990,954
Work in process and sub-assemblies 122,160 712,947
Finished goods 11,326 241,011
Allowance for obsolete inventory (131,339) (172,096)
-------- --------
$844,057 $1,772,816
======== ==========
</TABLE>
Cycomm continually evaluates inventory for obsolescence or impairment in
value. The impairment loss is measured by comparing the carrying amount of
the inventory to its fair value with any excess of carrying value over fair
value reserved. Fair value is based on market prices where available, or on
an estimate of market value, or determined by various valuation techniques
including discounted cash flow.
NOTE 8: OTHER CURRENT ASSETS
Other current assets are comprised of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
<S> <C> <C>
Deposits with materials suppliers $283,449 $283,449
Amount due from private placement 125,000 ---
Amount due from sale of Val-Comm 65,966 ---
Other 102,479 123,562
-------- --------
$576,894 $407,011
======== ========
</TABLE>
<PAGE>
Page 42
NOTE 9: EQUIPMENT
Equipment and accumulated depreciation and amortization by categories are as
follows:
<TABLE>
<CAPTION>
Accumulated
depreciation and Net book
Cost Amortization value
December 31, 1999
<S> <C> <C> <C>
Equipment under capital leases 14,754 5,812 8,942
Furniture and fixtures 23,143 13,325 9,818
Research equipment 3,301 1,706 1,595
Computer equipment 261,050 152,733 108,317
Office equipment 34,331 17,004 17,327
Manufacturing equipment 150,838 60,359 90,479
Leasehold improvements 69,958 36,656 33,302
------- ------- -------
$557,375 $287,595 $269,780
======== ======== ========
December 31, 1998
Equipment under capital leases 14,754 3,129 11,625
Furniture and fixtures 23,143 9,465 13,678
Research equipment 3,301 1,235 2,066
Computer equipment 258,113 103,833 154,280
Office equipment 34,331 12,324 22,007
Manufacturing equipment 149,053 37,833 111,220
Leasehold improvements 69,960 21,571 48,389
------- ------- -------
$552,654 $189,390 $363,264
======== ======== ========
</TABLE>
Depreciation expense for the years ended December 31, 1999 and 1998 was
$92,323 and $112,278, respectively.
<PAGE>
Page 43
NOTE 10: NOTES PAYABLE AND CONVERTIBLE DEBENTURES
Notes payable and convertible debentures are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
<S> <C> <C>
7% convertible debentures, due May 1, 2000 $3,000,000 $3,000,000
7% convertible debenture, due September 20,
2004 500,000 ---
Revolving credit facility, prime + 3% 915,104 2,310,890
Term note payable, prime + 3%, due January 1,
2001 --- 394,425
--------- ---------
4,415,104 5,705,315
Less current portion 915,104 5,705,315
---------- ---------
$3,500,000 $ ---
========== =========
</TABLE>
On February 28, 1997, the Company issued $3,000,000 of 10% convertible
debentures due February 28, 1999 which were convertible at the option of the
holders into common stock of the Company at a 10% discount of the average
closing bid price of the Company's common stock prior to conversion, provided
the conversion price was not greater than $6.00 per share nor less than $3.00
per share. On June 15, 1998, the Company entered into an agreement with the
holders of these debentures, under which the holders agreed to waive their
conversion rights in exchange for an increase in the interest rate of the
debentures from 10% to 12%. On March 31, 1999, the Company entered into a
new agreement with the holders of the debentures that amended the terms of
the note and extended the maturity date to May 1, 2000. Pursuant to the
terms of the new agreement, the interest rate on the convertible debentures
has been lowered from 12% per annum to 7% per annum. The debentures are
convertible at the market price of Cycomm's common stock, provided that the
market price is not below $0.50 per share at the time of conversion. The
holders of the debentures were precluded from converting more than 5% of the
outstanding debentures before August 1, 1999, 10% before November 1, 1999,
15% before February 1, 2000 and the balance before May 1, 2000. Subsequent
to December 31, 1999 the Company arranged for a sale of the debentures from
the holders to another party. See Note 22: Subsequent Events for further
discussion of the $3,000,000 convertible debentures.
On September 20, 1999, the Company issued a $500,000 7% convertible debenture
due September 20, 2004 which is convertible at the option of the holder into
common stock of the Company at the lesser of $0.50 per share or the average
closing bid price of the Company's common stock for the 5 days prior to
conversion. As of December 31, 1999 the debenture had not been converted.
Subsequent to December 31, 1999, the debenture was converted into common
stock of the Company. See Note 22: Subsequent Events for further discussion
of the conversion.
The Company has a revolving credit facility from a lender under which the
Company may, at its option, borrow and repay amounts up to a maximum of
$4,000,000, of which $915,104 was outstanding at December 31, 1999.
Borrowings under this credit facility bear interest at prime plus 3%.
Additionally, the terms of the credit facility prohibit the Company from
paying dividends in certain circumstances. The revolving credit facility was
originally comprised of a $3,432,000 facility collateralized by the trade
accounts receivable and inventory of Cycomm Mobile Solutions and CSS, and a
$568,000 term loan collateralized by certain machinery and equipment of CSS
(see below). After the June 21, 1999 sale of the assets of CSS, the
revolving credit facility was restructured as a $4,000,000 facility
collateralized by the trade accounts receivable and inventory of Cycomm
Mobile Solutions, and by the remaining accounts receivable of CSS. As of
December 31, 1999, the Company 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
<PAGE>
Page 44
$414,323. This was a result of accounts receivable being disallowed as
collateral by the lender because certain invoices were over 90 days past
due. As of April 10, 2000, the Company was in compliance with the terms of
its loan agreement.
The Company's revolving credit facility originally contained a term loan in
the amount of $568,000 collateralized by certain machinery and equipment of
the Company's CSS subsidiary. This term loan had an interest rate of prime
plus 3% and was payable in equal installments of $15,777 per month through
January 1, 2001. In connection with the Cycomm's sale of its CSS subsidiary
(See Note 2: Discontinued Operations), the Company's secured lender
foreclosed on all of the assets of CSS and sold the assets to the buyer. A
portion of the proceeds from the sale of CSS assets was used to pay down the
balance of Cycomm's term loan. At the time of the sale, the term loan had a
balance of $378,648. Subsequent to the sale of CSS assets, the Company's
revolving credit facility was restructured to remove the term loan provision.
NOTE 11: DEFERRED REVENUE
The Company recorded deferred revenue of $770,122 and $934,948 for the years
ended December 31, 1999 and 1998, respectively. Deferred revenue was
recorded as a result of certain sales of PCMobile computers 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 retain the
right to return the 586s at any time before they receive 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 are depreciated over a one year period. Depreciation expense
on the demonstration units was $208,075 and $680,571 for the years ended
December 31, 1999 and 1998. As of December 31, 1999, the demonstration units
had been fully depreciated.
Revenue on the sales is recognized when the Pentium units are shipped to the
customers. For the year ended December 31, 1999, Cycomm has recognized
revenue of $164,826 related to the shipment of Pentium units to customers in
exchange for the 586 units.
<PAGE>
Page 45
NOTE 12: COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company 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 of 12.67% through
December 31, 2003. The Company 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 the
Company's capital and non-cancellable operating leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year ending December 31, Leases Leases
<S> <C> <C>
2000 $3,999 $290,320
2001 3,999 174,425
2002 3,999 146,455
2003 1,332 147,415
2004 --- 145,634
------ --------
13,329 $904,249
Less: amount representing interest on
capital leases (2,503)
------
Present value of future minimum capital
lease payments $10,826
=======
</TABLE>
Total rental expense under the various operating leases for continuing
operations amounted to $236,795 and $233,999 for the years ended December 31,
1999 and 1998, respectively.
The Company 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 the
Company's financial position or results of operation.
NOTE 13: 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
The issued common stock of the Company consisted of 16,807,696 and 12,210,311
shares as of December 31, 1999 and 1998, respectively.
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.
The Company raised capital during the year ended December 31, 1998 through 5
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 1,870,000 shares of common stock for gross proceeds of
<PAGE>
Page 46
$3,685,000. Cash proceeds, after commissions and issue costs were
$2,895,750. In conjunction with these private placements, the Company issued
370,000 warrants with a fair value on the date of issuance of approximately
$592,000 as calculated under the Black-Scholes model.
Convertible preferred shares and related accrued dividends were converted
into 992,223 and 287,054 shares of common stock for the years ended December
31, 1999 and 1998, respectively. No convertible debentures were converted
into common stock during 1999, however convertible debentures and related
accrued interest were converted into 236,380 shares of common stock during
the year ended December 31, 1998.
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 common stock
of the Company. 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. 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. During
1998, 12 shares of preferred stock and related accrued dividends were
converted into 287,054 shares of common stock. As of December 31, 1999, 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
is convertible at the option of the holder into common stock pursuant to a
conversion schedule as set forth in the agreement. The holder can 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 is
the lesser of $0.63, 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 $.50 per share at the conversion date, Cycomm
has the right to redeem the preferred shares at a premium of 15% over the
conversion price. As of December 31, 1999, 1 share of Series C preferred
stock and related accrued dividends had been converted into 109,606 shares of
common stock, and 2 preferred shares were eligible for conversion.
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. 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.
<PAGE>
Page 47
NOTE 14: STOCK OPTIONS AND WARRANTS
Stock Options
The Company 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 June 21, 1999, the Company 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, the Company 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. For the year ended December 31, 1998, a total of 230,000 stock
options were granted under the 1997 Plan. No options were issued under this
plan in 1999. As of December 31, 1999, 530,000 options are available under
the 1997 Plan.
The following table summarizes the activity in common shares subject to
options for the relevant periods ended December 31, 1999:
<TABLE>
<CAPTION>
Shares Option Price
Range
<S> <C> <C>
Balance, December 31, 1996 1,401,500 $3.00 - $10.95
Granted 1,395,000 $2.00 - $3.31
Exercised --- ---
Terminated (344,000) $3.50 - $10.95
---------
Balance, December 31, 1997 2,452,500 $2.00 - $8.10
=========
Granted 1,405,000 $1.88 - $2.50
Exercised --- ---
Terminated (387,500) $2.50 - $4.05
---------
Balance, December 31, 1998 3,470,000 $1.88 - $8.10
=========
Granted 2,217,271 $0.38 - $0.75
Exercised --- ---
Terminated $0.38 - $8.10
(1,956,062)
----------
Balance, December 31, 1999 3,731,209 $0.38 - $8.10
==========
</TABLE>
Options were exercisable with respect to 3,225,367 shares at December 31,
1999. The weighted average contractual life of options outstanding as of
December 31, 1999 was 3.94 years. The weighted average exercise price of
options exercisable at December 31, 1999 was $1.40.
<PAGE>
Page 48
Had compensation expense for the Company's stock options and warrants
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:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
Net loss attributable to common
<S> <C> <C>
stockholders $(9,112,481) $(8,446,049)
Compensation expense (5,084,380) (117,292)
------------ -----------
Pro forma net loss attributable to
common stockholders $(14,196,861) $(8,563,341)
============ ===========
Pro forma net loss per share
attributable to common stockholders $(1.04) $(0.79)
====== ======
</TABLE>
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 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. The
option and warrant pricing assumptions for 1998 include a dividend yield of
0%, an expected volatility of .809 and a risk free interest rate of 6.30%
over the life of the options. The expected life of the options was 5.73
years for 1998.
For the years ended December 31, 1999 and 1998, the Company recognized
$263,458 and $450,000 in compensation expense related to stock options issued
to non-employees.
The weighted average fair values and exercise prices are as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
Weighted-average fair
value per option
<S> <C> <C>
granted $2.63 $1.48
Weighted-average
exercise price per
option granted $0.38 $2.20
</TABLE>
<PAGE>
Page 49
Common Share Purchase Warrants
The Company has granted common share purchase warrants to directors, officers
and other parties which become exercisable immediately and have expiration
terms ranging from one year to five years. The warrants are generally
granted at an exercise price that equals fair market value of the common
stock at the date each warrant is granted. However, certain warrants are
granted with an exercise price in excess of the fair market value of the
common stock at the date each warrant is granted. During the year ended
December 31, 1998, the Company issued 370,000 warrants to purchase its common
stock for services related to the private placement of common stock with
exercise prices within a range of $2.00 to $3.00. During 1999, the Company
issued an additional 200,000 warrants in conjunction with the purchase of its
Cycomm Mobile Solutions subsidiary from M3i Technologies. At December 31,
1999, the following warrants to purchase the Company's common stock were
outstanding:
<TABLE>
<CAPTION>
Exercise Expiration
Shares Price Date
<S> <C> <C>
5,000 $ 4.75 November 30, 2000
50,000 $ 2.50 February 26, 2000
75,000 $ 2.50 September 17, 2000
20,000 $ 2.50 February 26, 2000
200,000 $0.00005 May 24, 2001
-------
350,000
=======
</TABLE>
NOTE 15: SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the relevant periods are summarized as
follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1999 1998
Cash flow effects of changes in operating assets
and liabilities, net of acquisitions:
<S> <C> <C>
Accounts receivable $1,436,066 $1,452,158
Inventories 612,169 (90,191)
Prepaid expenses 15,006 (6,473)
Accounts payable - trade 546,245 (1,486,003)
Accrued liabilities 18,832 165,584
Dividends payable on preferred stock 27,145 ---
Deferred revenue (164,826) 934,948
$2,490,637 $970,023
Non-cash investing and financing activities:
Conversion of convertible debentures to
common stock $ --- $278,625
Conversion of preferred stock to common stock $ 658,092 $563,287
Marketable securities received from sale of
discontinued operation: Val-Comm, Inc. $ 496,034 ---
Cash paid during the period:
Interest paid $ 394,822 $759,169
Income taxes paid --- ---
</TABLE>
<PAGE>
Page 50
NOTE 16: INCOME TAXES
The Company 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 change in valuation allowance has been recognized to offset
certain deferred tax assets for which realization is uncertain. Significant
components of the Company's deferred tax liabilities and assets as of
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
Deferred tax assets
<S> <C> <C>
Deferred revenue 300,348 ---
Non-employee stock options 278,249 175,500
Book over tax depreciation and amortization 315,513 309,663
Inventory capitalization and related
reserves --- 821,479
Net operating loss carryforward 17,234,308 15,073,313
Nondeductible expense and reserves 225,903 160,861
---------- ----------
Total deferred tax assets 18,354,321 16,540,816
Valuation allowance for deferred tax assets (18,354,321) (16,540,816)
----------- -----------
Net deferred tax asset $ --- $ ---
----------- -----------
</TABLE>
There was no provision for income taxes in the years ended December 31, 1999
and 1998 as the Company 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 the Company at December 31 is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
<S> <C> <C>
US federal statutory benefit rate (35.0)% (35.0)%
US state tax benefit, net of federal income
tax effect (4.0) (4.0)
Change in valuation allowance 39.0 39.0
---- ----
Effective rate on operating loss --- ---
==== ====
</TABLE>
The Company has US net operating loss carryfowards available at December 31,
1999 of approximately $43 million for US tax purposes to offset income in
future years. These carryfowards will expire in the years 2000 through 2015,
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. The Company has Canadian net operating loss
carryforwards available at December 31, 1999 of approximately $4.5 million;
these carryforwards will expire in the years 2003 and 2006 if not used.
In addition, the Company has future deductible research and development costs
for Canadian federal tax purposes of $650,000. These costs have an
indefinite carryover period.
NOTE 17: RELATED PARTY TRANSACTIONS
In April 1997, the Company 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, 1999, amounts outstanding
under these loans total $128,684 in principal and $20,297 in accrued interest
receivable. The loans are secured by the common stock, bear interest at 5.9% and
<PAGE>
Page 51
are due April 30, 2000. The Company has recorded a valuation allowance of
$88,470 against the receivable and the net balance of $60,511 is reflected as a
contra equity account in the accompanying balance sheet.
The Company 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, 1999 and 1998. The Chief Executive Officer and former Chief
Financial Officer have no direct or indirect ownership interest in Corstone
Corporation. er 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 (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.
In June of 1999, Cycomm entered into 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 18: 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 (See Note 2: Discontinued Operations). The results from
continuing operations on Cycomm's financial statements for the years ended
December 31, 1999 and 1998 present the results of the Mobile Computing
segment.
<TABLE>
<CAPTION>
Geographic Region Data December 31, December 31,
1999 1998
Sales
<S> <C> <C>
United States $3,125,903 $10,138,562
Canada 137,275 3,095,110
---------- -----------
$3,263,178 $13,233,672
========== ===========
Loss from Operations
United States $2,877,253 $3,551,698
Canada 2,197,845 591,716
---------- ----------
$5,075,098 $4,143,414
========== ==========
Identifiable Assets
United States $1,842,812 $7,175,815
Canada 1,162,716 3,754,905
---------- -----------
$3,005,528 $10,930,720
========== ===========
</TABLE>
NOTE 19: MAJOR CUSTOMERS
The Company is not dependent upon any single customer that purchases its
products. However, sales to three major customers comprise 22%, 15% and 13%,
respectively of consolidated sales for the year ended December 31, 1999.
Sales to two major customers comprised 23% and 22%, respectively, of
consolidated sales for the year ended December 31, 1998.
<PAGE>
Page 52
NOTE 20: CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally trade receivables.
Concentration of credit risk with respect to trade receivables exists at
year end as approximately $620,017 or 43% of the outstanding accounts
receivable related to one customer. The Company 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.
NOTE 21: IMPACT OF THE YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, Cycomm completed its remediation and
testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in critical
information technology and non-information technology systems and believes
those systems successfully responded to the Year 2000 date change. Cycomm is
not aware of any material problems resulting from Year 2000 issues, either
with its products, its internal systems, or the products and services of
third parties. The Company will continue to monitor its critical computer
applications and those of its suppliers and vendors throughout the year 2000
to ensure that any latent Year 2000 matters that may arise are addressed
promptly.
NOTE 22: SUBSEQUENT EVENTS
In January 2000, Cycomm raised capital through 3 separate private equity
placements of its common stock. The stock was issued at the market price at
the date of the letter of intent, which was a discount to the market price
on the date of the issuance. In total, the Company issued 6,112,000 shares
of common stock for gross proceeds of $3,126,000. Cash proceeds, after
commissions and issue costs were $3,026,000. In conjunction with these
private placements, the Company issued 5,000,000 warrants with a fair value
on the date of issuance of approximately $8,736,500.
On March 31, 2000, Cycomm entered into an agreement with the holders of the
$3,000,000 7% convertible debentures 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 the Company. 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 is
convertible at any time at the option of the holder. The conversion price is
equal to the average closing bid price of the Company's stock for the 20 days
prior to the date of conversion. The Series E preferred stock cannot be
converted for less than $2.00 per share. The Series E preferred stock
accrues dividends at 7% per annum, which can be paid in cash or in common
stock at the option of the Company. The Series E preferred stock is
redeemable at the option of the Company at a price equal to conversion price
on the date of redemption. The Series E preferred stock has no mandatory
redemption provisions. The debentures have been classified as long term in
the accompanying financial statements as a result of this transaction.
On March 30, 2000, Stephen Sparks converted his $500,000 7% convertible
debenture into common stock of the Company. At the time of conversion, the
debenture had earned accrued interest of $17,452. The principal and accrued
interest were converted into 1,034,904 shares of common stock. The
debentures have been classified as long term in the accompanying financial
statements as a result of this transaction.
For the three months ended March 31, 2000, Cycomm recognized revenue of
$114,391 that was previously deferred. Cycomm completed shipments of Pentium
units to customers in exchange for units with 586 processors. On April 3,
2000, Cycomm reached an agreement with the remaining customer eligible for
the 586 for Pentium swap-out. Under this agreement, the customer agreed to
<PAGE>
Page 53
forego the right to swap 586 units for Pentiums in exchange for the
forgiveness of an obligation and an extension of the warranty period. As of
April 3, 2000, the Company has no future obligations related to the 586 for
Pentium swap-out.
On January 21, 2000, Cycomm cancelled 205,717 shares of its common stock that
had been issued in settlement of a vendor obligation of $77,144, and issued
400,000 shares in full settlement of an obligation of $161,223.
Subsequent to December 31, 1999, 5 shares of Series C preferred stock were
converted by the holders. On January 24, 2000, 2 shares of Series C
preferred stock and related accrued dividends were converted into 171,573
shares of common stock. On March 7, 2000 3 shares of Series C preferred
stock and related accrued dividends were converted into 260,186 shares of
common stock.
Part II. Information Not Required in Prospectus
Item 24. Indemnification of Directors and Officers.
Provisions of the Wyoming Business Corporation Act and Cycomm's Bylaws
provide indemnification for directors, officers and controlling persons of
Cycomm against certain liabilities, including liability under the Securities
Act of 1933, under certain circumstances. Insofar as indemnification for
liabilities arising under that Act may be permitted to such persons, Cycomm
has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in that Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment of expenses incurred or paid in the
successful defense of any action) is asserted by such persons in connection
with this registration statement, unless Cycomm's counsel is of the opinion
that the matter has been settled by controlling precedent, Cycomm will submit
to a court the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of that question.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses in connection
with distribution of the Common Shares hereby registered. All amounts are
estimated except the SEC fees and are expressed in U.S. dollars.
<TABLE>
<CAPTION>
Payable by Registrant
<S> <C>
SEC Registration Fee $ 913
Legal fees 5,000
Accounting fees 7,000
Miscellaneous fees 1,000
-----
Total $ 0
========
</TABLE>
Item 26. Recent Sales of Unregistered Securities
On July 6, 1999, Cycomm issued 500,000 shares of its common stock that
are restricted under Regulation D of the Securities Exchange Act of 1934, to
Thomson Kernaghan & Co., Ltd., for net proceeds after issuance costs of
$296,700.
On August 4, 1999, we issued 228,571 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Prudential Bache Securities Inc., for net proceeds of $100,000.
On August 4, 1999, we issued 234,285 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Brown Brothers Harriman, for net proceeds of $117,142.
<PAGE>
Page 54
On August 26, 1999, we issued 205,717 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Strategic Growth International Inc.("SGI"). These shares were issued in
payment of consulting fees due from Cycomm in the amount of $77,144. On
January 21, 2000, pursuant to an agreement with SGI, the 205,717 shares
issued on August 26, 1999 were cancelled, and Cycomm issued 400,000 shares in
full payment of consulting fees totaling $161,153.
On September 17, 1999, we issued 250,000 shares of common stock that
are restricted under Regulation S of the Securities Exchange Act of 1934, to
Charles Beck, for net proceeds of $125,000.
On September 30, 1999, we issued 333,334 shares of common stock that
are restricted under Regulation D of the Securities Exchange Act of 1934, to
Peter Melhado, for net proceeds of $250,000.
On October 25, 1999, we issued 250,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Bruce Robinson, for net proceeds of $100,000.
On October 28, 1999, we issued 500,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Peter Melhado, for net proceeds of $250,000.
On November 1, 1999, we issued 115,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Neptune Capital Partners, L.L.C., for net proceeds of $57,500.
On November 1, 1999, we issued 120,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Neptune Explorer Fund, Ltd., for net proceeds of $60,000.
On November 1, 1999, we issued 90,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Neptune Explorer Partners, L.P., for net proceeds of $45,000.
On November 1, 1999, we issued 175,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Neptune Fund, Ltd., for net proceeds of $87,500.
On January 13, 2000, we issued 145,833 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Peter Melhado in connection with the exercise of options to purchase common
stock, for net proceeds of $74,999.
On January 18, 2000 we issued 41,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
American Explorer Fund, Ltd., for net proceeds of $24,600.
On January 18, 2000 we issued 64,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Goldman Sachs Performance Partners, L.L.C., for net proceeds of $38,400.
On January 18, 2000 we issued 54,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Goldman Sachs Performance Partners Offshore, L.L.C., for net proceeds of
$32,400.
On January 18, 2000 we issued 81,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Goldman Sachs Strategic Technologies Partners, L.L.C., for net proceeds of
$48,600.
On January 18, 2000 we issued 107,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Neptune Capital Partners, L.L.C., for net proceeds of $64,200.
On January 18, 2000 we issued 110,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Neptune Explorer Fund, Ltd., for net proceeds of $66,000.
On January 18, 2000 we issued 88,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Neptune Explorer Partners, L.P., for net proceeds of $52,800.
<PAGE>
Page 55
On January 18, 2000 we issued 145,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Neptune Fund, Ltd., for net proceeds of $87,000.
On January 18, 2000 we issued 10,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to Taib
Bank, for net proceeds of $6,000.
On January 26, 2000 we issued 4,000,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Special Situations Private Equity Fund, L.P., for net proceeds of $1,900,000.
On January 26, 2000 we issued 500,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Albert I. Hawk, for net proceeds of $250,000.
On January 26, 2000 we issued 500,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Stephen Sparks, for net proceeds of $250,000.
On January 31, 2000 we issued 500,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Palos Capital Corporation, for net proceeds of $240,000.
On May 8, 2000 we issued 1,200,000 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Willbro Nominees Ltd., for net proceeds of $1,080,000.
On July 31, 2000 we issued 333,334 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Willbro Nominees Ltd., for net proceeds of $250,000.
On August 30, 2000 we issued 666,666 shares of common stock that are
restricted under Regulation D of the Securities Exchange Act of 1934, to
Willbro Nominees Ltd., for net proceeds of $450,000.
On November 14, 2000 we issued 1,000,000 shares of common stock that
are restricted under Regulation D of the Securities Exchange Act of 1934, to
Willbro Nominees Ltd., for net proceeds of $450,000.
Item 27. Exhibits.
(a) Exhibits
(1) The following exhibits are filed as part of this Registration
Statement on Form SB-2 and incorporated by reference herein to the extent
possible.
3.1 Certificate of Incorporation (1)
3.2 Certificate of Incorporation on Change of Name (1)
3.3 Certificate of Continuance (1)
3.4 Amended Articles of Incorporation
5.1 Legal Opinion of Hirst & Applegate *
___
10.6 Asset Purchase Agreement among and between (2)
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 (3)
10.11 Commercial Revolving Loan, Additional Loan and
Security Agreement by and among the Company
and American Commercial Finance Corp. (4)
<PAGE>
Page 56
10.12 Cycomm International Inc. 1997 Stock Option Plan (4)
10.14 Stock Purchase Agreement and Certificate of
Designation of Series F Convertible Redeemable
Preferred Stock (4)
23.1 Consent of Ernst & Young, Independent Auditors
23.2 Consent of Hirst & Applegate (included in Exhibit 5) *
* Filed herewith
(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 8-K dated June 21, 1996 and
incorporated by reference herein.
(3) 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.
(4) 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.
Item 28. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, Cycomm has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of Cycomm in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, Cycomm will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
<PAGE>
Page 57
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
<PAGE>
Page 58
SIGNATURES
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of McLean, Commonwealth of Virginia, on January 19,
2001.
CYCOMM INTERNATIONAL INC.
Albert I. Hawk, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on
the dates indicated.
Date: January 19, 2001
Albert I. Hawk, President, Chief
Executive Officer and Chairman of the Board
(Principal executive officer)
Date: January 19, 2001
Robert M. Hutton, Vice President of Finance
(Principal financial officer and principal accounting officer)
Date: January 19, 2001
Hubert R. Marleau, Director
Date: January 19, 2001
Lt. Gen. Thomas P. Stafford, Director
Date: January 19, 2001
Stephen Sparks, Director
Robh/Form SB-2/SB-2 12-20-00
<PAGE>
Page 59
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 6, 2000, in the Registration Statement
(Form SB-2 No. 333) and related Prospectus of Cycomm International, Inc. for
the registration of 7,820,000 shares of its common stock.
/s/ Ernst & Young LLP
McLean, Virginia
January 19, 2001
<PAGE>
Page 60
Exhibit 5.1
Consent of Hirst & Applegate, P.C. Wyoming Counsel
_________
January __, 2001
Cycomm International Inc.
1420 Springhill Road
Suite 420
McLean, VA 22102
Ladies and Gentlemen:
RE: REGISTRATION ON FORM SB-2
We have acted as Wyoming counsel to Cycomm International Inc., a
Wyoming corporation (the "Company"), in connection with the registration of
1,000,000 shares of its common stock, no par value, (its "Common Shares"),
for sale by certain stockholders of Company, the registration of 5,400,000
Common Shares to be issued upon conversion of Cycomm's Series F Convertible
Preferred Stock and the registration of 1,420,000 Common Shares to be issued
upon exercise of outstanding warrants (the "Warrants"). We have examined
such documents, corporate records, minutes, consents, certificates of
officers of the Company and other instruments, and have reviewed such laws
and regulations as we have deemed necessary. In the course of such
examination, we have assumed the genuineness of all signatures; the legal
capacity of all natural persons; the authenticity of all documents submitted
to us as originals; the conformity to original documents of all documents
submitted to us as certified, photostatic or facsimile copies; and the
authenticity and completeness of the originals of all such copies. As to any
facts material to this opinion which we did not independently establish or
verify, we have relied upon statements and representations of officers and
other representatives of Cycomm and others.
Based upon and subject to the foregoing, and subject to the other
limitations and qualifications set forth herein, we are of the opinion that
the Common Shares have been duly authorized for issuance by Cycomm and that
the Common Shares are, and the Common Shares underlying the Warrants and
Options upon exercise or conversion, in the manner and under circumstances
described in the Registration Statement, Form SB-2, will be, validly issued,
fully paid and nonassessable.
The foregoing opinion is subject to the qualifications that:
(a) legality, validity or enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors
generally;
(b) general principles of equity, including principles of commercial
reasonableness, good faith and fair dealing, regardless of
whether enforcement is considered in proceedings at law or in
equity;
(c) our opinion is limited to matters governed by the laws of Wyoming and
no opinion is expressed herein as to any matter governed by the
laws of any other jurisdiction;
<PAGE>
Page 61
(d) the opinions expressed herein are strictly limited to the matters
stated herein and no other opinions may be implied beyond the
matters expressly so stated.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters".
Yours very truly,
HIRST & APPLEGATE, P.C.
BY: DALE W. COTTAM
