| UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 |
| [X] ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| [ ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| SYSCOMM INTERNATIONAL CORPORATION (Exact name of registrant as specified in its charter) |
| Delaware (State or other jurisdiction of incorporation or organization) |
11-2889809 (I.R.S. Employer Identification No.) |
| 7
Kingsbridge Road, Fairfield NJ 07004 (Address of principal executive offices) (Zip Code) |
| Common
Stock, par value $.01 per share (Title of Class) |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the 2,325,998 of our common stock held by non-affiliates of the Company as of December 18, 2001 is $395,420.
The number of shares outstanding of each class of our common equity as of December 18, 2001 is as follows:
| Class of Common Equity Common Stock, par value $.01 |
Number of Shares 4,895,998 |
The information required by Part III of this Form 10-K is incorporated by reference from the Registrant's definitive proxy statement to be filed with the Commission on or before January 28, 2002.
| Item |
Description PART I |
Page |
| 1. 2. 3. 4. |
Business Properties Legal Proceedings Submission of Matters to a Vote of Security Holders |
2 10 11 11 |
| 5. | Market for the Registrant's Common Equity and Related Stockholder Matters | 12 |
| 6. | Selected Financial Data | 13 |
| 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 14 |
| 7A. | Quantitative and Qualitative Disclosures About Market Risk | 18 |
| 8. | Financial Statements and Supplementary Data | 18 |
| 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures | 18 |
| 10. 11. 12. 13. |
Directors and Executive Officers of the Registrant Executive Compensation Security Ownership of Certain Beneficial Owners and Management Certain Relationships and Related Transactions |
20 20 20 20 |
| 14. | Exhibits, Financial Statement Schedules, and Reports on Form 8-K Signatures |
21 22 |
1
On December 14, 2000, pursuant to the terms of a Stock Purchase Agreement, as amended, between the selling shareholders described below and Applied Digital Solutions, Inc., a Missouri corporation, Applied Digital Solutions acquired approximately 55% of our outstanding common shares, resulting in a change in control. Shares of our common stock were sold to Applied Digital Solutions by the following persons and in the following amounts:
| Selling Shareholders |
Number of Shares Held |
Percent Ownership |
|||
| John H. Spielberger Catherine Spielberger Bearpen Limited Partnership |
1,920,000 50,000 600,000 |
|
41% 1% 13% |
||
| Total |
2,570,000 |
|
55% |
Applied Digital Solutions acquired the shares listed above for $4.5 million by issuing approximately 1.7 million shares of its common stock, valued at approximately $2.75 million, to the selling shareholders listed above and upon payment of an aggregate amount of cash equal to approximately $1.75 million to the selling shareholders listed above.
As a condition to the closing of the transaction, John H. Spielberger, John C. Spielberger, Lee Adams and Cornelia Eldridge resigned as our officers and directors. Garrett A. Sullivan, David A. Loppert and Anat Ebenstein were appointed to fill the vacancies on the board of directors created by such resignations, and the following persons became the officers of the Company:
| David A. Loppert Anat Ebenstein Michael Krawitz J. Robert Patterson John C. Spielberger |
Chief Executive Officer, Assistant Secretary and Assistant
Treasurer President, Chief Operating Officer Vice President, Secretary Vice President, Chief Financial Officer and Treasurer Vice President, Sales and Marketing |
On July 13, 2001, Anat Ebenstein, our President and former Chief Operating Officer, was appointed to Chief Executive Officer. Mr. Loppert left the company to pursue other opportunities. Mr. Loppert's position on the Board of Directors was replaced by Scott Silverman.
On December 14, 2000, pursuant to the terms of a Stock Purchase Agreement, as amended, between us and Applied Digital Solutions, we acquired fifty-one percent (51%) of the outstanding shares of common stock of Information Products Center, Inc., a New Jersey corporation. The purchase price for the shares of Information Products Center was $2.075 million, payable $1.821 million in cash and $0.254 million by promissory note.
On December 15, 2000, pursuant to the terms of a Stock Purchase Agreement between us and Applied Digital Solutions, we acquired forty-nine percent (49%) of the outstanding shares of common stock of Information Products Center. The purchase price for the shares of Information Products Center was approximately $2.4 million, payable by promissory note.
On September 5, 2000, we received a notice that NASDAQ intended to de-list our stock from trading on the NASDAQ SmallCap Market, where it had previously been listed, because we had not maintained a minimum bid price for our stock of $1.00 over the prior 30 consecutive trading days. The matter was considered by the NASDAQ Listing Qualifications Panel at a hearing on December 14, 2000. The Panel was unwilling to grant us an extension of time to satisfy the minimum bid requirement, and the de-listing became effective on January 9, 2001. Our common stock is now traded on the OTC Bulletin Board.
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Effective July 3, 2001, Information Products Center, Inc. changed its name to InfoTech USA, Inc. The name change was made to unify our operating subsidiaries under one name. Our other wholly-owned subsidiary, Information Technology Services, Inc., currently does business under the name of InfoTech.
On July 30, 2001, we received an offer to purchase our 40,000 square foot facility including approximately 7.4 acres located at 20 Precision Drive, Shirley, New York, for a purchase price of $2,500,000. In accordance with Information Technology Services, Inc.‘s financing agreement with IBM Credit Corporation, ICC, ICC was notified of our intent to sell the building and, on August 17, 2001, we received approval from ICC to sell the premises. The closing date for the sale of the building is set for December 31, 2001. We expect the sale to generate cash of approximately $1,350,000 and allow all back office and warehousing operations to be centralized in our Fairfield, New Jersey location. The Fairfield, New Jersey location is currently serving as our corporate headquarters.
We are a Delaware corporation incorporated in 1997. Through our two wholly-owned subsidiaries, Information Technology Services, Inc., and InfoTech USA, (formerly Information Products Center, Inc.), which was acquired in December 2000, we provide professional services in the area of systems integration, information technology (IT) procurement and logistics, and technology strategy. Doing business as “InfoTech”, we provide integrated eBusiness strategy and technology implementation services on a national and regional basis to enterprise and small to medium businesses who want to fully leverage eBusiness technologies as part of their overall business strategy. Our service offering includes technology strategy and due diligence consulting, systems architecture and design, application and technology infrastructure deployment, enterprise security, IT product procurement and logistics, and provisioning. Our services are designed to improve a client’s competitive and financial position and increase efficiency through the development of pragmatic and innovative business strategies enabled by the integration of emerging and existing technologies.
In 2001, we recognized the changing needs of the industry and changed our business model. We moved away from the vendor dependent, product driven systems integration business model, to a client centric, business driven integrated solutions model. Based on this fundamental business strategy shift, we made significant investments in qualified personnel with industry specific skills, new partnerships, and the development of new service offerings. In addition, we began to restructure our management team. We continue to attract seasoned industry executives with strong business and technology acumen.
In the same year, we started to expand into specialized integrated solutions in the area of security and IT product procurement and logistics. Additionally, we have developed business alliances with prominent industry leaders, such as Panasonic, Bertelsmann, Iridian Technologies, IBM Global Services, and local regional partners, extending our value proposition.
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A significant percentage of our revenue is derived from product sales to customers in the financial and investment community. However, our customer base also includes retailers, manufacturers, health care providers, distributors, colleges, universities and state and local government agencies. Our customers include:
| Allen & Overy Baystate Medical Best Foods City of New York Crompton Corporation Duetsche Bank Dowling College Foster Wheeler GAF Materials Corporation Gillette Goldman Sachs & Company Hackensack University Medical Center IBM Corporation |
Liberty Mutual Lowenstein Sandler Massachusetts Mutual Morgan Stanley Museum of Modern Art New York Hotel Trades Council Polytechnic University Ramesys Technology Funding Solutions The United Bank for Africa Virage Logic Witco Corporation |
All of our revenue is derived from US based customers.
Our methodology is a well-defined process that helps us efficiently and successfully deliver our services. This methodology provides a framework that facilitates the distribution of knowledge within an engagement and across all parts of our firm. Our methodology is designed to allow us to provide consistent quality and efficiency across engagements and to deliver high value to clients in all aspects of our services.
The key to our methodology is the on-going improvement of the service offerings that we deliver. Because the needs of our clients are changing, we have designed our delivery and operations methodology with dynamic processes in order to improve the services delivered to clients and to enhance the approach itself.
Our methodology has five general stages: assess, architect/design, procure, deploy, and operate. Each of these stages includes the critical decisions our clients must make in order to improve their business.
Assess: During the Assess stage of the approach, we work closely with the client to define the overall IT strategy for their business, including business positioning and value offering. Upon completion of the Assess stage, we will have the information necessary to define key business and technology success factors and to prioritize the client’s business initiatives based on a common understanding of the client’s business objectives.
Architect/Design: In the Architect/Design stage, we define the scope of the engagement or project to be developed and design infrastructures to enable clients to meet their objectives. We design the infrastructure to integrate the software, network and hardware components necessary to support the applications. The architect stage occurs in two phases, Architect and Design.
The goal of the Architect phase is to collect application and process requirements to develop a baseline for the Design process.
During the Design phase, we define the processes, components and timeline necessary to realize the project goals. The goal of this phase is to create a complete plan that allows the infrastructure to be deployed, tested and implemented on time and within budget.
After the Architect/Design stage, the client has a blueprint for its project deployment. This blueprint identifies in detail the tasks necessary to meet the objectives and overall strategy goals as defined in the Assess stage.
Procure: In the Procurement stage of the methodology, we leverage our on-going and long-term contracts with hardware, software, and application providers. Based on the specifications outlined in the Architect/Design stage, we use the blueprint developed to get the optimal procurement options for the client. Bringing additional IT logistics and provisioning services and processes to our client, we can further improve the operations of its client’s business.
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Deploy: In the Deployment stage, we build and deploy the infrastructure, which may include the incorporation or integration of third party software or devices. Within this stage are three phases that are focused on successfully implementing the applications and infrastructure defined during the Architect stage.
Over the years, we have retained deeply skilled teams, integrated customer experience and technology processes, and dedicated technology to achieve the most efficient, effective, and highest quality solutions for our clients. In this phase, the architecture or system is deployed into a production environment, providing the necessary support and rapid issue resolution. The Deploy phase will deliver the designed architecture or system in its production environment typically employing performance, security, user acceptance, and testing, followed by a full-scale rollout to the target end-user population.
Operate: In the Operate stage, we manage and measure deployed project technical operations and provide a framework for ongoing improvements. By utilizing us for the ongoing management and improvements, the client can focus on its core competencies.
We have a twenty-year track record in the integration and deployment of high-level information systems to the banking and financial services communities. In addition, we have recently begun to focus on other selected, major markets, including retailers, manufacturers and distributors, institutions of higher learning, health care and pharmaceutical companies, and state and local government agencies. Our in-depth understanding of our customers’ current and future needs combined with our experience and in-depth market focus enable us to offer an optimum range of products and services that meet each of our customer’s requirements.
Over the course of more than 1,000 engagements since 1980, we have gained significant expertise in specific industries and types of business solutions. Our experience and expertise provide clients in these industries with a clear vision of the Internet’s and technology potential to improve their business processes and competitive positions. To effectively draw upon and add to this expertise, we organize our delivery of services into vertical industry groups. In 2001, we expanded and added to our vertical industry groups such that they now include: Financial Services, State and Local Government, Consumer Goods and Retail, Transportation, Media, and Service industries.
We complement our industry specialization with expertise in cross-industry business critical areas such as procurement and logistics, technology strategy, and change management. This allows us to deliver cross-industry best practices and expertise to clients in addition to industry expertise.
Until now, the Internet and related emerging technologies have provided opportunities to transform businesses and entire industries. Companies are using the Internet and related emerging technologies to communicate and transact business on a one-to-one basis with existing customers and to target and acquire new customers. At the same time, companies are using the Internet to collaborate with their supply-chain partners, enable electronic commerce and manage distribution relationships. The Internet has also allowed businesses to identify new product and service offerings that extend and complement their core markets.
However, faced with growing competition, deregulation and overall global economic uncertainty, companies are increasingly looking to new channels, such as the Internet, to build and retain a competitive advantage. Another form of competitive advantage, however, is important – profitability and business efficiency. The environment now offers the potential for organizations to extend their businesses beyond traditional limits. The Internet continues to extend the business role of technology from employee-focused productivity enhancement to customer-focused revenue generation. As a result, organizations are investing in the strategic use of Internet solutions to transform their core business and technology strategies. The early lessons of the environment have been noted and many companies today are investing heavily into additional business and technology improvements. The improvements range from simple security processes and technologies, to a complete overhaul in how companies are doing business with their clients and partners. The improvements also include a number of measures related to cost containment and business efficiencies. Companies are looking for better and faster ways to manage such business functions as Procurement, Logistics, Operations, and Human Resources.
5
Few companies have the range of skills necessary to successfully transform the way they use technology and implement new technology and Internet solutions. Compounded by additional requirements for fault-tolerance, disaster recovery, security, and overall business continuity, many companies are looking to continue to save cost by relying on professional service and procurement organizations that can off-load the financial and human resource burden.
The combination of these factors has created a significant and growing demand for systems integration professional services. Gartner Dataquest, an industry research group, estimates that the market for worldwide consulting and development and integration services will grow at a compound annual growth rate of 46% from $41 billion in 2000 to $272 billion in 2005. In addition, according to Datamonitor, another industry research group, the global market for mobile commerce solutions is expected to be $4.7 billion by 2005.
Vendors addressing the professional services market can be broadly divided into three major categories:
| 1. | Large systems integrators that provide either technology expertise across a wide range of offerings or more focused expertise related to specific components of technology-based solutions. |
| 2. | Strategy consulting firms that help companies define business models that allow their clients to successfully explore and use new channels to reach customers and suppliers. |
| 3. | Integrated solution professional services providers, that bring technology, industry, and specific solution expertise in a single firm. |
We believe companies are increasingly searching for a single-source professional services firm that can deliver integrated strategy, technology and creative skills specifically targeted at developing efficient, multi-channel business solutions. We believe firms in the integrated solutions professional services category, such as InfoTech, best meet this demand. Furthermore, we believe that companies will increasingly look to solution firms that can leverage industry best practices, scale to suit the needs of clients, demonstrate increased predictability of success for technology and business solutions and decrease risks associated with implementation and operations.
We use our integrated solutions methodology as a catalyst to help our clients unlock the value hidden in their enterprises. Our process leverages our expertise in technology strategy, customer experience and technology to help clients create new sources of revenue and eliminate cost. We also work with clients to increase their organization’s abilities to anticipate and capitalize on changes in their business environment. Our service offering includes technology strategy consulting, architecture and design services, IT procurement and logistics, technology infrastructure development and deployment, and enterprise management. The following descriptions highlight the primary services that we offer.
Technology Strategy Consulting: We work with clients to devise a technology strategy designed to provide them with measurable results. Our goal is to leverage the industry and technology experience and knowledge base of our professionals along with the experiences of our clients’ senior executives to formulate technology and operational strategies.
Architecture and Design: In addition to strategy, we offer architecture and design capabilities to our clients. Using a variety of technologies, we architect technology infrastructure for clients. Recognizing that the technical infrastructure becomes the foundation for any future application development, our technology infrastructure design services focus on enabling applications to be reliable, robust, secure, scalable and enterprise wide.
Technology Infrastructure Development and Deployment: We build and implement technology infrastructure that take into account the current and future business needs of our clients. This can be accomplished through our cadre of professionals with teams located either on the client’s site or in our dedicated facilities in the Northeast. We provide deeply skilled teams, an integrated customer experience and technology process, along with dedicated technology to provide the most efficient, effective and highest quality solutions to our clients. All of this results in a reduced cost of deployment and a potential accelerated return on investment for our clients. We recognize that new types of communications devices are proliferating, network usage is expanding, and the future of business will be dependent upon the development and integration of a variety of technologies. We build applications and technology infrastructure intended to accommodate these changes in the business environment. Our technology infrastructure development services utilize our capabilities in application software, networks, systems, security and infrastructure architecture. We develop technology infrastructure to be robust and to serve as the foundation for business and technology innovations that can link to existing systems and technologies.
6
IT Procurement and Logistics: Realizing that many businesses spend an incredible amount of time on research and procurement of technology solutions, we have successfully developed an IT Procurement and Logistics practice. The success of the practice is based on our ability to understand clients’ environment and successfully leverage our contracts and business relationship to procure, deploy, coordinate, and deliver technology solutions from many hardware, software, and application vendors.
Operations Management: Upon completion of engagements, we offer our clients technology and business management to help them operate and extend their businesses. These services include remote systems management, application management, performance management, content management, and system security management.
We are authorized to sell other manufacturers’ personal computer systems, mid range unix based systems networking, printers and software products including: Nortel, IBM, Compaq, 3Com, Lexmark, Hewlett Packard, Microsoft, Panasonic, Computer Associates, Cisco, and Novell. Our agreements with such suppliers allow for volume discounts if certain quotas are met. Although we have, to date, complied with these agreements, there is no assurance that we will continue to meet such quotas. To the extent that we do not comply with such terms, we may lose our status as an authorized reseller for such suppliers.
Our strategy is to build upon our position as a leading provider of leading integrated solutions that add significant and measurable business value to Global 1000, small to midsize companies, and other organizations. The following are the key elements of our strategy.
Leverage Existing Clients
We must continue to satisfy our existing customers. A strong track record of delivering high quality integrated solutions often increases the amount, scope and sophistication of services requested by such customers. This reinforces our growing reputation as an innovative provider of integrated solutions. We also believe that maintaining a reputation for delivering innovative business and technology solutions and client satisfaction will increase our ability to attract new clients through increased revenues and strong references.
We believe that our expertise in specific industry groups and industry-specific solutions considerably enhances our ability to help companies apply the technology experience to gain competitive advantage. In each of our vertical industry groups, we employ industry experts, pursue targeted sales and marketing, develop industry-specific offerings and capitalize on referrals from existing clients. We will continue to emphasize this focus and seek to expand the scope of our industry expertise.
Expansion Through Acquisitions
We believe that expanding geographically will increase our ability to attract and better service clients. We have already established offices in Boston, New York, Albany, New York, Fairfield, New Jersey, and Marlton, New Jersey. All of these offices have contributed to our continued ability to attract regional clients. We plan to continue establishing offices in key geographic locations through an integrated process of organic growth and targeted acquisitions.
Hire and Retain Skilled Professionals
We believe our ability to deliver sophisticated integrated technology solutions will distinguish us from other professional services providers. To deliver these services, we must hire and retain skilled professionals in all disciplines and continue to foster collaboration among them.
We have a dedicated organizational development team that initiates and oversees the training and development of our professionals. Key organizational development initiatives include a boot camp orientation and training program for all new employees, which provides ongoing technical and project management classes as well as career path management and guidance. We are committed to recruiting and hiring quality professionals and to maintaining a culture that motivates our staff while cultivating collaboration and retention. In 2001, we expanded our executive management team by hiring individuals for several strategic positions, director of professional services, director of human resources, and business development executive.
7
Evolving Methodology
We believe that continued evolution of our methodology will strengthen our competitive position. We enhance our methodology by incorporating best practices identified over numerous engagements. Through a continuous improvement program of standardized and comprehensive project launches and project-end review sessions, we continually update project methodologies in real-time. Additionally, trend analyses of project reviews and customer satisfaction surveys provide valuable feedback for process improvements. This enables clients to benefit from our cumulative experience. We will continue to enhance our process by updating the methodologies used to deliver high quality solutions to clients on time and on budget.
Strategic Alliances
We believe our relationships with leading technology partners provide increased visibility and sales opportunities. We currently maintain strategic partnerships and alliances with IBM, Compaq, Cisco, Iridian Technologies, Microsoft, and HP. We intend to continue to maintain and develop such relationships with leading technology vendors.
Our business activities are capital intensive and, consequently, we finance our accounts receivable and inventory. Failure to obtain adequate product financing on a timely basis could have a material adverse affect on our business, results of operations, financial condition and cash flows. On November 27, 2000, Information Technology Services, Inc. entered into an Agreement for Wholesale Financing with IBM Credit Corporation, which was subsequently amended on January 5, 2001. This agreement replaced the Inventory and Working Capital Financing Agreement with IBM Credit Corporation entered into in September 1996, as amended. The current agreement allows Information Technology Services, Inc. to finance inventory purchases up to $2,350,000. Borrowing for purchases is based upon 85% of all eligible receivables due within 90 days and up to 100% of all eligible inventory. The line is subject to temporary increases, thereby increasing the line of credit line up to $3,350,000. Additionally, InfoTech USA, Inc. (formerly Information Products Center, Inc.) also has an Agreement for Wholesale Financing with IBM Credit Corporation, through the Applied Digital Solutions credit facility, to finance inventory purchases up to $1,000,000. Borrowing for purchases is based upon 75% of all eligible receivables due within 90 days and up to 45% of all eligible inventory.
In May 1999, Applied Digital Solutions entered into a Term and Revolving Credit Agreement with IBM Credit Corporation. The IBM Agreement, as amended and restated on March 31, 2001, provides for interest at the 30-day London Interbank Offered Rate plus 2.75%. The IBM Agreement contains standard convenants relating to Applied Digital Solutions' financial position and performance, as well as restrictions on Applied Digital Solutions' declaration and payment of dividends. In addition, Applied Digital Solutions' shares of our common stock are pledged as collateral for the IBM Agreement. IBM Credit Corporation has a security interest in our receivables and inventory, up to the amount advanced from Applied Digital Solutions under the line of credit. The loan bears interest at the same rate as paid by Applied Digital Solutions. The loan, including interest, is repayable as funds are available.
Applied Digital Solutions failed to make interest and principal payments due to IBM Credit Corporation during 2001 and violated debt covenants. Effective November 15, 2001, IBM Credit Corporation extended the due dates of all interest and principal payments currently due under the credit agreement until January 4, 2002. Applied Digital Solutions has not received and does not anticipate receiving waivers concerning its covenant defaults. Applied Digital Solutions is currently seeking to restructure the IBM Agreement, which matures on May 25, 2002. Applied Digital Solutions believes that it will be successful in its efforts to restructure the IBM credit agreement. There can be no assurance, however, that its ongoing discussions with IBM Credit Corporation will be successful. Applied Digital Solutions’ non-compliance with certain covenants constitutes an event of default under the IBM Agreement and IBM Credit Corporation is entitled to accelerate maturity of all amounts due. Due to these circumstances, future borrowings may not be available from Applied Digital Solutions.
8
We are actively seeking a new credit facility, which will adequately serve our financing needs. We are in the process of negotiating a proposal with a major finance company for a credit facility totaling $10,000,000. However, any change in financing arrangements may require the consent of Applied Digital Solutions and IBM Credit Corporation. There can be no assurances that these consents will be given, or that we will be successful in our negotiations for a new credit facility. Our inability to have continuous access to such financing at reasonable costs would materially and adversely impact our financial condition, results of operations and cash flows.
Our sales and marketing activities are aligned with our geographical, vertical industry, and solution units. Each vertical industry and geographic Director is responsible for developing InfoTech’s business within the respective industry, geography, or solution segment, targeting new clients and cultivating repeat business with existing clients. We believe that our business and technology integrated solutions knowledge and approach is a differentiating factor during the sales process as it demonstrates our understanding of the client’s specific business and technology issues. Our sales approach is highly consultative and involves industry and solutions experts who draw on their practical experiences with other clients that have faced similar challenges. We also assign senior client executives to strategic accounts to support and expand client relationships.
Our sales organization, which spans our integrated solutions and vertical industry groups, includes more than 10 professionals dedicated to direct sales and executive client relationship management. These professionals are assigned to specific vertical industry practices to maximize responsiveness to clients and pursue new business opportunities.
Our marketing efforts are focused on developing the InfoTech brand and generating business opportunities. The marketing function consists of corporate and vertical market programs and teams that span our regions. Our marketing initiatives encompass thought leadership programs and publishing, direct mail, public and industry analyst relations, and event and speaking programs for our executives.
We believe that our ability to provide effective total integrated solutions to meet the needs of our customers is enhanced by our internal management information system, which combines accounting, purchasing, inventory control, sales order processing and work order management. We provide a large array of services to our customers, including warranty repair technology products; toll-free telephone number for sales and product information and order placement; toll-free telephone number for customer service on all products sold, including technical assistance and repair warranty; E-mail network access for customers to receive real time price quotations, place orders and check order status; on-site system engineers to provide technical assistance for installations and upgrades; to provide customized services such as helpdesk, consulting, extended warranty, extended maintenance coverage; and creative financing and procurement options on all products sold.
The market for our services is subject to rapid technological change and increased competition from large existing players, new entrants and internal information systems groups. Traditional players competing in this space can be broken down into three major categories -- large systems integrators (e.g., International Business Machines Corporation, Accenture, KPMG Consulting, Cap Gemini Ernst & Young, Deloitte Consulting, and PricewaterhouseCoopers), strategy consulting firms (e.g., McKinsey & Company and The Boston Consulting Group), and Integrated Solutions professional services providers (e.g., IBM Global Services, EDS, etc.) -- many of which have more financial resources, marketing depth and name recognition than InfoTech. We expect further consolidation in the professional services market to create larger, more viable competitors. Potential clients’ internal information systems groups also compete with us.
We believe the principal competitive factors in the Integrated Solutions professional services market include technology and Internet expertise and talent; quality, pricing and speed of service delivery; client references; integrated strategy, technology and operational services; and vertical industry knowledge. We believe we compete favorably with respect to these factors and have established ourselves as a leader in Integrated Solutions industry and domain expertise.
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Certain statements in this Annual Report, and the documents incorporated by reference herein, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. We intend that such forward-looking statements be subject to the safe harbors created thereby. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: our continued ability to sustain our growth through product development and business acquisitions; the successful completion and integration of future acquisitions; the ability to hire and retain key personnel; the continued development of our technical, manufacturing, sales, marketing and management capabilities; relationships with and dependence on third-party suppliers; anticipated competition; uncertainties relating to economic conditions where we operate; uncertainties relating to government and regulatory policies; uncertainties relating to customer plans and commitments; rapid technological developments and obsolescence in the industries in which we operate and compete; potential performance issues with suppliers and customers; governmental export and import policies; global trade policies; worldwide political stability and economic growth; the highly competitive environment in which we operate; potential entry of new, well-capitalized competitors into our markets; changes in our capital structure and cost of capital; and uncertainties inherent in international operations and foreign currency fluctuations. The words “believe”, “expect”, “anticipate”, “intend” and “plan” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.
As of December 18, 2001, we employed 56 full-time and 1 part-time employees. We have no collective bargaining agreements and believe our relations with our employees are good.
Customers typically do not place recurring “long-term” orders with us, resulting in a limited order backlog at any point in time. Our failure to receive orders from customers on a continuous basis would have a material adverse effect on our financial condition, results of operations and cash flows given our lack of recurring orders.
Federal, state, and local laws or regulations which have been enacted or adopted regulating the discharge of materials into the environment have not had, and under present conditions we do not foresee that they will have, a material adverse effect on our capital expenditures, earnings, cash flows or our competitive position. We will continue to monitor its operations with respect to potential environmental issues, including changes in legally mandated standards.
In May 1998, our new 40,000 square foot assembly, warehouse and headquarters facility located in Shirley, New York became operational. The total cost to construct and equip this facility was approximately $2.325 million, exclusive of land. Construction costs were reduced by $100,000, after application of a $100,000 grant from The Empire State Development Corporation in 1999. As noted above the sale of this location is pending.
We lease 5,027 square feet of general office space in New York City pursuant to a five year lease at an annual rental of $130,704. This lease expires on February 28, 2002.
We leased 2,850 square feet of general office space in Waltham, Massachusetts pursuant to a five year lease with an initial term which expired on October 31, 1999 and was renewed through January 31, 2002 at a base annual rental of $62,700 subject to escalation. On September 30, 2000, we closed the Waltham office and sublet the space at no profit or loss.
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We lease 200 square feet of general office space in Marlton, New Jersey for $13,800 per year, expiring on July 31, 2002.
We lease 415 square feet of general office space in Albany, New York for $6,640 per year expiring on April 15, 2002.
We lease 9,661 square feet of general office space in Fairfield, New Jersey for $144,915 per year expiring on December 27, 2005.
We are party to various legal proceeding and claims that arise in the ordinary course of business. In the opinion of management, these proceedings are not likely to have a material adverse impact on our financial position, results of operations or cash flows. The estimate of potential impact on our financial position, results of operations or cash flows for the above legal proceedings could change in the future.
We are not subject to any environmental or governmental proceedings.
None.
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Our common stock trades on the OTC Bulletin Board under the symbol “SYCM.OB”. The following table shows, for the periods indicated, the high and low sale prices per share of the common stock based on published financial sources.
| High | Low | ||||
| 2000 | |||||
| |
First Quarter Second Quarter Third Quarter Fourth Quarter |
$ 1.53 3.47 1.94 1.25 |
|
$ 0.63 1.09 0.88 0.63 |
|
| 2001 | |||||
| First Quarter Second Quarter Third Quarter Fourth Quarter |
$ 1.13 0.88 0.60 0.57 |
$ 0.47 0.47 0.42 0.29 |
We have never paid cash dividends on our common stock. The decision whether to apply legally available funds to the payment of dividends on our common stock will be made by our Board of Directors from time to time in the exercise of its business judgment. The financing agreement with IBM Credit Corporation contains restrictions on our ability to declare and pay dividends.
As of December 18, 2001, there were 56 holders of record of our common stock. We believe that there are a substantially greater number of beneficial owners of shares of our common stock.
None.
12
The selected consolidated financial data set forth below, insofar as they relate to the five years ended September 30, 2001, are derived from, and are qualified by reference to, our audited consolidated financial statements included herein and should be read in conjunction with those consolidated financial statements and the notes thereto. The selected consolidated financial data as of September 30, 1997, 1998 and 1999 and for the years ended September 30, 1997 and 1998 are derived from audited consolidated financial statements not included herein. Results for past periods are not necessarily indicative of results that may be expected for future periods.
| Consolidated Statement of | For the Year Ended September 30, |
||||
| Operations Data | 2001 | 2000 | 1999 | 1998 | 1997 |
| |
(amounts in thousands except per share amounts) |
||||
| Net sales | $ 36,261 | $ 40,690 | $ 69,683 | $ 98,303 | $ 89,726 |
| Cost of sales | 30,076 | 36,117 | 62,731 | 89,048 | 78,049 |
| Inventory write-down | |
|
- |
658 |
- |
| Gross profit | 6,185 | 4,573 | 6,952 | 8,597 | 11,677 |
| Selling and administrative expenses | 6,879 |
6,719 |
7,250 |
8,194 |
6,535 |
| Income/(loss) from operations | (694) | (2,146) | (298) | 403 | 5,142 |
| Interest expense (net) | (177) | (36) | (217) | (881) | (979) |
| Other income | 7 | (9) | 3 | (35) | 3 |
| Realized loss on available-for-sale securities | - |
- |
- |
(206) |
- |
| Income/(loss) from continuing operations before income taxes |
(864) | (2,191) | (512) | (719) | 4,166 |
| (Provision) benefit for income taxes | 159 |
231 |
112 |
272 |
(1,762) |
| Net income/(loss) |
$ (705) |
$ (1,960) |
$ (400) |
$ (447) |
$ 2,404 |
| Per Share Data: |
|
|
|
|
|
| Income (loss) from continuing operations - basic |
$ (0.15) |
$ (0.42) |
$ (0.08) |
$ (0.10) |
$ 0.67 |
| Weighted average number of shares outstanding - basic |
4,823 |
4,694 |
4,750 |
4,593 |
3,562 |
| Consolidated Balance Sheet | |||||
| Data: | As of September 30, |
||||
| 2001 | 2000 | 1999 | 1998 | 1997 | |
| Working capital Total assets Short term debt Long term debt Stockholders' equity |
$ 4,494 19,071 1,954 2,440 8,650 |
$ 6,063 15,630 279 999 9,208 |
$ 9,078 19,302 96 1,610 11,207 |
$ 9,314 27,857 3,115 1,611 11,552 |
$ 10,356 38,104 10,658 66 11,828 |
13
We operate in a highly competitive industry, which in turn places constant pressures on maintaining gross profit margins. Many of our sales are high volume equipment sales, which produce lower than average gross profit margins, but are often accompanied by a service arrangement which yields higher than average gross profit margins.
The following table sets forth, for the periods indicated, the percentage relationship to net sales of certain items in the Company’s consolidated statements of operations.
| Years Ended September 30, |
|||||
| 2001 | 2000 | 1999 | |||
| % | % | % | |||
| Net sales Cost of goods sold |
100.0% -82.9% |
100.0% -88.8% |
100.0% -90.0% |
||
| Gross profit Selling, general and administrative expenses |
17.1% -19.0% |
11.2% -16.5% |
10.0% -10.4% |
||
| Income (loss) from operations Interest expense (net) |
-1.9% -0.4% |
-5.3% -0.1% |
-0.4% -0.3% |
||
| Loss before income taxes Income tax benefit |
-2.3% 0.4% |
-5.4% 0.6% |
-0.7% 0.2% |
||
| Net loss | -1.9% |
-4.8% |
-0.5% |
||
Fiscal Year 2001 Compared to Fiscal Year 2000
(in $'000 unless otherwise noted)
Sales for fiscal year 2001 decreased approximately 10.9%, or $4,429 to $36,261 from $40,690 in fiscal year 2000. The decrease in revenue was a result of lower product sales, which declined by $7,917, or 19.5%, to $32,773 from $40,690. This was somewhat offset by increased service revenue of $3,488 primarily from InfoTech USA (formerly Information Products), acquired in December 2000. Service revenue in fiscal year 2000 was negligible. The decrease in product sales was a result of the pending change in control of the Company in the first quarter and the reduction in sales staff resulting in substantially lower revenue during the first quarter of 2001. Additionally, the industry has suffered from a very soft market, which began in February of 2001. This was somewhat offset by the 10 months of incremental sales contributed by InfoTech USA.
Gross profit and gross profit as a percentage of sales both increased in fiscal year 2001 compared to fiscal year 2000. Gross profit increased by $1,612 to $6,185 in fiscal year 2001 compared to $4,573 in fiscal year 2000, an increase of 35.3%. Gross profit as a percentage of sales rose to 17.1% in fiscal year 2001 from 11.2% in fiscal year 2000. Product gross profit percentage was 12.8% in 2001 compared to 11.2% in 2000. Service gross profit percentage was 57.2% in fiscal year 2001. Service revenue in fiscal year 2000 was negligible. The substantial increase in the gross profit and the gross profit percentage, despite lower revenue, was primarily attributable to the acquisition of InfoTech USA in December 2000. InfoTech USA’s product and services business produced a significantly higher margin during the period than the Company has historically experienced.
Selling, general and administrative expenses were $6,249 for fiscal year 2001, down $162, or 2.5%, from $6,411 in fiscal year 2000. The reduction in expense was primarily due to layoffs at Information Technology Services, Inc. and other cost control programs, reduced commissions on lower sales, and staff reductions associated with redirecting marketing efforts implemented in the 4th quarter of 2000. In addition, we received approximately $230 in reimbursement from Applied Digital Solutions for services provided by our officers to other subsidiaries of Applied Digital Solutions. These reimbursements were primarily for salaries of certain officers. These reimbursements were recorded as an offset to selling, general and administrative expenses in the period the expenses were incurred. We do not anticipate receiving future reimbursements from Applied Digital Solutions due to the resructuring of their operations. This was offset somewhat by additional selling, general and administrative expenses from InfoTech USA.
14
Depreciation and amortization expense for fiscal year 2001 was $535, an increase of $227 or 73.7% over the $308 in fiscal 2000. The increase was primarily due to the amortization of goodwill associated with the acquisition of InfoTech USA in December 2000, as well as the additional depreciation expense from InfoTech USA.
Asset impairment of $95 in fiscal year 2001 is a result of the plan to dispose of our Shirley, New York facility (see Note 4 of our Consolidated Financial Statements). There was no asset impairment in fiscal year 2000.
Interest expense increased $125 to $272 in 2001 compared to $147 in 2000, an increase 85.0%. The increase in interest expense was primarily due to the debt associated with the acquisition of InfoTech USA.
Loss from operations before income taxes decreased significantly. The decrease in the loss of $1,327 to $864 in fiscal year 2001, from a loss of $2,191 in fiscal year 2000, was decrease of 60.6%. The improved operating results before income taxes resulted primarily from the improved gross profit stemming from an improved mix of services and products offered by the company in fiscal year 2001.
Our effective tax rate was 18.4% in fiscal year 2001 and 10.6% in fiscal year 2000. Differences in the effective income tax rate from the statutory federal rate arise from non-deductible goodwill amortization and state taxes net of federal benefit.
Our net loss for fiscal year 2001 decreased $1,255to $705 from $1,960 in fiscal year 2000 primarily due to improved gross profit.
Fiscal Year 2000 Compared to Fiscal Year 1999
(in $'000 unless otherwise noted)
Sales for fiscal year 2000 decreased approximately 41.6%, or $28,993 to $40,690 from $69,683 in fiscal year 1999. The decrease in sales was a result of the Company transitioning its business from a primarily hardware distributor and personal computer assembler to a reseller of mid-range systems and the transition to a systems integrator.
Gross profit as a percentage of sales increased to 11.2% in fiscal year 2000, from 10.0% in fiscal year 1999. This increase was primarily attributable to the sale of more profitable mid-range systems than less profitable personal computer systems.
Selling and administrative expenses decreased by approximately 7.3%, or $531 to $6,719 in fiscal 2000, from $7,250 in fiscal year 1999. The reduction in expense is primarily due to cost control programs, reduced commissions on lower sales and staff reductions associated with redirecting marketing efforts, offset by an increase in salaries related to systems integration engineers and specialists.
Interest expense decreased 43.5%, or $113 to $147 in fiscal year 2000, from $260 in fiscal year 1999. We believe that constant monitoring of accounts receivable has helped to keep interest costs at a minimum. In addition, we use all available funds to reduce our outstanding supplier credit facility on a daily basis. Net interest expense (interest expense less interest income) for fiscal year 2000 and 1999 was $36 and $217 respectively.
Loss from operations before income taxes increased 328.1% to $2,191 in fiscal year 2000, from $512 in fiscal year 1999. This increase resulted primarily from increase in salary expense to support our transition to a systems integrator.
Our effective tax rate was 10.5% in fiscal year 2000 and 21.9% in fiscal year 1999. Differences in the effective income tax rate from the statutory federal rate arise from state taxes net of federal benefit and the increase of the valuation allowances of deferred tax assets related to net operating loss carryforwards.
Our net loss for fiscal year 2000 increased to $1,960 from $400 in fiscal year 1999 primarily due to increases in Selling and Administrative Expenses.
Cash provided by operating activities in fiscal 2001 was $3,245 compared to cash used in operating activities of $458 in fiscal year 2000, and cash provided by operating activities of $4,569 in fiscal year 1999. The cash provided by operating activities during 2001 was primarily a result of a large reduction in accounts receivable and a reduction in inventory. This was somewhat offset by a reduction in accounts payable and the net loss for the year. The cash used in operating activities in fiscal 2000 was primarily as a result of the net loss for the year and reductions in payable, which was offset by reductions in accounts receivable and other current assets. The cash provided by operating activities during fiscal year 1999 was primarily a result of significant reductions in both inventory and accounts receivable that was somewhat offset by a large reduction in accounts payable.
15
Cash used in investing activities was $2,022, $300 and $109 for fiscal years 2001, 2000 and 1999, respectively. The large use of cash in investing activities in 2001 was primarily to acquire our interest in Information Products in the first quarter of 2001. The use of cash in 2000 and 1999 was primarily for financing capital expenditures.
Net cash used in financing activities was $451, $467 and $3,111 for the fiscal years 2001, 2000 and 1999, respectively. The net cash used in 2001 was primarily due to InfoTech USA paying down its line of credit with Applied Digital Solutions. In 1999, the net cash used in financing activities related primarily to payments made under our supplier credit facility. Other net cash used in financing in 2001, 2000 and 1999 were for payments on notes payable and long-term debt and the re-purchase of our common stock.
Under our financing arrangement with IBM Credit Corporation, as of September 30, 2000, we were able to borrow up to 85% of our eligible accounts receivable and 100% of our eligible inventory, up to a maximum of $22,500,000. As of September 30, 2000, 1999 and 1998, interest on the outstanding borrowings for IBM Credit Corporation were payable monthly at the prime rate, or prime rate plus 6.5% should we fail to meet certain collateral requirements. As of September 30, 2000 and 1999, there were no borrowings outstanding under the IBM Credit Corporation facility. Additionally, advances under our Agreement for Wholesale Financing from IBM Credit Corporation totaling $4,411,031 and $3,282,454 were included in accounts payable at September 30, 2000 and 1999, respectively, and were offset against the maximum credit available at that time from IBM Credit Corporation.
In May 1999, Applied Digital Solutions entered into a Term and Revolving Credit Agreement with IBM Credit Corporation. The IBM Agreement, as amended and restated on March 31, 2001, provides for interest at the 30-day London Interbank Offered Rate plus 2.75%. The IBM Agreement contains standard covenants relating to Applied Digital Solutions' financial position and performance, as well as restrictions on Applied Digital Solutions' declaration and payment of dividends. In addition, Applied Digital Solutions' shares of common stock are pledged as collateral for the IBM Agreement. IBM Credit Corporation has a security interest in our receivables and inventory, up to the amount advanced from Applied Digital Solutions under the line of credit. The loan bears interest at the same rate as paid by Applied Digital Solutions. The loan, including interest, is repayable as funds are available.
Applied Digital Solutions failed to make interest and principal payments due to IBM Credit Corporation during 2001 and violated debt covenants. Effective November 15, 2001, IBM Credit Corporation extended the due dates of all interest and principal payments currently due under the credit agreement until January 4, 2002. Applied Digital Solutions has not received and does not anticipate receiving waivers concerning its covenant defaults. Applied Digital Solutions is currently seeking to restructure the IBM Agreement, which matures on May 25, 2002. Applied Digital Solutions believes that it will be successful in its efforts to restructure the IBM Agreement. There can be no assurance, however, that its ongoing discussions with IBM Credit Corporation will be successful. Applied Digital Solutions’s non-compliance with certain covenants constitutes an event of default under the IBM Agreement, and IBM Credit Corporation is entitled to accelerate maturity of all amounts due. Due to these circumstances, future borrowings may not be available from Applied Digital Solutions.
We are actively seeking a new credit facility, which will adequately serve our financing needs. We are in the process of negotiating a proposal with a major finance company for a credit facility totaling $10,000. However, any change in financing arrangements may require the consent of Applied Digital Solutions and IBM Credit Corporation. There can be no assurances that these consents will be given, or that we will be successful in our negotiations for a new credit facility. Our inability to have continuous access to such financing at reasonable costs would materially and adversely impact our financial condition, results of operations and cash flows.
We believe that our present Agreement for Wholesale Financing with IBM Credit Corporation, current cash position, projected positive cash flow and financing provided by Applied Digital Solutions or other credit parties will be sufficient to fund our operations and capital expenditures for at least 12 months.
On December 15, 2002, a payment of $2,398,000 is due to Applied Digital Solutions on a promissory note related to the acquisition of InfoTech USA. We may be unable to pay this note without additional sources of financing. If we are unable to pay the note on its due date, we will seek to renegotiate its terms with Applied Digital Solutions.
16
We have historically experienced, and expect to continue to experience, fluctuations in our net sales, income from operations and net income due to the size and timing of system sales transactions. Due to the fact that a significant portion of our overhead is fixed, our results of operations may be adversely affected if revenues were to fall below our expectations. We can typically deliver systems within a short period of time and therefore we do not have a significant long-term backlog in orders.
The following table sets forth certain quarterly information for the periods indicated:
| First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
|
| |
(Amounts in thousands) |
|||
| For the year ended September 30, 2001: |
||||
| Net sales Gross profit Income (loss) from operations Net income (loss) |
$ 7,428 1,741 (387) (353) |
$ 9,240 1,666 (41) (100) |
$ 7,465 996 (463) (324) |
$12,128 1,782 197 72 |
| For the year ended September 30, 2000: |
||||
| Net sales Gross profit Loss from operations Net loss |
$ 11,725 1,282 (952) (748) |
$ 9,338 1,313 (535) (470) |
$ 10,832 1,034 (538) (530) |
$ 8,795 944 (121) (212) |
| For the year ended September 30, 1999: |
||||
| Net sales Gross profit Income (loss) from operations Net income (loss) |
$ 27,329 2,839 938 511 |
$ 14,355 1,921 368 172 |
$ 14,018 1,218 (777) (478) |
$ 13,981 974 (827) (605) |
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements. This Staff Accounting Bulletin summarizes certain of the staff’s views on applying Generally Accepted Accounting Principles to revenue recognition in financial statements. On June 26, 2000, the SEC staff issued SAB No. 101B, which delays the implementation date of SAB 101 until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. We adopted SAB 101 in October 2000 and such adoption did not have a material impact on our results of operations, cash flows and financial condition.
In September 2000, the EITF reached a consensus in EITF Issues 00-10, “Accounting for Shipping and Handling Fees and Costs,” agreeing that shipping and handling fees must be classified as revenues and comparable prior periods should be restated. Further, they agreed that shipping and handling costs can be classified anywhere in the statement of earnings, except they cannot be netted against sales. If shipping and handling costs are not included in costs of goods sold, the amount and classification of these expenses must be disclosed in the footnotes to the financial statements. This consensus must be adopted no later than the fourth quarter of fiscal years beginning after December 15, 1999. We adopted EITF Issue 00-10 in October 2001, and such adoption did not have a material impact on our results of operations, cash flows and financial condition.
17
In July 2001, the Financial Accounting Standards Board (“FASB”) issued FAS No. 141 Business Combinations and FAS No. 142 Goodwill and other Intangible Assets. FAS 141 requires, among other items, business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and establishes specific criteria for the recognition of intangible assets separate from goodwill. FAS 142 states (1) goodwill and indefinite lived intangible assets will no longer be amortized; (2) goodwill will be tested for impairment at least annually; (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually and (4) the amortization period of intangible assets with finite lives will no longer be limited to forty years. We will adopt the provisions of these statements at the beginning of our fiscal year beginning October 1, 2001. We do not anticipate any impairment of goodwill upon adoption.
In August 2001, the Financial Accounting Standards Board (“FASB”) issued FAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This standard supersedes FAS No. 121, Accounting for the Impairment of Long-Lived Assets to Be Disposed Of, and provides a single accounting model for long-lived assets to be disposed of. This standard significantly changes the criteria that would have to be met to classify an asset as held-for-sale. This distinction is important because assets to be disposed of are stated at the lower of their fair values or carrying amounts and depreciation is no longer recognized. The new rules will also supercede the provisions of APB Opinion 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, with regard to reporting the effects of a disposal of a segment of a business and will require expected future operating losses from discontinued operations to be displayed in discontinued operations in the period in which the losses are incurred, rather than as of the measurement date as presently required by APB 30. This statement is effective for fiscal years beginning after December 15, 2001. We do not expect that the adoption of FAS 144 will have a material impact on our operations or financial position.
In the opinion of management, inflation has not had a material effect on the operations of the Company.
We presently do not use any derivative financial instruments to hedge our exposure to adverse fluctuations in interest rates, foreign exchange rates, fluctuations in commodity prices or other market risks, nor do we invest in speculative financial instruments. Borrowings under the financing agreement with IBM Credit Corporation are at the prime rate. Our interest income is sensitive to changes in the general level of U. S. interest rates, particularly since the majority of our investments are in short-term investments.
Due to the nature of our borrowings and our short-term investments, we have concluded that there is no material market risk exposure and, therefore, no quantitative tabular disclosures are required.
Our consolidated financial statements and supplementary data included in this Annual Report are listed in Item 14 and begin immediately after Item 14.
(a) Previous independent accountants
On September 7, 2001, we replaced Albrecht, Viggiano, Zureck & Company, P.C. as its independent accountants. Our Board of Directors approved the decision to change independent accountants. The reports of Albrecht, Viggiano, Zureck & Company, P.C. on the financial statements for the past two fiscal years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. In connection with its audits for the two most recent fiscal years and through September 6, 2001, there have been no disagreements with Albrecht, Viggiano, Zureck & Company, P.C. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Albrecht, Viggiano, Zureck & Company, P.C. would have caused them to make reference thereto in their report on the financial statements for such years. During the two most recent fiscal years and through September 6, 2001, there have been no reportable events as defined in Regulation S-K Item 304(a)(1)(v). We have requested that Albrecht, Viggiano, Zureck & Company, P.C. furnish us with a letter addressed to the SEC stating whether or not it agrees with the above statements. A copy of such letter, dated September 13, 2001, is filed as an exhibit to this annual report.
18
(b) New independent accountants
We engaged Rubin, Brown, Gornstein & Company, LLP as our new independent accountants as of September 13, 2001. During the two most recent fiscal years and through September 13, 2001, we have not consulted with Rubin, Brown, Gornstein & Company, LLP regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our financial statements, and neither a written report nor oral advice was provided to us that was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K, or a reportable event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
We filed a Current Report on Form 8-K on September 13, 2001 with the Securities and Exchange Commission to report the engagement of Rubin, Brown, Gornstein & Company, LLP. Attached to that report as an exhibit was a letter from Albrecht, Viggiano, Zureck & Company, P.C. addressed to the Securities and Exchange Commission stating that they agreed with the disclosure contained in the Current Report on Form 8-K.
19
The information required by this Item 10 will be included in our Proxy Statement for our 2002 Annual Meeting of Stockholders and is incorporated herein by reference.
The information required by this Item 11 will be included in our Proxy Statement for our 2002 Annual Meeting of Stockholders and is incorporated herein by reference.
The information required by this Item 12 will be included in our Proxy Statement for our 2002 Annual Meeting of Stockholders and is incorporated herein by reference.
The information required by this Item 13 will be included in our Proxy Statement for our 2002 Annual Meeting of Stockholders and is incorporated herein by reference.
20
(a)(1) |
The financial statements and financial statement schedule listed below are included in this report |
|
Consolidated Balance Sheet |
|
Financial Statement Schedule |
|
Schedule of Valuation and Qualifying Accounts |
(a)(2) |
Financial statement schedules have been included in Item 14(a)(1) above. |
(a)(3) |
Exhibits |
(b) |
Reports on Form 8-K |
(c) |
Exhibits - Included in Item 14(a)(3) above. |
21
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Fairfield, State of New Jersey, on December 21, 2001.
| |
SYSCOMM INTERNATIONAL CORPORATION (Registrant) |
|
| By: | /s/ Anat Ebenstein |
|
| Anat Ebenstein, Chief Executive Officer, Assistant Secretary, Assistant Treasurer and Director |
||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature |
Title |
Date |
| /s/ Garrett A. Sullivan |
Chairman of the Board of | December 21, 2001 |
| (Garrett A. Sullivan) |
Directors |