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                   U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549
                                _______________

                                  FORM 10-KSB
(Mark One)
          [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                          SECURITIES AND EXCHANGE ACT OF 1934
                      For the fiscal year ended December 31, 1998

                                      OR

         [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                            SECURITIES EXCHANGE ACT OF 1934
           For the transition period from ____________ to _________________

                        Commission file number 1-11686

                         CYCOMM INTERNATIONAL INC. 
                (Name of Small Business Issuer in Its Charter)
                                          
       Wyoming                                         54-1779046 
(State or other jurisdiction of                     (I.R.S. Employer
 incorporation or organization)                    Identification No.)          
                        
                             

1420 Springhill Road, Suite 420, McLean, Virginia             22102 
(Address of Principal Executive Offices)                    (Zip Code)

        Issuer's telephone number, including area code: (703) 903-9548

        Securities registered under Section 12(b) of the Exchange Act:
                       Common Stock, without par value 
                               (Title of Class)

     Securities registered under Section 12(g) of the Exchange Act: None

Check  whether  the  issuer  (1) filed  all  reports  required  to be filed by
Section  13 or 15(d) of the  Exchange  Act  during  the past 12 months (or for
such shorter  period that the  registrant  was required to file such reports),
and (2) has been  subject to such  filing  requirements  for the past 90 days.
Yes        No X

Check if there is no disclosure  of delinquent  filers in response to Item 405
of  Regulation  S-B  contained  in  this  form,  and  no  disclosure  will  be
contained,  to the best of  registrant's  knowledge,  in  definitive  proxy or
information  statements  incorporated  by  reference  in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [   ]

Issuer's revenues for its most recent fiscal year.  $18,991,587

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant on March 31, 1999 was approximately $10,150,504
(based on the closing ale price of $0.82 per share at which the stock
was sold on March 31, 1999).

The number of shares  outstanding  of the issuer's  class of Common Stock,  no
par value, as of March 1, 1999,
12,492,928 shares

                     DOCUMENTS INCORPORATED BY REFERENCE
(1) Definitive  Proxy  Statement for 1998 Annual Meeting of  Stockholders  ---
Part III - Items 9, 10, 11 and 12.

Transitional Small Business Disclosure Format (check one):
      Yes               No     X    




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                              TABLE OF CONTENTS
 
                                                                        PAGE

                                    Part I

<TABLE>
<S>        <C>                                                           <C>
Item 1.    Description of Business ...............................        3

Item 2.    Description of Property................................       18

Item 3.    Legal Proceedings......................................       18

Item 4.    Submission of Matters to a Vote of Security Holders....       18

                                   Part II

Item 5.    Market for Common Equity and Related Stockholder Matters      19

Item 6.    Management's Discussion and Analysis or Plan of Operation     20

Item 7.    Financial Statements...................................       25


Item 8.    Changes In and Disagreements With Accountants on Accounting
               and Financial Disclosure...........................       25

                                   Part III

Item 9.    Directors, Executive Officers, Promoters and Control Persons;
Compliance
               with Section16(a) of the Exchange Act..............       26

Item 10.  Executive Compensation..................................       26

Item 11.  Security Ownership of Certain Beneficial Owners and Management 26

Item 12.  Certain Relationships and Related Transactions..........       26

Item 13.  Exhibits and Reports on Form 8-K........................       27

Signatures........................................................       29
</TABLE>



 
 



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                                    PART I


ITEM 1.    DESCRIPTION OF BUSINESS

Introduction

      Cycomm   International   Inc.   (hereinafter   referred  to  as  "Cycomm
International"  and together with its subsidiaries,  the "Company")  develops,
manufactures  and  markets   value-added  rugged  computer  products,   secure
computing  products  and secure  telecommunications  products.  The  Company's
rugged  computer  products  are  designed to function in adverse  environments
under extreme weather,  shock,  moisture and vibration  operating  conditions.
The Company's  secure computer  products are designed to protect users against
the  unauthorized  interception of  electromagnetic  emissions  emanating from
computer  systems.  The  Company's  secure  telecommunications   products  are
designed to protect users against the  unauthorized  interception  of wireless
conversation from cellular  communications.  The Company is currently involved
in  negotiations to sell its secure  computing and the Val-Comm  subsidiary in
its  secure  telecommunications  divisions.  For  further  discussion  of  the
potential sales of subsidiaries,  see Managements  Discussion and Analysis or
Plan of Operation.

History

      The  Company  was formed on April 30,  1986 by the  amalgamation  of two
Ontario  corporations  under the laws of  Ontario.  Historically,  the Company
has  operated  under  various  names;  however,  it changed its name to Cycomm
International   Inc.  on  February  20,  1992.   The  Company   continued  its
incorporation  on  October  31,  1995  from  Ontario,  Canada  to the State of
Wyoming pursuant to the Articles of Continuance.

      At its formation in 1986, the Company was involved in the  manufacturing
and marketing of certain sonar  activated  marine buoyancy  devices.  In 1987,
the   Company   became   involved   in   certain   technologies   related   to
telecommunication   systems.   In  May  1990,  the  Company   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,  the Company  acquired  Val-Comm,
Inc., a company engaged in performing  classified  government  contracting for
various communications projects.

      The  Company  continued  to develop  the voice  privacy  and  encryption
technologies  through 1996. The Company made two strategic  acquisitions  that
allowed it to leverage existing  technologies and to participate in the larger
mobile and secure  computer  market.  Specifically,  the  Company  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 is engaged in the design,  manufacture
and marketing of secure computer  systems.  Cycomm Mobile Solutions is engaged
in the design, manufacture and marketing of rugged mobile computer systems.

      In 1997,  the  Company  recognized  that the market for  cellular  voice
security  technologies  and products was still  immature and would not develop
to the extent required to justify additional  development.  Additionally,  the
Company began to experience the market for its mobile  computers  growing much

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faster  than the  market  for voice  privacy  technologies.  Accordingly,  the
Company  initiated a strategy  which  resulted  in a shifting  of  development
resources to the mobile computer products.

      The Company  recorded record revenues in its mobile  computing  division
in 1998,  however  revenues  in the secure  computing  division  continued  to
decrease.  The secure  computing  division also generated  substantial  losses
for the year ended December 31, 1998. The secure  telecommunications  division
experienced  immaterial  losses  for the year ended  December  31,  1998.  The
Company is currently  exploring  the  potential  sale of its secure  computing
division  and  the  Val-Comm  subsidiary  in  its  secure   telecommunications
division.  Management  believes that the sales of these subsidiares  will allow
the  Company to focus its  resources  on the still  growing  mobile  computing
market.  For a further  discussion of the potential sales of subsidiaries,
see Management's Discussion and Analysis or Plan of Operation.
 

The Company currently has four active wholly-owned subsidiaries as follows:

      - Cycomm Mobile Solutions Inc. ("CMS"), incorporated in Quebec, Canada
        on June 3, 1996.
      - Cycomm Secure Solutions Inc. ("CSS"), incorporated in Delaware, on
        February 26, 1996.
      - Val-Comm, Inc. ("Val-Comm"), incorporated in New Mexico, on July 12,
        1984.
      - Cycomm Corporation ("Cycomm"), incorporated in Oregon, on January 1,
        1985.

<TABLE>
<S>                      <C>                   <C>                <C>

                     Cycomm International Inc.    
                       McLean, Virginia
                        Executive Office

  (100% owned)            (100% owned)         (100% owned)          (100% owned)
  Cycomm Mobile           Cycomm Secure       Val-Comm, Inc.      Cycomm Corporation
  Solutions Inc.          Solutions Inc.       Albuquerque,           Portland,
    Montreal,               Sebastian,          New Mexico             Oregon          
     Canada                  Florida
</TABLE>


     Executive  Office.  The  Company's   principal   executive  offices  are
located  in  McLean,   Virginia.   Management  of  all  subsidiaries  and  the
Company's  growing  number of strategic  relationships  is conducted from this
location,  along  with  overall  administration,  financial,  investment,  and
investor relations responsibilities.

      Cycomm  Mobile  Solutions  Inc.  Located  in  Montreal,   Canada,   this
subsidiary  designs,  manufactures and markets ruggedized mobile computing and
communications  systems  primarily to the public  safety and utility  markets.
CMS has  expanded the  Company's  ruggedized  computer  product line by adding
state,  local and  commercial  markets to CMS's core  government  and military
business.

      Cycomm  Secure  Solutions  Inc.  Located  in  Sebastian,  Florida,  this
subsidiary  designs,  tests,  manufactures,  and markets  ruggedized,  TEMPEST
specified  computer and communication  equipment for niche markets  worldwide.
TEMPEST is the name given to the  classified  specification,  NSTISSAM/  1-95,
for  securing  computer  equipment  and  peripherals  against  electromagnetic

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eavesdropping on the  electromagnetic  radiation emanating from all electronic
equipment.  The  Company is  currently  involved in  negotiations  to sell its
secure  computing  division.  For a further  discussion  of the  potential
sale of Cycomm Secure Solutions,  see Management's  Discussion and Analysis or
Plan of Operation.

      Val-Comm,  Inc. Located in Albuquerque,  New Mexico,  this subsidiary is
a   communications,   engineering   and  consulting   company  which  provides
feasibility   studies   for   possible   development   projects   and   custom
communications  equipment developed for classified U.S.  government  agencies.
These activities can include  prototype  development but generally involve the
modification of one or more products  available from unrelated  companies into
an  integrated  communications  system  to meet its  customers  requirements.
Such work involves  classified  U.S.  government  contracts for which Val-Comm
maintains  U.S.  government  facilities  security  clearances.  The Company is
currently  involved in  negotiations  to sell its Val-Comm  subsidiary.  For a
For further  discussion of the potential  sale of Val-Comm,  see  Management's
Discussion and Analysis or Plan of Operation.

      Cycomm  Corporation.   Located  in  McLean,  Virginia,  this  subsidiary
developed  security products using both encryption and scrambling of voice and
data signals for the wireless and wireline  telecommunications  industry. This
subsidiary was originally located Portland,  Oregon,  however during 1998, the
Portland office was closed.  All Cycomm  Corporation  activity,  including the
licensing of encryption products, is done in McLean, Virginia.

Market for the Company's Products and Services

Ruggedized   Computers.   The  Company,   through  its  CMS  subsidiary,   has
developed  a  ruggedized   laptop   computer   called  the  PCMobile  that  is
specifically  designed for the public  safety  market.  The Company  currently
markets the PCMobile to local and state police and fire  departments and other
public  safety  agencies  as  well  as  utility,   commercial  and  industrial
markets.  The PCMobile has been  designed to  withstand  the specific  extreme
operating conditions of the public safety market.

      Ruggedized  computers are computers that are built to withstand  certain
environmental   and  operational   hazards  with  which  standard   commercial
computers  functioning  indoors  would  not  typically  have to  contend.  The
ruggedization  of the  computer  is an attempt to protect or insulate it fully
from  such  hazards  or at least  minimize  their  adverse  impact so that the
computer  can  function to  accomplish  the  specific  tasks of its  operating
requirements.  Computers  are  ruggedized  by the  selection  and  mounting of
certain  components,  the design,  configuration and fabrication of enclosures
and electronics and the  application of special  casings,  seals and coatings.
The design and  fabrication  of the  computer  encasement  and  keyboard  with
tougher  materials,  full closure and special sealants also protect it against
moisture, humidity, particles and temperature extremes.

      From a strictly  environmental  point of view, these hazards are usually
weather-related or climatic in nature and can encompass  temperature  extremes
ranging from -22 to +140 degrees  Fahrenheit,  as well as severe  moisture and
humidity  conditions and the infiltration by flying or wind-borne debris, such
as  sand,  dust or other  particles.  In the  operational  area,  the  hazards
involve  strong  vibrations  and shocks that result  from rough  handling  and
transportation   as  well  as  electric   interference  or  internal   thermal
conditions.  In certain  situations,  the signals emitted by other  electronic

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equipment  may  interfere   with  and  distort  the  proper   functioning   of
computers.  In addition,  as  increasingly  more  computing  power is inserted
into small spaces and  containers,  the heat generated by the computer  itself
may cause the processor to malfunction or fail.

      A  significant  market for  ruggedized  computers  is the public  safety
market.  New  computer and  ruggedization  technologies  have  enabled  public
safety  organizations  to advance  into mobile  computing as a way to increase
effectiveness  and  efficiency of the officers on the street. It is  estimated  
that there are  approximately  330,000  public  safety  vehicles in 
approximately 17,000 local police, sheriff and special police agencies.

      The growth in the public safety  market for rugged  mobile  computers is
driven by several  factors.  There has been an  increase  in  federal  funding
made  available  to local  public  safety  agencies  through the COPS MORE and
other  programs  which are  designed to  increase  the number of police on the
street.  There  is also an  effort  to  integrate  dispatch,  field  data  and
communications   systems.   Also,  there  are  currently  more  rugged  mobile
computer  options,   including  the  PCMobile,   available  to  public  safety
organizations.   As  public   safety   officers   become  more   familiar  and
comfortable  with the use and  benefits  of new  technology, management 
believes that the market  will continue to grow.

      Computer  Security.  All  electronic  equipment,   including  computers,
monitors,  keyboards, printers and related peripherals produce electromagnetic
emanations  through  the air or  through  conductors.  As early as the  1950s,
government  and  industry  observers  began  to  become  concerned  about  the
possibility  that  electronic   eavesdroppers   could  intercept   emanations,
decipher them, obtain  information about the signals used inside the emanating
electronic  equipment,  and use this information to reconstruct the data being
processed by the equipment.  They speculated that  eavesdroppers  could breach
security even some distance from the equipment.

      Studies  of  signal  interception  and  decoding  have  borne  out these
speculations.  With  virtually  no  risk  of  detection,  eavesdroppers  using
relatively  unsophisticated  equipment can intercept and decipher signals from
an  electronic  source.  Modern  listening  devices allow an  eavesdropper  to
detect  emissions  and  reproduce  data streams or video  screen  images - for
example,  to read the  computer  display  screens on the  desktops in a remote
building.  It is  estimated  that the  components  needed  to  perform  such a
penetration  would  cost as  little  as $300,  would be  available  at a local
electronics  store, and would leave no evidence of penetration during or after
the intrusion.

      In the late 1950s,  the U.S.  government  established  a program  called
TEMPEST  aimed at  attacking  the  emanations  problem.  TEMPEST has become an
umbrella  name  for  the  technology   that  contains  or  suppresses   signal
emanations.   An  unclassified   government   publication   describes  TEMPEST
emanations  as  "unintentional,   intelligence-bearing   signals  which  might
disclose sensitive information  transmitted,  received,  handled, or otherwise
processed by an information processing system."

      Accordingly,  users  of  computer  equipment  and  peripherals  that are
processing  top secret or classified  information  use equipment  specifically
designed to suppress or contain the electromagnetic  emanations of potentially
compromising  information.  Customers  for  TEMPEST  computers  are  typically
United States and foreign military and government agencies.


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      The Company,  through its CSS  subsidiary,  manufactures  a full line of
TEMPEST and EMI  ("electromagnetic  interference")  computers,  both stationary
and portable,  and related  products that protect against the  interception of
electromagnetic emanations.

      The Company is  currently  involved in  negotiations  to sell its secure
computing division.  See Note 18 of the accompanying  financial statements for
a further discussion of the potential sale.

      Wireless   Security.   Cellular   telephone   service   is  a  form   of
telecommunications   designed  to  provide  high  quality  wireless  telephone
service  to a large  number of  simultaneous  users  from hand  held,  vehicle
mounted  or fixed  radio  telephones.  Beginning  in the early  1990s,  public
awareness  of  the  ease  of  unauthorized   cellular   telephone   monitoring
increased.  The Company,  through its Cycomm subsidiary,  began to develop its
cellular  security  products in 1992 in response to government  and commercial
cellular security concerns.

      The Company  developed a product  called the Slice CSD,  which  provides
full  encryption  over  analog  cellular  systems and is  compatible  with the
Lucent  Telephone  Security  Device  product  line.  Historically,   the  main
customer  for the CSD Slice  product  was the U.S.  Government.  In 1997,  the
Company  determined that the commercial  market for cellular  security had not
developed to a degree that demand for the  Companys  products  would  support
the  continuing   engineering   required  to  advance  the  product  line.  In
addition,  continued U.S. Government  restrictions on the export of encryption
technology  severely  limited the global market  potential for these products.
During  1997,  Cycomm  discontinued  development  and  further  production  of
cellular  security  products and is instead  concentrating  on  licensing  the
patented  Slice  design.  While two  license  agreements  have been  executed,
royalty payments were immaterial and are expected to remain  immaterial in the 
future as the related products on analog technology, while the wireless industry
is shifting  towards the use of digital  phones.  

The Company's Product Lines and Services

      The Company  manufactures and sells a complete line of secure and rugged
computers and peripherals  from a ruggedized  laptop computer to an "office in
a suitcase" for the mobile field office market.  Transmission  options include
both wired and a variety  of  wireless  modes  including  satellite  links and
cellular  packet data ("CDPD").  Security  options range from  encryption to a
"TEMPEST" configuration.

      PCMobile.  The PCMobile is a "ruggedized"  mobile computer  specifically
developed  for optimal  mobility,  flexibility  and  performance  under severe
operating  conditions.  It is ideal for public safety and field  service.  The
PCMobile is  certified  to be used  almost  anywhere,  performing  reliably in
spite of extreme  conditions.  The rugged magnesium housing makes the PCMobile
spill and  shock-proof and preserves the unit's  structural  integrity even at
high  temperatures.  The light blue casing reflects rather than absorbs light,
helping   to   maintain   the   electronic   circuitry   at  lower   operating
temperatures.  The screens are either  transflective  monochrome  or color and
can be  seen in  direct  sunlight.  Rubber  gaskets  are  fitted  around  door
openings and between case mating  parts.  All  external  connectors  have been

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rain-tested.  The PCMobile  also stands up to vibration  and protects  against
electrostatic  discharge.  CSS  manufacturers a Pentium and a 586 model of the
PCMobile.

      TEMPEST  Pentium  Computer.   The  TEMPEST  Pentium   Computers,   model
205MX,and  210MX are 133MHz and 166MHz  products based on the Intel Pentium TM
microprocessor  with  the  industry  standard  ISA/PCI  bus  packaged  in  the
exclusive  CSS TEMPEST  cabinet.  Both  products  include a 3.5" 1.44MB floppy
drive  and  can be  configured  as a  desktop,  or  rack  mount  unit.  It can
accommodate up to 4 storage  devices  including  floppy drives,  removable IDE
and SCSI hard drives,  cartridge  drives and tape backup  systems.  High speed
32 bit I/o is provided by 3 PCI slots.

      TEMPEST  Pentium  Laptop  Computer.  The XL 425LT uses an Intel  Pentium
TM 200MHz MMX  microprocessor  with an optional  upgrade to a 233MHz processor
with memory  upgrades up to 128MB.  This laptop has a 12.1"  display  with 2MB
VRAM  and 800 x 600  resolution  while  offering  1280 x 1024  resolution  for
external  monitors.  Removable disk drives  available range from 2.1 to 4.0 GB
with larger  models on the way. In the  tradition of CSS's  strategy to listen
to our  customers  and  design  and  build to their  needs,  the 425LT has two
serial  ports and  supports  both the 1.44MB  floppy  and the 20X CDROM  drive
simultaneously.   Housed  in  an  aluminum  alloy  chassis,   this  laptop  is
significantly   more  rugged  than  standard   commercial  units  and  can  be
classified as a COTS ("commercial off-the-shelf")  Rugged product.

      TEMPEST Laptop  Computer.  The TEMPEST  Pentium Laptop  computer,  Model
405LT is powered by a 166MHz  Intel  Pentium TM  microprocessor.  This  laptop
has a 12.1"  display  with 2MB VRAM and 800 x 600  resolution  while  offering
1280 x 1024  resolution  for  external  monitors.  This  laptop uses a modular
design so a number of options  can be  selected  to allow for the  addition of
such  options  as a CD-ROM or a second  Lithium  Ion  battery.  One of the new
features  of this  model  is its  ability  to  allow  user  installation  of a
FORTEZZA  card while  maintaining  TEMPEST  integrity,  while also  allowing a
second  communications  device.  The 405LT  meets the most  stringent  TEMPEST
requirement  while  operating  with AC power,  automobile  power,  or from the
internal  battery.  Housed  in an  aluminum  alloy  chassis,  this  laptop  is
significantly   more  rugged  than  standard   commercial  units  and  can  be
classified as a COTS Rugged product.

      TEMPEST/Inkjet  Printer.  The  3416T is the XL  TEMPEST  version  of the
popular HP 340 Inkjet  printer.  The products  supports  both  monochrome  and
color  versions.  The color  capability  of this product is 3 pages per minute
at 300dpi.  Housed in an aluminum chassis,  this printer is significantly more
rugged than standard  commercial  units and can be classified as a COTS Rugged
product.

      TEMPEST Color Graphic Portable  Scanner.  The 9414T is a high resolution
TEMPEST  portable  scanner  suitable for  notebook  travel use. It is based on
the UMAX Page Office Color  Scanner and connects via the  Centronics  Parallel
Interface.  With it's integrated  PageManager bundled software,  you can copy,
fax,  E-mail and file text and graphics  documents with the click of a button.
In addition,  complete image editing  software  allows you to edit 24 bit full
color photos at 300 dpi.

      EMI  Pentium  Personal  Computer.  The XL 205E  delivers  the power of a
Pentium CPU with the Industry  Standard ISA/PCI bus packaged in CL Computing's

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new EMI tested  cabinet.  It  incorporates  a 3.5" 1.44MB floppy drive and can
be configured as a desktop,  or rack mount unit.  It can  accommodate  up to 4
storage devices  including floppy drives,  removable IDE and SCSI hard drives,
cartridge  drives and tape backup  systems.  High speed 32 bit I/O is provided
by 3 PCI slots.

      EMI Pentium  Laptop  computer.  The XL 405E  delivers the power of Intel
Pentium TM 166MHz MMX  microprocessor  power combined with a modular design to
allow a wide range of option  selection  including large hard drives,  CD-ROMs
and  additional  Lithium  Ion  batteries  The  design  accommodates  the  user
installation   of  the   FORTEZZA   card   while   still   allowing  a  second
communications  device.  The 405E meets the most  stringent  EMI  requirements
while operating with AC power,  vehicle power,  or from the internal  battery.
Housed in an aluminum alloy chassis,  the 405E printer is  significantly  more
rugged than standard  commercial  units and can be classified as a COTS Rugged
product.

      Cycomm  Secure  Solutions  Customer  Service  Group.  CSS  offers a full
range of security  services  including our worldwide  Customer  Service Group.
This group has been providing superior on-site and  return-to-factory  product
support  in excess of  twenty  (20)  years.  CSS  requires  that all CSS Field
Technicians and Engineers complete "A+  Certification".  With A+ Certification
as a basis,  these field service  personnel are then factory trained to repair
all CSS products.  Cycomm Secure  Solutions is an experienced  organization in
dealing with  security  issues in equipment  maintenance.  As such,  all field
service   personnel  are  also  trained  in  the  specific   requirements   of
maintenance  operations in secure  environments to ensure that the security of
the  equipment is not  compromised.  CSS provides 24 hour toll free  technical
support to ensure our customers' problems are resolved in a timely manner.

      TEMPEST  Monitors.  CSS  offers a full line of  ruggedized  TEMPEST  and
EMI  compliant  monitors.  The EMI and TEMPEST  designs use a  combination  of
containment and suppression  techniques that retain the OEM cabinetry.  A high
quality OCLI glass screen with  anti-reflective  coating is incorporated  into
the display providing maximum resolution and brightness.

      Mobile   Field   Office   Systems.   The  rugged   mobile   imaging  and
communications  system  ("MICS")  is  a  portable  office  that  fits  into  a
lightweight,  rugged,  suitcase-type  carrier suitable for commercial  travel.
This  self-contained  system is easily taken into harsh field environments and
provides  personnel  with the capability to accomplish  their data  collection
and transmission tasks using landline,  cellular and satellite  communications
with  state-of-the-art  technology  in  the  military  environment.   Standard
peripherals  include a ruggedized computer (486 or Pentium driven) a removable
hard disk drive,  modem, fax card,  cellular phone,  printer,  scanner,  and a
battery  backup.  A  digital  camera  is  an  optional  feature  allowing  the
operator  to take  pictures  or collect  data and  immediately  transfer it to
other users or a central location.
 
      Cellular  Security  Device  ("Slice  CSD").  The Slice CSD  incorporates
voice encryption  security for use with the Motorola MicroTAC line of cellular
phones.  The Slice CSD uses Lucent SurityTM  encryption  technology,  licensed
from  Lucent in 1995,  and is  compatible  with  Lucent's  Telephone  Security
Device 3600  family of  products  ("TSD").  Encryption  technology  provides a
higher level of  communications  security  when compared to more common analog
scrambling  technologies.  Encryption  level  security  is  required  by  most
government and law enforcement users.


<PAGE>
                                    Page 10


      The Company no longer  manufactures  the Slice CSD,  however  Cycomm has
licensed  the  technology  to  two  separate  manufacturers.   Future  royalty
payments are expected to be immaterial to the Company's total revenue.

Manufacturing and Supply

      The Company  designs and engineers  substantially  all of its rugged and
secure  computers,   purchases  components  from  third  parties  or  Original
Equipment  Manufacturers  ("OEM") and tests and assembles the final  products.
As part of this process,  the Company  specifically  designs for its computers
(with the exception of the Company's  secure  computer,  for which the Company
uses  commercial  products  from  other  manufacturers),  the  electronics  or
printed circuit board, which is the most important,  sophisticated and complex
element  thereof.  At times,  the board can be  composed  of as many as twelve
layers.   The  Company  uses  surface  mount  technology   ("SMT")  to  attach
components to the computer  boards which  enhances  durability  and ruggedness
over the older  mounting  technology.  In SMT, the components are glued to the
board by means of a chemical  adhesion  process and are then soldered  instead
of  being  inserted  into  holes  in the  board  and  soldered.  SMT is a more
precise   manufacturing   technique  and  offers  better  insulation   against
vibration  and shock.  The  Company  fabricates  the  prototype  of the board,
tests  it,  purchases  all the  necessary  components  for the  board and then
provides them in kit form to a  specialized  board  fabricator  for both pilot
and production runs.

      This  approach to  outsourcing  differs from that followed by most other
rugged  computer  manufacturers  which,  the  Company  believes,  operate on a
turn-key basis with their board  fabricators,  who handle the design,  testing
and purchase of all components  themselves  and then furnish the  manufacturer
with the  completed  boards.  In  contrast,  the  Company's  approach to board
fabrication  allows it to maintain  better control of the quality and delivery
of  the  boards.  In  addition,  the  Company's  personnel  serve  as  on-site
inspectors at the plants of the board fabricator.  The fabricator  employed by
the  Company  applies  surface  mount  technology  in the  fabrication  of its
printed circuit boards.

      The  Company  anticipates  that  it will  continue  to  outsource  board
fabrication.  Given the rapid changes in computer  technology,  the Company is
not capable of keeping  abreast of the costly  purchase  requirements  for new
production   equipment  necessary  in  the  precise  placement  of  electronic
components on boards.  Outsourcing  allows the  Company's  products to receive
the benefit of the latest  technological  development  at an acceptable  cost.
Once the boards are  completed,  they are tested by the  fabricator  and, upon
satisfactory  completion  of such  tests,  are  shipped to the  Company.  When
delivered,  the Company further tests the complete boards and other components
and then assembles the computers.  Apart from the printed circuit boards,  the
components that the Company  purchases from external  sources include chassis,
wire harnesses, computer chips, keyboards, displays and metal cases.

      The  Company   does  not   assemble   its   products  on  a   continuous
mass-production  basis.  Instead,  its  computers  are usually  assembled on a
batch  basis in which  products  move  irregularly  from  station to  station.
Because  the  Company's  production  runs  rarely  reach the volume  levels of
commercial  production,  there are no or few  economies  of scale and  related
cost  reductions  that are  achievable.  Tests are performed at various stages
of the  process  according  to the  Company's  standards  or as  requested  by
specific customers.  Further testing of products is generally  accomplished at

<PAGE>
                                    Page 11


the end of the assembly  process.  The Company's  manufacture  of computers is
done pursuant to specific purchase orders or for general inventory purposes.

      The Company  utilizes  modern  equipment  for the  design,  engineering,
assembly  and testing of its  products.  The Company has utilized a portion of
the funds from various financings to acquire  additional  equipment to enhance
its  operating  efficiency in such areas and to increase its capacity in order
to  facilitate  increased  production,  when  and if  required,  as well as to
obtain better control of quality, inventory and order processing.

      Generally,  the  Company is not a party to any formal  written  contract
regarding the  deliveries of its  hardware,  supplies and  components or their
fabrication.  It usually  purchases  such items  pursuant to written  purchase
orders  of both  individual  and  blanket  variety.  Blanket  purchase  orders
usually  entail the  purchase of a larger  amount of items at fixed prices for
delivery and payment on specific dates.

      The  Company  relies on one board  fabricator  located  within  the same
geographical  area  as  its  design,   engineering  and  assembly  facilities.
Certain components used in its computers are obtained from sole sources,  such
as LG  Technologies  and Northern Die Cast.  The Company has also licensed its
software from sole sources,  including Microsoft and Phoenix  Technology.  The
Company has  occasionally  experienced  delays in deliveries of components and
may  experience  similar  problems  in the  future.  In an attempt to minimize
such problems,  the Company has developed and keeps an inventory of parts that
are  generally  more   difficult  to  obtain.   However,   any   interruption,
suspension  or  termination  of  component   deliveries   from  the  Company's
suppliers  could  have a  material  adverse  effect on it  business.  Although
management  believes that in nearly every case alternate sources of supply can
located,  inevitably  a  certain  amount  of time  would be  required  to find
substitutes.  During any such  interruption in supplies,  the Company may have
to curtail the production and sale of its computers for an indefinite period.

      The Company's  design,  engineering and assembly  facilities are located
in Brossard,  Quebec,  Canada for the rugged  PCMobile  laptops and Sebastian,
Florida for the secure  computer  products.  The Sebastian,  Florida  facility
complies with certain classified  contracts  specifications  necessary for the
manufacture   and  assembly  of  products   supplied  and  meets  the  quality
management and assurance  standards of an  international  rating  organization
(ISO-9001).

      The  Company  has  entered  into  licensing   arrangements  for  certain
hardware and software elements  contained in, or used in conjunction with, its
computers.  These  agreements are usually  non-exclusive,  provide for minimum
fees  and  royalties  related  to  sales  to be  paid  by the  Company  to the
particular  licenser,  run for a limited  term and are subject to other terms,
conditions and restrictions.

      The Company  receives its basic  operating  software  system MS-DOS with
various  Windows  versions from  Microsoft,  Inc.  pursuant to such  licensing
arrangements.  It also  obtains  from  Phoenix  Technologies,  Inc.  its  BIOS
(Basic  Input/Output  System) pursuant to a separate license agreement.  Under
either  arrangement,  the Company may modify such  software  and  occasionally
alter  the  BIOS  for  special  situations.  The  termination,  suspension  or
curtailment of these or other  licensing  arrangements to which the Company is
a party may have a material adverse impact on its business and operations.


<PAGE>
                                    Page 12


       Although  the Company relies on a limited  number of  companies  in the
manufacture  of its products,  it believes that the specific parts employed in
the  manufacturing   process  are  available  from  a  variety  of  suppliers.
Further, the Company believes that additional  manufacturing  sources could be
found if necessary.  The Company believes its relationship  with its suppliers
is satisfactory.

Marketing and Sales

      The Company  markets and sells its secure computer  products  through an
internal sales force of two individuals,  approximately  five resellers in the
United States and approximately ten resellers abroad.  The Company markets and
sells  its  rugged   products   through  an  internal   sales  force  of  nine
individuals,   approximately   thirty  resellers  in  the  United  States  and
approximately  four resellers  abroad.  Its resellers cover  approximately all
fifty states,  including Washington,  DC, and its foreign distributors operate
in ten countries,  including England,  France, Japan, Germany, South Korea and
Portugal.

      The Company's  relationship with its resellers is generally  governed by
a written  contract,  terminable  on 30 days' prior  notice.  These  contracts
usually provide for non-exclusive  territorial and product  representation and
discounts of between 20% to 30% of the list price on standard  products  based
on the individual  resellers  annual sales volume.  Discounts on  non-standard
products and custom  engineering  are usually  subject to negotiation  between
the parties in  accordance  with the terms of the contract and are priced on a
case-by-case  basis  dependent  upon the  level of  effort  in  design,  test,
manufacture,  warranty  and support.  However,  they tend to range from 25% to
35% in practice.

      The Company's  resellers  typically  purchase the Company's products and
then  resell  them  to  their  customers.  These  resellers  accounted  for an
aggregate of  approximately  90% of the Company's  secure  computer and rugged
computer  sales.  The  Company  has  reseller  agreements  with  Ericcson,  GE
Capital,  PRC,  Unisys,  NTT,  GTE and Matra  for its  rugged  computers.  The
Company has reseller agreements with Dulles Networking,  Office Solutions, EDS
Ltd.,  Bedriftssystemer,  Boeing and GTE for its secure computers. The loss of
certain  of  such  resellers  may  have  a  material  negative  effect  on the
Company's business.

      Sales of the  Company's  products or services to foreign  resellers  are
also generally made pursuant to written contracts.  Under such contracts,  the
distributor is granted either an exclusive or  non-exclusive  territorial  and
product  representation  as well as discounts  based on the list price ranging
from 20% to 30%,  depending on the type or annual amount of products  sold. In
some cases,  there are minimum  order  requirements.  Due to the custom nature
of the Company's  products and specifically  U.S.  Governmental  International
Traffic in Arms Regulation (ITAR) controls for secure computing products,  its
foreign resellers  generally do not keep its computer in their inventory until
specific  orders are  obtained.  The term of these  agreements  generally  run
from 1 to 3 years but are  terminable  on 60 days advance  notice.  Payment is
due in U.S.  dollars  within  30 days  after  delivery.  These  contracts  are
subject  to other  terms  and  conditions.  No one  international  distributor
accounted for a material  portion of the  Company's  total sales in any period
referred to above.

      The Company  promotes its rugged and secure  computer  products  through
the  dissemination of product  literature,  attendance and exhibition at trade

<PAGE>
                                    Page 13


shows and the  distribution of news releases on special  developments to trade
magazines and  newsletters  to an extensive  customer  list.  The Company does
some  advertising  in trade  periodicals.  Management  believes that, to date,
most of the Company's sales leads have been generated by trade shows,  its web
sites and  word-of-mouth  referrals.  The Company is  expanding  its sales and
marketing  efforts  in all of its  markets  as  follows:  (i)  increasing  its
presence at trade shows with larger booths and more extensive  exhibits;  (ii)
increasing  the number of trade shows in which  Company  personnel  attend and
products  are  presented;   (iii)  hiring   additional   sales  personnel  and
consultants  to gather  leads and  promote  sales;  (iv)  expanding  sales and
marketing   activities  in  the  utility  and  commercial  markets;   and  (v)
investing  in  research  and  development  in order to  increase  its  product
offering.

      In the public  safety and  government  market,  the sales  cycle for the
Company's  products usually entails a number of complicated steps and can take
from  three  months to one year.  Sales to the public  safety  and  government
markets are greatly  influenced  by special  budgetary  and  spending  factors
pertinent to these organizations.

Warranty and Customer Service

      The Company  usually  provides  one-year  warranties on all its products
covering both parts and labor,  however  extended  warranties may be purchased
by  customers.  Additionally,  the Company  offers a lifetime  warranty on the
cases  of the  PCMobile.  At its  option,  the  Company  repairs  or  replaces
products  that are  defective  during the warranty  period if the proper usage
and  preventive  maintenance  procedures  have been followed by its customers.
Repairs  that are  necessitated  by misuse of such  products  or are  required
beyond the warranty period are not covered by its normal warranty.

      In cases of defective  products,  the customer typically returns them to
the  Company's  facility.  Service  personnel  replace or repair the defective
items and ship them back to the  customer.  Generally,  all  servicing is done
at the  Company's  plant and  customers  are  charged a fee for those  service
items  that  are  not  covered  by  warranty.  In  addition  to  its  extended
warranties,   the  Company  offers  its  customers   maintenance  and  service
contracts on both its PCMobile and TEMPEST products.

      The Company's  customer service  personnel  answer  technical  questions
from customers and offer  solutions to their specific  applications  problems.
In certain  instances,  other personnel receive and process orders for product
demonstrations,  disseminate  pricing  information  and accept purchase orders
for computers.



Backlog

      On December 31, 1998,  the  Company  had a backlog of  contracts  and
purchase orders of approximately  $3.3 million in its mobile computing segment
as compared to $6.7 million at December 31, 1997.  Subsequent  to December 31,
1998,  the Company  received  contracts and purchase  orders of  approximately
$2.6  million  for mobile  computing  equipment  which is not  included in the
above backlog amount.


<PAGE>
                                    Page 14


      In its secure computing segment, the Company  had a backlog of contracts  
and purchase orders of approximately  $240,000 at December 31, 1998 as
compared to $900,000 at December  31, 1997.  Subsequent  to December 31, 1998,
the Company  received  contracts  and purchase  orders of  approximately  $3.4
million  for secure  computing  equipment  which is not  included in the above
backlog amount.

      Backlog   consists  of  contracts  and  purchase   orders  for  computer
equipment and peripherals to be manufactured and delivered  usually during the
upcoming 12 months.  The  contracts  and purchase  orders define the price and
specifications  of the equipment to be delivered.  However,  due to the nature
of the business,  the backlog at any particular  date may not be indicative of
the Company's  revenues or other operating  results for any subsequent  fiscal
period.  The  Company  cannot,  therefore,  assure  that the  backlog  will be
realized as revenue.

Reliance Upon Certain Customers

      The Company is not dependent  upon any single  customer  that  purchases
its  products.  However,  sales to two major  customers  comprise  16% and 15%
respectively,  of sales for the year ended  December  31,  1998.  Sales to two
major customers comprised 9% and 9% respectively,  of sales for the year ended
December 31, 1997.

Research and Development

      The  markets   served  by  the  Company  are   characterized   by  rapid
technological  advances,  changes in customer  requirements  and  frequent new
product  introductions  and  enhancements.  The  Company's  business  requires
substantial  ongoing research and development  efforts and  expenditures.  Its
future  success  will  depend in large  measure on its  ability to enhance its
current  products,  and develop and introduce new products that keep pace with
technological  developments  in response to  evolving  customer  requirements.
The Company's research and development  activities are primarily  accomplished
on an in-house basis,  sometimes  supplemented  by third-party  subcontractors
and consultants.

      During fiscal year 1998, the Company  continued to make relatively large
research and  development  investments  on the PCMobile  product  line.  These
significant  changes mainly focused  implementing  faster  processors  such as
Pentium chips, new functionality and new screens.

      During the year ended  December  31,  1998 and year ended  December  31,
1997, the Company spent $1,695,208 and $1,307,720,  respectively,  on research
and  product  development,  primarily  for  development  of new  products  and
products  complementary  to the  existing  line of secure and rugged  computer
products.   The  Company  anticipates   additional  research  and  development
expenditures on future development of products.


<PAGE>
                                    Page 15


Intellectual Property and Patents

      Proprietary  information  and  technical  know-how are  important to the
Company's success.  The Company holds various patents,  as detailed below, and
has certain  trademark  protections  for its products.  The Company  currently
has patent protection for certain of its principal  proprietary  technologies.
There can be no  assurance  that any patents  issued are or will be valid,  or
that others will not develop  functionally  equivalent or superior  technology
that does not infringe the Company's  patents.  There can also be no assurance
that the Company's existing patents will go unchallenged.

      Cycomm is the assignee of U.S. Patent No.  4,864,566 issued on September
5, 1989,  entitled "Precise  Multiplexed  Transmission and Reception of Analog
and Digital  Data  Through a  Narrow-Band  Channel."  This  patent  covers the
basic  synchronization  that makes it possible  to achieve a certain  level of
voice  quality and  security.  Cycomm voice  privacy  products  are  partially
protected  by  this  patent  because  an  adaptation  of  the  synchronization
technique is used.  Furthermore,  protection  is enhanced by  utilizing  large
amounts of microcode embedded in microprocessor  chips that are dependent upon
semi-custom   gate  array   circuits.   Both   microcode   and   circuits  are
proprietary.

      On January 20,  1998,  Cycomm  received,  as assignee,  U.S.  Patent No.
5,711,013  entitled  "Conforment  Compact Portable  Cellular Phone Case System
and   Connector."   This  patent   covers   Cycomm's   Slice   packaging   and
functionality,  as it applies to a number of  potential  applications  for the
Motorola  MicroTAC  line of cellular  phones.  Cycomm's  Slice  products,  the
Series  300  Slice  HPU and  Series  500  Slice  CSD,  now  have  full  patent
protection.  The Company plans to pursue licensing  opportunities of the Slice
technology, and to protect against any infringement of the Slice patent.

Regulatory Approvals

      Certain  of the  Company's  products  are  subject  to  approval  by the
Federal  Communications  Commission  ("FCC")  in the  United  States.  The FCC
requires that products not exceed  certain  levels of radio wave  emanation so
that they will not interfere  with other  electronic  equipment.  Furthermore,
telephone  products  must meet  certain  standards  for  interfacing  into the
telephone  line,  such  as  impedance  matching  and  isolation.  All  of  the
Company's   products  have  received  FCC  approval  for  both  radiation  and
telephone connection.

      In  general,  the FCC and its  approval  process is  objective.  Product
designs are required to meet these objective criteria and  specifications.  In
the event that a Company  privacy  product failed a test, the  introduction of
the product would be delayed.

      Under  certain  circumstances,  the  Company is also  subject to certain
U.S. State Department and U.S. Department of Commerce  requirements  involving
prior  clearance of foreign sales.  Such export  control laws and  regulations
either ban the sale of certain  equipment  to  specified  countries or require
U.S.   manufacturers  and  others  to  obtain  necessary  federal   government
approvals  and  licenses  prior  to  export.  As a part of this  process,  the
Company generally requires its foreign  distributors to provide documents that
indicate  that  the  equipment  is not  being  transferred  to,  or  used  by,
unauthorized parties abroad.


<PAGE>
                                    Page 16


      The Company and its agents are also governed by the  restrictions of the
Foreign Corrupt  Practices Act of 1977, as amended  ("FCPA"),  which prohibits
the promise or payments of any money,  remuneration or other items of value to
foreign  government  officials,  public office holders,  political parties and
others with regard to the obtaining or  preserving of commercial  contracts or
orders.  These  restrictions  may hamper the Company in its marketing  efforts
abroad.

      To date,  the  Company  has been  able to comply  with all  governmental
requirements  without  incurring   significant  costs.  However,  the  Company
cannot  determine  the extent to which future  earnings may be affected by new
legislation or regulations affecting its industry.

Competition

      The  Company  competes  in  the  rugged  portable  and  secure  computer
business with a wide variety of computer  manufacturers and repackagers,  some
of which  are  larger,  better  known  and have  more  resources  in  finance,
technology,  manufacturing  and  marketing.  The  Company  competes  based  on
customization  capabilities,  price,  performance,  delivery and  quality.  In
some situations, the Company is the highest priced bidder.

      Typically,  the companies that market and sell ruggedized  computers are
repackagers  having little or no input in the design of their  electronics and
the  selection  and mounting of components  on printed  circuit  boards.  They
usually  purchase  the  computer  boards  and  sub-assemblies  in an  "as  is"
condition  from  commercial  manufacturers.  The  major  contribution  of  the
repackagers  to the  protection  of the computer is a tougher box in which the
computer is housed.  However,  in many cases even this stronger covering fails
to shield the computer from the penetration of rain,  snow, fog, dust or other
particles.  In  contrast,  the  Company  uses  industrial-type  or  customized
components for most of its computers rather than strictly ordinary  commercial
ones,  as do many of its  competitors.  The  company  also  applies SMT to the
fabrication of most of its computer boards.  In addition,  the Company designs
such boards,  the computer's outer case,  keyboards,  subassemblies  and other
elements in order to  maximize  the  ruggedness  of its  products,  to furnish
customization  of  electronics  and  software  to give  the  customer  greater
control over configuration and components.

      With respect to its secure  computer  business,  the Company  encounters
competition from Wang Laboratories,  Secure Computer Systems,  and NAI. As for
its PCMobile rugged laptops,  the Company mainly  encounters  competition from
Panasonic.  Certain large  manufacturers of commercial notebook computers such
as  Panasonic  and IBM have  introduced  commercial  notebooks  that have been
sealed and ruggedized to some extent.  These companies are presently  offering
such  products  at  prices  from  approximately   one-third  to  one-half  the
Company's more rugged versions.

      Management  believes  that the  Company's  ability  to  increase  market
penetration  in the  commercial  sector will be limited  substantially  by the
entry of such manufacturers into the ruggedized computer market.

      In the public  safety and secure  computer  markets,  the  Company  will
often  be  engaged,   directly  or  indirectly,  in  the  process  of  seeking
competitive  bid or  negotiated  contracts  with  government  departments  and
agencies.  These  government  contracts  are  subject  to  specific  rules and
regulations  with which the  Company  must  comply.  However,  the  Company is

<PAGE>
                                    Page 17


often  one  of  only  a  few  companies   whose  products  meet  the  required
specifications designated by such customers.

      In most cases,  the  Company  tends to be the higher  priced  bidder for
public  safety  bids.  The  reasons  for  this  situation  are  numerous.  The
Company  designs its computers on an overall basis to assure their  ruggedness
and  use  in the  most  demanding  circumstances.  Accordingly,  it  generally
employs more expensive  components than its competitors.  These generally more
expensive  components  consist of industrial or  higher-level  commercial type
instead of ordinary  commercially  available  parts.  The Company's  computers
are  enclosed in sealed  containers.  Moreover,  the Company  makes  extensive
modifications  and refinements of its computers for its customers  pursuant to
their specifications and special needs.  Consequently,  the Company's products
generally  function at a higher level of performance and reliability  than its
competitors.

      For those  applications  in which harsh  environmental  and  operational
conditions  prevail,  customers  are sometimes  willing to pay higher  prices,
especially  where few, if any,  other  companies  offer  similar  devices.  In
those  less  demanding  circumstances,   the  Company's  products  sell  at  a
competitive  disadvantage and often are not purchased because the applications
do not justify its higher prices.

Environmental Issues

      Compliance  cost with  environmental  laws is not expected to materially
adversely affect the business of the Company.

Employees

      The  Company  currently  employs  approximately  132  people,  of  which
approximately  77  are  employed  in  the  United  States  and  55 in  Canada.
Approximately  31 employees work in customer  sales and service,  29 employees
work in  administration,  29 employees work in research and development and 43
employees work in manufacturing.

      None of its employees is covered by a collective bargaining agreement
or is represented by a labor union.  The Company considers its relationship
with its employees to be satisfactory.

      The  design  and  manufacture  of  the  Company's   equipment   requires
substantial   technical   capabilities  in  many  disparate  disciplines  from
mechanics  and  computer  science  to  electronics  and   mathematics.   While
management  believes  that the  capability  and  experience  of its  technical
employees  compares favorably with other similar  manufacturers,  there can be
no  assurance  that it can retain  existing  employees or attract and hire the
highly  capable  technical  employees  necessary in the future on terms deemed
favorable to the Company, if at all.



<PAGE>
                                    Page 18


ITEM 2.     DESCRIPTION OF PROPERTY

As of December 31, 1998, the Company leased the following facilities:

                                                    Approximate
<TABLE>
<S>               <C>                   <C>          <C>    
    Location        Type of Facility    Condition    Square Ft.
McLean, VA        Executive Office      Excellent       4,000
Sebastian, FL     Manufacturing, R&D    Excellent      44,000
                  And Distribution
Montreal, QB      Manufacturing, R&D    Excellent      10,300
                  and Distribution
Albuquerque, NM   Manufacturing, R&D    Excellent       7,500
                  And Sales
</TABLE>

      Management believes that its manufacturing  facilities at Sebastian,  FL
and Montreal,  QB 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,  such facilities are available
in the immediate vacinity of the current locations.

ITEM 3.     LEGAL PROCEEDINGS

      A lawsuit was  instituted  against the Company on  September  2, 1998 in
the United States  District Court for the Eastern  District of Virginia by the
trustee in bankruptcy of M3i  Technologies,  Inc., a Quebec  corporation  from
which the Company and a subsidiary  purchased  certain PCMobile assets in June
1996.  The  lawsuit  alleges  breach  of  contract  and  misrepresentation  in
connection  with the "earn out" provision of the asset purchase  agreement and
seeks  monetary  damages and other relief.  The Company is currently  involved
in settlement negotiations with M3i Technologies, Inc.

      The  Company  instituted  a lawsuit on  February  5, 1999 in the Circuit
Court of the  Thirteenth  Judicial  Circuit  in and for  Hillsborough  County,
Florida against Infotech International,  a Florida corporation involved in the
resale of the Company's  PCMobile  computers.  The lawsuit  alleges  breach of
contract and conversion of funds.  The Company is seeking  damages of $592,959
plus interest.
 
ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      The Company did not submit any matters to a vote of security holders
during the fourth quarter of the fiscal year ended December 31, 1998.





<PAGE>
                                    Page 19


                                   PART II

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

      As of December 31,  1998, the Company's common stock was traded on The
American Stock Exchange ("AMEX") under the symbol "CYI".  However, on January
21, 1999, the Company was notified by the AMEX of their decision to delist
Cycomm's stock from the exchange for failure to meet certain listing
requirements.  Specifically, the Company did not meet the minimum
stockholder's equity requirement and had incurred consistent net losses in
the prior fiscal years. Cycomm initially appealed the AMEX decision, however
based on the advice of the Company's professionals and further consideration
by  management,  the Company withdrew its appeal of the  delisting.  Trading
of the Company's  common stock   was  halted April  13, 1999 and Cycomm will
be  delisted from  the AMEX on April 30, 1999.  The Company intends to apply 
for listing on the Over-the-Counter Bulletin Board immediately following the
delisting from AMEX.

 The following tables set forth the reported high and low sales prices as
reported by AMEX for the periods indicated:

<TABLE>
                                             High                 Low
                                             ----                 ---
Year Ended December 31, 1997
<S>                                         <C>                  <C>  
      First quarter                         $4.00                $2.63
      Second quarter                         3.31                 2.00
      Third quarter                          3.50                 2.50
      Fourth quarter                         2.69                 1.25

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 March 1, 1999, as reported by the Company's  transfer  agent,  shares
of common  stock  were held by 1,010  persons,  based on the  number of record
holders,  including  several  holders  who are  nominees  for an  undetermined
number of beneficial owners.

      The Company 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 the Company's  Board
of Directors and will be dependent on the earnings,  financial condition,  and
capital  requirements of the Company and any other factors the Company's Board
of Directors may consider  relevant.  The Company 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 the  Company's
common  stock.  To date,  all  dividends  have  been  paid in shares of common
stock.




<PAGE>
                                    Page 20


ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION

Results of Operations

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

<TABLE>
                       Year Ended    Year Ended
                      December 31,   December 31,
                          1998          1997 

<S>                    <C>           <C>        
Sales                  $18,991,587   $15,678,667
Cost of Sales           15,181,857    11,257,321 
                        ----------    ---------- 
Gross Profit             3,809,730     4,421,346 
                         ---------     --------- 

Selling, general &       7,691,052     6,653,643
administrative
Research &               1,695,208     1,307,720
development
Depreciation &           2,105,116     1,050,998
amortization
Other                      (89,528)          658  
                           -------           ---  
                        11,401,848     9,013,019  
                        ----------     ---------  

Loss from operations    (7,592,118)   (4,591,673)

Interest expense          (778,065)     (946,235)
Other income, net           74,134       115,255 
                            ------       ------- 
                          (703,931)     (830,979)
                          --------      -------- 

Net loss               $(8,296,049)  $(5,422,652)
                       ===========   =========== 

Beneficial return on
preferred shares          (150,000)          ---
Net loss attributable  -----------   -----------
to common shareholders $(8,446,049)  $(5,422,652)
                       ===========   =========== 
                        


Net loss per share          $(0.78)       $(0.59)
                            ======        ====== 
</TABLE>


      The  revenues  for the year ended  December  31,  1998 were  $18,991,587
which  represents  an increase of 21% over  revenues  of  $15,678,667  for the
prior year. Of these revenues,  sales of the PCMobile rugged laptop  computers
accounted  for  $13,154,871  as compared to  $8,064,465  in the prior  period.
However,  sales of  secure  computing  products  decreased  to  $4,348,376  as
compared  to  $5,787,487  in  the  prior  year.   The  remaining   revenue  of
$1,488,340  related  to  the  communications  security  products  segment  and
reflected a decrease of $338,375 from the prior year.

      Cost of sales for the year ended  December 31, 1998 were  $15,181,857 as
compared  to cost of sales of  $11,257,321  for the prior year.  Gross  margin
for the Company  decreased  to 20% for the year ended  December  31, 1998 from
28% in the prior year.  The  decrease in gross margin is largely the result of
the  write-off  of  $615,823  in obsolete  inventory  in the secure  computing
division.  The mobile computing  division also experienced lower gross margins
as a  result  of the  decrease  in the  selling  price of  PCMobiles  with 586
processors,  which were being phased out for the introduction of the PCMobiles
with  Pentium  processors.  The gross  margin for sales in the  communications
security  products  segment was 43%, as compared to 36% in the prior year. The
increase in gross margin in the  communications  products  segment is due to a
change in sales mix, as revenues from the higher margin government  consulting
and  engineering  services  increased,  and  sales of the  Company's  wireless
security products decreased.
 

<PAGE>
                                    Page 21


      Operating  expenses increased to $11,401,848 for the year ended December
31,  1998 as  compared  to  $9,013,019  for the prior  year.  The  increase is
largely due to an increase in depreciation  and amortization  expenses,  which
increased to $2,105,116  for the year ended  December 31, 1998, an increase of
$1,054,119   from  the  prior  year.   The   increase  in   depreciation   and
amortization  expense is the result of depreciation of PCMobile  demonstration
units  ("demos").   Selling,  general  and  administrative  ("SG&A")  expenses
increased to  $7,691,052  for the year ended  December 31, 1998 as compared to
$6,653,643  from the prior year.  The  increase in  SG&A  expenses for 1998 is 
the  result  of  two  significant  write-offs  of  bad  debts  of $592,959 and  
$296,928 and the inclusion of compensation  expense related to the issuance of 
300,000  stock options to non-employees, valued at $450,000.  During 1998, the  
Company also  incurred  an   expense  of  $615,823   related to  the impariment 
of  its inventory.  Research  and  development  costs  increased  $387,488  to 
$1,695,208 for the period ended December 31, 1998. This increase  reflects the 
Company's expenditures on the Pentium and Pentium  II  models of the  PCMobile 
computer, as well as enhancements of the TEMPEST line of computers.

      Interest  expense for the year ended  December  31, 1998 was $778,065 as
compared  to  $946,235  for the prior  year.  This  decrease is due to reduced
non-cash  interest  expense  offset by  increased  interest  on the  Company's
credit lines and an increase in the interest rate on the Company's convertible 
debentures.  Included   in  interest  expense   are   charges of  $13,889  and
$478,720  for the  years  ended  December  31,  1998 and  December  31,  1997,
respectively.   These  are   non-recurring,   non-cash   charges   related  to
convertible debt financing that give effect to beneficial conversion features.

      The net loss of  $8,296,049,  or ($0.78)  per share,  for the year ended
December  31, 1998  represents  an increase  from  $5,422,652,  or ($0.59) per
share for the year ended  December  31,  1997.  The  increase in net loss is a
result  of  the  decrease  in  gross  margins,   offset  by  the  increase  in
depreciation  and  amortization  costs related to demo units,  the increase in
SG&A  costs due to bad debt  write-offs and stock-based compensation,  and the  
increase in  research  and development costs for  both  the  mobile  computing  
and  secure  computing segments.  The loss per share  is  computed on weighted 
average number of shares outstanding of 10,835,688 for the year ended December 
31, 1998 and 9,108,335 for the year ended December 31, 1997.

Liquidity and Capital Resources

      The Company has satisfied working capital  requirements  through cash on
hand,   available  lines  of  credit  and  various  debt  and  equity  related
financings.  At December 31, 1998,  the Company had cash and cash  equivalents
of $710,421.

      In the year ended  December 31, 1998,  cash used in operations  amounted
to $2,684,318.  Cash used in investing activities was $477,326 during the year
ended   December  31,  1998.   Cash  provided  by  financing   activities  was
$3,254,429  for the year ended  December 31, 1998.  The Company  obtained cash
totaling  $2,895,750 as a result of five separate private equity placements of
common stock.  Additionally,  during 1998 the Company  obtained  $900,000 from
the  issuance of its Series B  convertible  redeemable  preferred  stock.  The
Company had a net decrease of $318,417 in borrowings  under the secured credit
facility  during 1998.  Various notes payable  amounting to $173,575 were also
repaid during the year ended December 31, 1998.

      The Company's net working capital  decreased to ($3,501,702) at December
31,  1998,  from  $2,606,229  at  December  31,  1997 as a result  of  several
factors. The Company's  $3,000,000 of convertible  debentures due February 28,

<PAGE>
                                    Page 22


1999 were  reclassified  from long term  liabilities  to current  liabilities.
Subsequent to December 31, 1998 the Company  reached an agreement in principle
with the holders to extend the  maturity  date to April 1, 2000.  Cycomm wrote
off  accounts  receivable  for two large  customers in the amounts of $592,959
and $296,928.  Additionally,  net working capital was decreased by a write-off
of obsolete inventory of $612,853.

      Cycomm's  auditors  have issued a going concern  qualification  to their
opinion on the Company.  Management  is  addressing  the going  concern  issue
with several actions, including streamlining operations,  evaluating potential
sales or  dispositions  of  operating  segments and further  capitalizing  the
Company through borrowings and private equity placements.

      The  Company has signed a Letter of Intent for  the  sale of the assets 
of the secure  computing   subsidiary,   Cycomm  Secure   Solutions   Inc.  to  
an investment group  led  by  that  subsidiary's   current   management. Terms
of  the transaction  are currently  being  negotiated  and  are  contingent on 
approval by the Company's  Board  of  Directors and secure lender.  Management  
believes  that  the  proceeds  of  the  sale will be  approximately  $800,000.  
The Company would  also  retain  accounts receivable  of CSS of  approximately 
$600,000. Proceeds  of the sale  will be  used to pay  down a  portion  of the  
Company's secured   line  of  credit  and  to  fund  the   Company's   working  
capital requirements.

      The  Company  has   also  signed  a Letter  of  Intent  for  the sale of  
its   secure    telecommunications  subsidiary,   Val-Comm    Inc.   to     an
investment   group  led  by  that   subsidiary's   current   management. Terms 
of the transaction are currently being negotiated, however management believes
that the  proceeds  of the sale will be  approximately  $750,000.  Proceeds of
the sale will be used to fund the Company's working capital requirements.

      Management  believes that the sales of these  subsidiaries would improve
the  Company's  current  debt  position,  and would provide the  Company  with
additional  working  capital.  Cycomm would be able to focus its  resources on
the PCMobile  product line,  which has shown  continued  growth,  and achieved
record  revenues  in  1998.   In  the event  that  one or  more  of  the above 
transactions  are  not  completed  or  are  unable  to  be completed on terms 
accetpable  to  management,  the  Company will consider  further cost cutting 
measures, including the discontinuation of certain business segments, sale of 
assets or protection under Federal bankruptcy laws.
 
      Cycomm has historically been able to raise capital through private
equity placements. However, on January 21, 1999, the Company was notified by
the AMEX of their decision to delist Cycomm's stock from the exchange for
failure to meet certain listing requirements.  Specifically, the Company did
not meet the minimum stockholder's equity requirement and had incurred
consistent net losses in the prior fiscal years.  Cycomm will be delisted
from the AMEX on April 30, 1999. The Company intends to begin trading on the
Over-the-Counter Bulletin Board (OTCBB).  The delisting from the AMEX and the
lack of an established trading pattern on the OTCBB could adversely affect
the Company's ability to raise additional capital.

Impact of Year 2000

The Year 2000 Issue is the result of computer  programs  being  written  using
two  digits  rather  than  four to  define  the  applicable  year.  Any of the
Company's computer programs or hardware that have  date-sensitive  software or
embedded  chips may  recognize  a date using "00" as the year 1900 rather than
the year  2000.  This  could  result in a system  failure  or  miscalculations

<PAGE>
                                    Page 23


causing disruptions of operations,  including, among other things, a temporary
inability to process transactions,  send invoices, or engage in similar normal
business activities.

Based on recent  assessments,  the Company determined that it will not need to
modify or  replace  its  software  or  hardware  so that  those  systems  will
properly utilize dates beyond December 31, 1999.

Cycomm's  plan to resolve the Year 2000 Issue  involves  the  following  three
phases:  assessment,  testing,  and  implementation.  To date, the Company has
completed its  assessment of systems that could be  significantly  affected by
the Year 2000. The completed  assessment  indicated the Company's  significant
information  technology  systems  will not be affected by the Year 2000 issue.
The computers  manufactured by Cycomm are also Year 2000  compliant,  and will
not need to be  modified.  Accordingly,  the Company does not believe that the
Year  2000  presents  a  material  exposure  as it  relates  to the  Company's
products.  In addition,  the Company is gathering  information  about the Year
2000 compliance status of its significant  suppliers and vendors and continues
to monitor their compliance.

Cycomm has  queried its  significant  suppliers  regarding  the status of Year
2000  compliance.  To date,  the Company is not aware of any  supplier  with a
Year 2000  issue  that  would  materially  impact  the  Company's  results  of
operations,  liquidity,  or capital  resources.  However,  the  Company has no
means of ensuring  that  suppliers  will be Year 2000 ready.  The inability of
suppliers to complete their Year 2000  resolution  process in a timely fashion
could  materially  impact  the  Company.   The  effect  of  non-compliance  by
suppliers is not determinable.

Management  of the Company  believes it has an  effective  program in place to
resolve the Year 2000 issue in a timely  manner.  As noted  above,  Cycomm has
not yet  completed  all  necessary  phases  of the Year 2000  program.  If the
Company  identifies a vendor or supplier with a Year 2000 compliance issue, or
if a vendor or  supplier  is  unable to  complete  their  Year 2000  readiness
program,  the Company could be materially  adversely  affected.  The amount of
potential  material  adverse  effects  cannot be reasonably  estimated at this
time.

The Company  currently has no contingency  plans in place in the event it does
not  complete  all phases of the Year 2000  program.  Cycomm plans to evaluate
the status of completion  in March 1999 and  determine  whether such a plan is
necessary.


ITEM 7.      FINANCIAL STATEMENTS

The  financial  statements  of the  Company  are set forth in a separate
section  of this  Annual  Report on Form  10-KSB.  See Item 13.  Exhibits  and
Reports on Form 8-K and the  Financial  Statements  commencing  on page F-1 of
this Annual Report on Form 10-KSB.

ITEM 7A.    QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

While the Company is exposed to changes in interest rates as a result of its
outstanding  debt, the  Company does  not  currently  utilize  any deriative 
financial  instruments  related to  its  interest rate exposure.  Total debt 
outstanding at December 31, 1998 was $5,705,315, consisting of $3,000,000 in

<PAGE>
                                    Page 24


fixed  rate,  12% convertible  debentures, and $2,705,315 in a variable rate
secured  line  of  credit.   At this  level  of  variable  rate  borrowing, a 
hypothetical 10% increase in interest rates would have increased the Company's
net loss by approximately $36,612 for the year ended December 31, 1998.

ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None.



<PAGE>
                                    Page 25


                                  PART III

ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

      The information  required by Item 9 relating to directors of the Company
is presented  under the caption  "Nomination and Election of Directors" of the
Company's   definitive   Proxy  Statement  for  the  1997  Annual  Meeting  of
Shareholders  to be filed with the  Securities  and Exchange  Commission  (the
"Commission")  no later than April 30, 1999.

Section 16 Reports

      The  information  required  by this Item is  present  under the  caption
"Other  Matters --  Compliance  with Section 16(a) of the Exchange Act" of the
Company's  definitive Proxy Statement to be filed with the Commission no later
than April 30, 1999.

ITEM 10.    EXECUTIVE COMPENSATION

      The  information  required  by Item 10 is  presented  under the  caption
"Executive  Compensation"  of the Company's  definitive  Proxy Statement to be
filed with the  Commission no later than April 30, 1999.

ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

      The  information  required  by  Item 11 is  present  under  the  caption
"Security  Ownership  of  Certain  Beneficial  Owners and  Management"  of the
Company's  definitive Proxy Statement to be filed with the Commission no later
than April 30, 1999.

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The  information  required  by Item 12 is  presented  under the  caption
"Certain  Transactions"  of the  Company's  definitive  Proxy  Statement to be
filed with the  Commission no later than April 30, 1999.

ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits
 
      (1)   See  the  financial  statements  of the  Company  and  the  report
thereon included in Item 7 of Part II of  this  Annual  Report on Form 10-KSB.

      (2)   The following  exhibits are filed as part of this Annual Report on
Form 10-KSB and  incorporated  by  reference  herein  to the extent possible.


<PAGE>
                                    Page 26


<TABLE>

                                                                  Page Number
            <S>   <C>                                                 <C>
            1.1   Certificate of Incorporation                        (1)
            1.2   Certificate of Incorporation on Change of Name      (1)
            1.3   Certificate of Continuance                          (1)
            1.4   Amended Articles of Incorporation                   ___
            10.5  Stock Purchase Agreement by and among the Company   (3)
                  and XL Vision Inc. and CSS Corporation
                  dated March 21, 1996
            10.6  Asset Purchase Agreement among and between          (4)
                  9036-8028 Quebec, Inc., Cycomm International Inc.
                  and M3i Technologies, Inc. and M3i Systems Inc.
                  date June 21, 1996
            10.7  Management Services Agreement - Albert I. Hawk      (5)
            10.8        Employment Agreement - Michael R. Skoff       (6)
            10.9  Management Services Agreement - Rick E. Mandrell    (7)
            10.10 Management Services Agreement - G.T. Gangemi        (7)
            10.11 Commercial Revolving Loan, Additional Loan and
                  Security Agreement by and among the Company
                  and American Commercial Finance Corp.               (7)
            10.12 Cycomm International Inc. 1997 Stock Option Plan    (7)
            10.13 Stock Purchase Agreement and Certificate of
                  Designation of Series B Convertible Redeemable
                  Preferred Stock                                     (7)
            21.1  Subsidiaries of the Registrant                      ___
            27    Financial Data Schedule                             ___
</TABLE>


(1)   Previously filed as an Exhibit to Form 20-F  Registration  Statement (as
      amended), Form 20-F Annual Reports and Form 6-K  Reports of Foreign Issuer
      and incorporated by reference herein.

(2)   Previously filed as an Exhibit to Form F-1 Registration  Statement filed
      on May 9, 1995 and incorporated by reference herein.

(3)   Previously  filed as an  Exhibit  to Form 8-K dated  March 21,  1996 and
      incorporated by reference herein.
 
(4)   Previously  filed as an Exhibit  to Form 8-K dated June 21,  1996
      and incorporated by reference herein.

(5)   Previously  filed as an Exhibit to Form 10-KSB for the year ended May 31, 
      1996 dated September 12, 1996 and incorporated by reference herein.

(6)   Previously  files as an  Exhibit  to form  10-KSB  for the seven  months
      ended December 31, 1996 dated April 11, 1997 and incorporated by reference
      herein.

(7)  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.



<PAGE>
                                    Page 27


(b)   Reports on Form 8-K:

      1.    Current Report on Form 8-K was filed on February 4, 1999
            reporting the decision by the American Stock Exchange to delist
            the Company's common stock under Item 5. - Other Items.




<PAGE>
                                    Page 28


                                  SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant had duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                          CYCOMM INTERNATIONAL INC.


Date: April 29, 1999                      By: /s/  Albert I. Hawk               
                                                   ----------------
                                                   Albert I. Hawk
                                                   President and
                                                   Chief Executive Officer
                                                   (Principal Executive Officer)


                                         By: /s    Robert M. Hutton       
                                                   -------------------
                                                   Robert M. Hutton
                                                   Vice President of Finance
                                                  (Principal Accounting Officer)


      In  accordance  with the  requirements  of the Exchange Act, this report
has been signed  below by the  following  persons on behalf of the  registrant
and in the capacities and on the dates indicated.


By:   /s/   Albert I. Hawk                          April 29, 1999
      Albert I. Hawk, President and
      Chief Executive Officer

By:  /s/  Hubert Marleau                            April 29, 1999
     Hubert Marleau, Director

By:  /s/  Ret. Gen. Thomas A. Stafford              April 29, 1999
     Ret. Gen. Thomas A. Stafford, Director







<PAGE>
                                    Page 29


                                  SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                          CYCOMM INTERNATIONAL INC.


Date:       April __, 1999               By:_________________________
                                            Albert I. Hawk
                                            President and
                                            Chief Executive Officer
                                            (Principal Executive Officer)


                                         By:_________________________
                                            Robert M. Hutton
                                            Vice President of Finance
                                            (Principal Accounting Officer)


      In  accordance  with the  requirements  of the Exchange Act, this report
has been signed  below by the  following  persons on behalf of the  registrant
and in the capacities and on the dates indicated.


By:                                                         April __, 1999
      Albert I. Hawk, President and
      Chief Executive Officer

By:                                                         April __, 1999
      Hubert Marleau, Director

By:                                                         April __, 1999
      Ret. Gen. Thomas A. Stafford, Director






 
 
                                   


 








<PAGE>
                                      F-1
















       Cycomm International Inc. and Subsidiaries
       Index to Consolidated Financial Statements
         For the Year Ended December 31, 1998,
          and the Year Ended December 31, 1997


<TABLE>
<S>                                                <C>
Report of Independent Auditors                     F-2
Consolidated Statements of Operations              F-3
Consolidated Balance Sheets                        F-4
Consolidated Statements of Cash Flows              F-5
Consolidated Statements of Stockholders' Equity    F-6
Notes to Consolidated Financial Statements         F-7
</TABLE>









<PAGE>
                                      F-2


                   REPORT OF INDEPENDENT AUDITORS

To the Shareholders of
Cycomm International Inc. and Subsidiaries



      We have  audited  the  accompanying  consolidated  balance  sheets  of
Cycomm  International  Inc.  and  subsidiaries  as of December  31, 1998 and
December 31, 1997 and the related  consolidated  statements  of  operations,
stockholders'  equity and cash flows for the years ended  December  31, 1998
and  1997.  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  generally   accepted
auditing  standards.  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,
1998  and  December  31,  1997  and  the   consolidated   results  of  their
operations  and their cash flows for the years ended  December  31, 1998 and
December  31,  1997,  in  conformity  with  generally  accepted   accounting
principles.

      The   accompanying   consolidated   financial   statements  have  been
prepared  assuming  that the Company will  continue as a going  concern.  As
discussed in Note 1 to the consolidated  financial  statements,  the Company
has  incurred  recurring  losses  from  operations  and  has an  accumulated
deficit  that  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  that  might  result  from the
outcome of this uncertainty.



Vienna, Virginia
April 23, 1999                                /s/ Ernst & Young LLP












<PAGE>
                                      F-3


            CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
                                                  Year ended          Year ended
                                                  December 31,        December 31,                                              
                                                     1998                 1997 

<S>                                               <C>                 <C>        
Sales                                             $18,991,587         $15,678,667
Cost of sales                                      15,181,857          11,257,321
                                                   ----------          ----------
Gross profit                                        3,809,730           4,421,346
                                                   ----------          ----------
                                           

Expenses:
   Selling, general and administrative              7,691,052           6,653,643
   Research and product development                 1,695,208           1,307,720
   Depreciation and amortization                    2,105,116           1,050,998
   Foreign exchange (gain) loss                      (174,071)                658
   Other                                               84,543                  --     
                                                   ----------          ----------             
                                                   11,401,848           9,013,019  
                                                   ----------          ----------  
Loss from Operations                               (7,592,118)         (4,591,673)
                                                   ----------          ---------- 

Other Income (Expense)

   Interest income                                     72,626              55,046
   Interest expense                                  (778,065)           (946,235)
   Realized gain (loss) on investments                    ---              38,825
   Other income                                         1,508              21,385  
                                                    ----------          ----------
                                                     (703,931)           (830,979)
                                                    ----------          ---------- 
Net Loss                                          $(8,296,049)        $(5,422,652)
                                                   ===========         =========== 

Beneficial return on preferred stock                 (150,000)                --- 
                                                   -----------         -----------            
Net loss attributable to common shareholders      $(8,446,049)        $(5,422,652)
                                                   ===========         =========== 

Net loss per share                                              
                                                       $(0.78)             $(0.59)
                                                       ======              ====== 

Weighted average number of common
shares outstanding                                 10,835,688           9,168,335
                                                   ==========           =========
</TABLE>









                          (See accompanying notes)



<PAGE>
                                      F-4


              CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
                       CONSOLIDATED BALANCE SHEETS

<TABLE>
                                                              December 31,      December 31,
                                                                 1998              1997 
ASSETS
<S>                                                             <C>              <C>   
Current assets:
   Cash and cash equivalents                                    $710,421          $617,636
   Accounts receivable, less allowance for doubtful 
     accounts of $61,000 and $41,000, respectively             2,491,760         5,171,402
   Inventories                                                 3,729,846         5,374,511
   Prepaid expenses                                              102,502            96,029  
                                                                 -------            ------  
     Total current assets                                      7,034,529        11,259,578  

Fixed assets, net                                              1,474,390         1,582,475

Goodwill, net of accumulated amortization of
  $2,115,907 and $1,676,574, respectively                      2,175,400         2,534,733
   

Other assets:
   Notes receivable - affiliates                                  68,912           183,185
   Deferred financing costs, net of accumulated 
     amortization of $407,978 and $234,878, respectively          31,701           179,460
   Unearned discount                                                 ---            13,889
   Other                                                         227,285           197,956  
                                                             -----------       -----------  
Total assets                                                 $11,012,217       $15,951,276  
                                                             ===========       ===========  

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable - trade                                   $2,266,587        $3,705,146
   Accrued liabilities                                         1,573,630         1,481,427
   Deferred revenue                                              934,948               ---
   Dividends payable on preferred stock                           33,333               ---
   Current portion of capital lease obligations                   22,418            29,468
   Revolving credit facility                                   2,310,890         2,629,308
   Current portion of notes payable and convertible 
    debentures                                                 3,394,425           808,000  
                                                               ---------           -------  
      Total current liabilities                               10,536,231         8,653,349  
                                                

Capital lease obligations, less current portion                   42,015            54,294


Notes payable and convertible debentures,          
   less current portion                                              ---         3,000,000


Stockholders' equity:
   Preferred stock, $50,000 par value, unlimited authroized
     shares, 8 shares issued and outstanding at December
     31, 1998                                                    360,000               ---
   Common stock, no par value, unlimited authorized 
     shares,12,210,311 and 9,816,877 shares issued and
     outstanding at December 31, 1998 and      
     December 31, 1997,respectively                            51,674,618        47,491,611 

   Accumulated deficit                                        (51,600,647)      (43,247,978)
                                                              -----------       ----------- 
      Total stockholders' equity                                  433,971         4,243,633  
                                                              -----------       -----------
Total liabilities and stockholder's equity                    $11,012,217       $15,951,276  
                                                              ===========       ===========  
</TABLE>

                          (See accompanying notes)



<PAGE>
                                      F-5


            CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>

                                                             Year Ended          Year Ended
                                                             December 31,        December 31,
                                                                1998                 1997 
Operating activities
<S>                                                          <C>                 <C>         
   Net loss                                                  $(8,296,049)        $(5,422,652)
   Adjustments  to reconcile net loss to net cash
     used in operating activities:
       Depreciation and amortization                           2,105,116           1,050,998
       Realized gain on marketable securities                        ---             (38,825)
       Write-down of  inventories to net realizable value        654,494                 ---
       Non-cash expenses                                         463,889             533,081
       Deferred technology costs                                   6,502              43,725
   Change in operating assets and liabilities                  2,381,730          (1,114,188)
                                                              ----------          ---------- 
   Cash used in operating activities                          (2,684,318)         (4,947,861)
                                                              ----------          ---------- 

Investing activities
   Increase in long-term investments                                 ---            (106,500)
   Decrease in long-term investments                                 ---             513,500
   Acquisition of fixed assets                                  (327,696)           (473,449)
   Proceeds on disposal of fixed assets                              ---             127,086
   Increase in notes receivable                                  (66,000)           (184,000)
   Decrease in notes receivable                                   50,249              49,167
   Other                                                        (133,879)           (120,191)
                                                                --------            -------- 
Cash used in investing activities                               (477,326)           (194,387)
                                                                --------            -------- 
                                            

Financing activities
   Issuance of common stock, net of issuance costs             2,895,750             180,000
   Issuance of preferred stock, net of issuance costs            900,000                 ---
   Net borrowings under revolving credit facilities             (318,417)          2,058,375
   Repayment of notes payable and convertible debentures        (173,575)           (329,401)
   Borrowings under convertible debentures                           ---           3,000,000
   Deferred financing costs on convertible debentures            (30,000)           (300,000)
   Repayment of obligations under capital leases                 (19,329)            (69,634)
                                                               ---------           ---------
Cash provided by financing activities                          3,254,429           4,539,340  
                                                               =========           =========  
                                                                 

Increase  (decrease)  in cash  and  cash equivalents 
   during the year                                                92,785            (602,908)
Cash and cash equivalents, beginning of year                     617,636           1,220,544  
                                                                --------           ---------  
Cash and cash equivalents, end of year                          $710,421            $617,636  
                                                                ========            ========  
</TABLE>

 


                          (See accompanying notes)


 

<PAGE>
                                      F-6


                CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
             CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>

                                             Preferred    Preferred    Common      Common    Accumulated
                                               Shares       Stock      Shares       Stock      Deficit 

<S>                                             <C>          <C>     <C>         <C>         <C>          
Balance,  December 31, 1996                        ---     $   ---    8,050,401 $42,970,749 $(37,825,326) 
                                             ---------   ---------     --------- ----------- ------------  

Net Loss                                                                                      (5,422,652)
Issuance of common stock:
  Conversion of debentures                         ---         ---    1,219,727   2,742,753          ---
  Private placement -
    common stock                                                        120,000     180,000          ---
  Acquisition earn-out                             ---         ---      426,749   1,264,776          ---
Beneficial conversion feature
  of convertible debt                              ---         ---          ---     333,333          --- 
                                             ---------   ---------    --------- ----------- ------------    
Balance, December 31, 1997                         ---         ---    9,816,877  47,491,611  (43,247,978)
                                             =========   =========    =========  ==========  =========== 
                                             
Net Loss                                                                                      (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  $51,674,61 $(51,600,647) 
                                            ==========  ==========   ==========  ========== ============  
</TABLE>
                          






                          (See accompanying notes)



<PAGE>
                                      F-7

CYCOMM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998



NOTE 1:  NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Cycomm  International  Inc.  (the  "Company")  is a  manufacturer  of  value
added,  secure,  ruggedized  computer equipment and communications  systems,
and a  provider  of  related  services.  The  Company  is based  in  McLean,
Virginia,  with wholly-owned  subsidiaries in Montreal,  Quebec,  Sebastian,
Florida and Albuquerque, New Mexico.
 
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 of  $8,296,049  for the  year
ended  December 31, 1998 and as of that date had an  accumulated  deficit of
$51,600,647.  These  factors  raise  substantial  doubt about the  Company's
ability to continue as a going concern.

Management  is  addressing  the going  concern  issue with  several  actions
including  streamlining  operations,  implementing programs to grow revenue,
evaluating  potential  sales  or  dispositions  of  business  segments,  and
further capitalizing the Company through private equity placements.  In the 
event that one or more of these transactions are not completed or are unable 
to be  completed  on   terms  acceptable  to managment,  the  Company   will 
consider  further  cost cutting  measures,  including the discontinuation of 
certain  business segments, sale of assets or protection under Federal 
bankruptcy  laws.

Cycomm's  PCMobile  product line has shown  continued  growth and management
believes  that the  PCMobile  product  line can achieve  the revenue  levels
necessary to fund  operations  from  working  capital.  The secure  products
line had  declining  revenue and an increased  net loss in 1998.  Management
does not believe  that the secure  computing  division  will be able to fund
its  operations  from  working  capital  in 1999.  Management  is  exploring
options  for  the  secure   computing   division   including   the  sale  or
disposition  of  the  segment.   Cost  reductions  have  been  made  in  the
communications  security product segment,  which enabled the segment to fund
the majority of its own working  capital  requirements  from  operations for
the year ended December 31, 1998.  Management is also  considering  the sale
of its  Val-Comm  subsidiary,  which  comprises  most of the  communications
security segment.
 
Cycomm has  historically  been able to raise capital  through private equity
placements.  However,  on  January  21,  1999,  Cycomm was  notified  by the
American  Stock  Exchange  (AMEX)  that it no longer met  continued  listing
criteria  and  would be  delisted  from the  exchange.  The  delisting  will
become  effective on April 30, 1999.  The Company  intends to begin  trading
on the  Over-the-Counter  Bulletin Board (OTCBB)  immediately  following the
delisting  from the AMEX.  The  delisting  of the  Company's  stock from the
AMEX and the lack of an  established  trading  pattern  on the  OTCBB  could
adversely affect the Company's ability to raise additional capital.

The Company  also funds its  operations  through  borrowings  on its secured
line of credit.  The line of credit is comprised  of a $3,432,000  revolving
loan and a  $568,000  term  loan,  and is  collateralized  by the  Company's
accounts  receivable,  inventory and various  machinery.  The line of credit
is a demand facility, which is callable by the lender.

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.

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  inter-company
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


<PAGE>
                                      F-8
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   certain   capitalized   project   costs   and
demonstration   equipment  which  are  stated  at  amortized   cost,   which
approximates net realizable value.

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.

Fixed Assets and Depreciation

Fixed  assets are  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:
 
<TABLE>
      <S>                                 <C>    
      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
      Marketing equipment                 2 to 7 years
      Office equipment                    5 to 7 years
      Manufacturing equipment             3 to 7 years
</TABLE>


Amortization  of leasehold  improvements  is  calculated  on a straight line
basis over the term of the respective lease.

Research and Product Development Costs

Research and product development costs are expensed as incurred.

Deferred Financing Costs

Costs  relating to obtaining  debt financing are deferred and amortized on a
straight line basis over the term of the debt.  The  unamortized  portion of
the deferred  financing costs related to convertible  debentures is recorded
against stockholders' equity at the time of conversion.

Leases

Fixed assets 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

Warranties  of  twelve  months  from  date of sale  are  provided  for  most
products sold, with limited  lifetime  warranties on certain  components.  A
reserve  is  established  to cover  estimated  warranty  costs  during  this
period.  Warranty  reserves  for the years ended  December 31, 1998 and 1997
were $250,155 and $144,544 respectively.


<PAGE>
                                      F-9
Foreign Currency Translation

The financial  statements of foreign  subsidiaries have been translated into
U.S. dollars in accordance with generally  accepted  accounting  principles.
Assets and liabilities  denominated in foreign  currencies are translated to
U.S.  dollars at the  exchange  rate on the balance  sheet  date.  Revenues,
costs  and  expenses  are  translated  at  the  average  rates  of  exchange
prevailing  during the year.  Translation  adjustments  resulting  from this
process   are   shown   separately   in   stockholders'   equity.   Exchange
adjustments from foreign currency transactions are recognized in income.

Earnings Per Share

In  February  1997,  the  Financial   Accounting   Standards   Board  issued
Statement No. 128,  "Earnings  per Share",  which was required to be adopted
on December  31, 1997.  Under the new  standard,  companies  are required to
report  basic  earnings  per share  (EPS) and  diluted  EPS,  instead of the
primary and fully  diluted  earning EPS  disclosures  which were  previously
required.  Basic EPS is  calculated by dividing net earnings by the weighted
average  number of common shares  outstanding  during the year.  Diluted EPS
is  calculated  by dividing net earnings by the weighted  average  number of
common shares  outstanding  during the year plus the incremental shares that
would have been  outstanding  upon the assumed  exercise  of eligible  stock
options,  warrants and the conversion of certain debenture  issues. Included
in  EPS  is  a  charge  of $150,000  related  to the beneficial   conversion   
feature of  the  Company's convertible preferred stock during 1998.  For the  
periods  ended  December 31, 1998 and December 31, 1997,  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.

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.

Reclassification

Certain items previously  reported in specific financial  statement captions
have been reclassified to conform with the 1998 presentation.

NOTE 3:  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,  1998,   Cycomm  had  paid  $1,354,796  of  contingent
consideration,  which was paid in  444,862  shares of common  stock.  Cycomm
has accrued an  additional  liability  of $700,000  related to the  earn-out
obligation,  however  payment of this amount is contingent  upon the outcome
of  the  lawsuit   described  in  the   paragraph   below.   No   contingent
consideration  was paid by Cycomm in 1998.  

The Company is  currently  involved in a lawsuit  with the Seller  regarding
the  amount  of  earn-out  consideration  due.  The  Company  believes  that
eligible  units in the  earn-out  calculation  include  all  PCMobile  units
which  are  substantially  the  same  as  the  units   manufactured  by  M3i
Technologies  at the time of the  acquisition:  486  75mhz  processors  with
monochrome  screens.  M3i believes  that  earn-out  should be  calculated on




<PAGE>
                                      F-10
all  units  sold,   including  the   subsequent   generations   of  PCMobile
computers:  the 586 133mhz color screen units,  and the Pentium 233mhz color
screen units.  If the asset  purchase  agreement is interpreted to use M3i's
method   of   calculation,   Cycomm   would  be   obligated   to  issue  M3i
approximately  $1.5  million  of Cycomm  common  stock.  This  would have no
income  statement  effect for Cycomm,  but it would  increase the  Company's
goodwill   related  to  the   transaction  and  increase  the  common  stock
outstanding.  The Company has recorded the full amount of earn-out  based on
its interpretation of the Asset Purchase Agreement.
 
The Company  intends to settle this  lawsuit  with the  plaintiff.  See Note
18 of the  financial  statements  for a further  discussion  of the terms of
the settlement.


NOTE 4:  INVENTORIES

Inventories by categories are as follows:

<TABLE>
                                   December 31,    December 31,
                                       1998            1997 

<S>                                 <C>             <C>       
Raw materials                       $1,850,393      $1,988,897
Work in process and sub-assemblies   1,576,513       2,591,442
Finished goods                         302,940         794,172
                                    ----------      ----------
                                    $3,729,846      $5,374,511
                                    ==========      ==========
                                          
</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  written  off.  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 5:  FIXED ASSETS

Fixed assets and  accumulated  depreciation  and  amortization by categories
are as follows:

<TABLE>
                                                  Accumulated                  
                                                depreciation and      Net book
                                       Cost       Amortization         value 
                                             
December 31, 1998                                          

<S>                               <C>              <C>              <C>       
Land                              $   48,000       $      ---       $   48,000
Equipment under capital leases        36,847           23,360           13,487
Furniture and fixtures                63,363           26,210           37,153
Research equipment                   435,663          155,802          279,861
Computer equipment                   600,745          200,702          400,043
Office equipment                     169,897          123,770           46,127
Manufacturing equipment            1,048,362          499,465          548,897
Leasehold improvements               142,002           41,180          100,822
                                  ----------       ----------       ----------
                                  $2,544,879       $1,070,489       $1,474,390
                                  ==========       ==========       ==========
                                  
December 31, 1997                                          

Land                            $     48,000       $      ---      $   48,000
Equipment under capital leases       121,328           60,379          60,949
Furniture and fixtures                41,467           18,623          22,844
Research equipment                   490,586          110,566         380,020
Computer equipment                   400,053           99,994         300,059
Office equipment                     165,926           99,885          66,041
Manufacturing equipment              926,783          274,532         652,251
Leasehold improvements                66,498           14,187          52,311
                                  ----------       ----------      ----------
                                  $2,260,641       $  678,166      $1,582,475
                                  ==========       ==========      ==========
                                        
</TABLE>

Depreciation  expense  for the years  ended  December  31, 1998 and 1997 was
$435,779 and $636,702, respectively.



<PAGE>
                                      F-11

Cycomm  continually  evaluates whether events or circumstances have occurred
that  indicate  that the  remaining  useful life of fixed assets may warrant
revision or that the remaining  balance may be  unrecoverable.  When factors
indicate  that fixed  assets  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 fixed  assets 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.



NOTE 6:  NOTES PAYABLE AND CONVERTIBLE DEBENTURES

Notes payable and convertible debentures are as follows:
 
<TABLE>
<S>                                                  <C>             <C>
                                                     December 31,    December 31,
                                                        1998            1997 

10% convertible debentures, due February 28, 1999     $3,000,000      $3,000,000

Revolving credit facility, prime + 3%                  2,310,890       2,629,308

Term note payable, prime + 3%, due January 1, 2001       394,425         568,000
                            
10% convertible debentures, due June 11, 1998                ---         200,000

10% convertible debentures, due May 29, 1998                 ---          40,000
                                                       ---------       ---------
Less current portion                                   5,705,315       6,437,308
                                                       5,705,315       3,437,308
                                                       ---------       ---------
                                                      $      ---      $3,000,000
                                                      ==========      ==========
</TABLE>
                                               
As of December  31,  1998,  all of Cycomm's  notes  payable and  convertible
debentures are current liabilities.

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%.  See
Note 18 for further discussion of the $3,000,000 convertible debentures.

The Company  obtained a revolving  credit facility from a lender under which
the Company  may, at its  option,  borrow and repay  amounts up to a maximum
of $3,432,000,  of which  $2,310,890  was  outstanding at December 31, 1998.
Borrowings  under this credit  facility  bear interest at prime plus 3%. The
credit  facility  is  collateralized   by  trade  accounts   receivable  and
inventory  and  restricts  the  Company  from  paying  dividends  in certain
circumstances.  In  conjunction  with  this  credit  facility,  the  Company
obtained a term loan in the  amount of  $568,000  collateralized  by certain
machinery  and  equipment.  This term loan bears  interest  at prime plus 3%
and is payable in equal  installments  of $15,777 per month through  January
1, 2001.  As of  December  31,  1998,  the  outstanding  balance of the term
loan was $394,425.

On  June  11,  1996,  the  Company  issued  $1,500,000  of  10%  convertible
debentures  due June 11,  1998 which were  convertible  at the option of the
holders  into  common  stock of the Company at the lesser of $5.34 per share
or a range of 79% to 85% of the average  closing bid price of the  Company's
common stock prior to  conversion.  The  debentures  were fully eligible for
conversion  after  October 9,  1996.  During  the year  ended  December  31,
1998,  principal  and  accrued  interest  in  an  amount  of  $232,192  were
converted  into  197,686  shares  of common  stock.  During  the year  ended
December 31, 1997,  principal and accrued  interest in an amount of $162,425
were converted into 79,006 shares of common stock.



<PAGE>
                                      F-12
On May 29, 1996, the Company issued $475,000 of 10%  convertible  debentures
due May 29, 1998 which were  convertible  at the option of the holders  into
common  stock of the  Company at the lesser of $6.00 per share or a range of
80% to 82% of the average  closing bid price of the  Company's  common stock
prior to  conversion.  The  debentures  were fully  eligible for  conversion
after  September  2,  1996.   During  the  year  ended  December  31,  1998,
principal and accrued  interest in an amount of $46,433 were  converted into
38,694  share of common  stock.  During the year ended  December  31,  1997,
principal  and  accrued  interest in an amount of  $259,912  were  converted
into 142,674 shares of common stock.

NOTE 7: DEFERRED REVENUE

The Company has recorded deferred  revenue of $934,948 for the period ended
December 31, 1998.  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 have been classified as demonstration units, which are recorded 
in inventory, and are depreciated over a one year period.  Revenue on the 
sales will be recognized when the Pentium units are shipped to the customers.

NOTE 8:  COMMITMENTS

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  including  imputed  interest  from
7.8% to 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  operation  expenses  and real  estate  tax.
Future   minimum   lease   payments   under  the   Company's   capital   and
non-cancellable operating leases are as follows:


<TABLE>
<S>                                                    <C>          <C>    
                                                       Capital      Operating
Year ending December 31,                                Leases        Leases

1999                                                    $22,418     $466,291
2000                                                     19,134      383,011
2001                                                     19,134      143,094
2002                                                     11,722          ---           
2003                                                      1,332          ---
----                                                    -------     --------        
                                                         73,740     $992,396
                                                                    ========

Less: amount representing interest on capital leases     (9,307)
                                                        ------- 
Present value of future minimum capital lease payments  $64,433
                                                        =======
</TABLE>


Long-term  interest  on capital  leases  amounted to $4,978 and $9,307 for the
years ended  December 31, 1998 and December  31, 1997,  respectively.  Total
rental expense under the various  operating  leases amounted to $501,274 and
$623,010  for the year  ended  December  31,  1998 and  December  31,  1997,
respectively.





<PAGE>
                                      F-13
NOTE 9:  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  12,210,311  and
9,816,877   shares  as  of  December   31,  1998  and   December  31,  1997,
respectively.  Basic  loss per  share is  calculated  based on the  weighted
average  number of common  shares  outstanding  during each period.  Diluted
net loss  per  share  was  equal  to  basic  loss  per  share in each of the
periods  presented  as the effect of  potentially  dilutive  securities  was
anitdilutive.

The Company  raised  additional  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  $3,685,000.  Cash  proceeds,  after  commissions  and
issue costs were $2,895,750.  In conjuction  with  these  private placements,
the Company issued 370,000 warrants with fair value on the  date  of issuance
of approximately $592,000.

For the year ended  December 31, 1997,  the Company issued 120,000 shares of
its  common  stock  in a single  equity  placement  for  gross  proceeds  of
$200,000.  Net proceeds, after commissions and issue costs were $180,000.

During the twelve  months ended  December 31, 1998,  convertible  debentures
and accrued  interest  thereon were  converted into 236,380 shares of common
stock and convertible  preferred  shares and related accrued  dividends were
converted  into 287,054  shares of common  stock.  During the twelve  months
ended  December  31,  1997,  convertible  debentures  and  accrued  interest
thereon  were  converted  into   1,219,727   shares  of  common  stock.   

Preferred Stock
 
In February 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 pursuant to a conversion schedule as set forth in the agreement. The
holder can convert 25% of its preferred shares on or after the 90th day
after February 26, 1998, and up to a further 25% every 30 days
thereafter.  The conversion price is the lesser of $2.38, or a 15%
discount of the five-day average closing bid price prior to the date of
conversion.  In the event that 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.  As of December 31, 1998, 12 shares of Series B preferred
stock had been converted into 287,054 shares of common stock, and 8 shares
of Series B preferred stock were outstanding.

NOTE 10:  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.

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  years  ended  December  31,  1998  and
December 31, 1997, a total of 230,000 and 240,000  stock  options  under the
1997 Plan were  granted.  As of  December  31,  1998,  530,000  options  are
available under the 1997 Plan.




<PAGE>
                                      F-14

The following  table  summarizes  the activity in common  shares  subject to
options for the relevant periods ended December 31, 1997:

<TABLE>
                                      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
                                    =========      
</TABLE>

Options were  exercisable  with respect to 2,210,000  shares at December 31,
1998.  The  weighted  average   contractual  life  of  options  outstanding  
as  of  December  31, 1998 was 3.95 years.  The weighted  average  exercise  
price of options exercisable at December 31, 1998 was $3.02.

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.  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>
                               Year Ended       Year Ended
                               December 31,    December 31, 
                                   1998            1997 

<S>                             <C>              <C>         
Net loss attributable to
  common shareholders           $(8,446,049)     $(5,422,652)
Compensation expense               (117,292)      (1,130,679)
                                 ----------       ---------- 
Pro forma net loss              $(8,563,341)     $(6,553,331)
                                ===========      =========== 

Pro forma loss per share             $(0.79)          $(0.71)
                                     ======           ====== 
</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  include a dividend  yield of 0%; an  expected
volatility  of .809;  a risk free  interest  rate of 6.30%;  and an expected
life of half the period from grant to expiration.

For  the  year  ended  December  31,  1998,  the  Company  recognized
$450,000 in expense related to stock options issued to non-employees.

<PAGE>
                                      F-15

The weighted average fair values and exercise prices are as follows:

<TABLE>
                      Year Ended      Year Ended
                     December 31,    December 31, 
                         1998            1997

<S>                      <C>             <C>    
Weighted-average
fair value per           $1.48           $1.53
option granted

Weighted-average
exercise price per       $2.20           $2.34
option granted
</TABLE>


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 ot the private placement of
common stock with  exercise  prices  within a range of $2.00 to $3.00.  At 
December  31,  1998,  the  following  warrants  to  purchase  the Company's 
common stock were outstanding:

<TABLE>
             Exercise     Expiration
    Shares     Price         Date

    <S>       <C>       <C>            
    500,000   $ 3.75     March 20, 1999
    100,000   $ 5.00     May 16, 1999
    281,100   $ 8.00     June 11, 1999
      5,000   $ 4.75     November  30, 2000
     75,000   $ 3.38     February  28, 1999
     50,000   $ 2.50     February  26, 2000
     50,000   $ 3.00     May 15, 1999
     75,000   $ 2.50     May 15, 1999
     75,000   $ 2.50     September 17, 2000
    100,000   $ 2.00     November  11, 1999
     20,000   $ 2.50     February  26, 2000
  ---------   
  1,331,100
  =========
</TABLE>





<PAGE>
                                      F-16

NOTE 11:  SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental  cash flow  information for the relevant periods are summarized
as follows:


<TABLE>
                                                                  Year ended        Year ended
                                                                   December 31,      December 31,
                                                                      1998               1997 

Cash flow effects of changes in operating assets and
liabilities, net of acquisitions:
<S>                                                                <C>               <C>         
  Accounts receivable                                              $2,809,666        $(3,007,716)
  Purchases of marketable securities                                      ---           (267,991)
  Proceeds on sale of marketable securities                               ---            306,816
  Inventories                                                         (48,675)           245,341
  Prepaid expenses                                                     (6,473)           (19,244)
  Accounts payable - trade                                         (1,440,347)         1,514,729
  Accrued liabilities                                                 130,828             42,262
  Deferred revenue                                                    934,948                ---
  Due to affiliate                                                      1,783            158,282
  Dividends payable on preferred stock                                    ---            (86,667)
                                                                    ---------         ---------- 
                                                                   $2,381,730        $(1,114,188)
                                                                   ==========        =========== 

Non-cash investing and financing activities:
  Conversion of convertible debentures to common stock               $278,625         $2,742,753
  Conversion of preferred stock to common stock                       563,287                ---
  Acquisition earn-out                                                    ---          1,264,776

Cash paid during the period:
  Interest paid                                                      $759,169           $370,691
  Income taxes paid                                                       ---                ---
</TABLE>




<PAGE>
                                      F-17

NOTE 12:  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, 1998 and 1997 are as follows:

<TABLE>
                                                 December 31,  December 31,
                                                     1998          1997 

Deferred tax liabilities
<S>                                                <C>          <C>      
  Inventory adjustment                             $    ---     $     ---
  Bad debt expense                                      ---           --- 
                                                   --------      --------   
Total deferred tax liabilities                          ---           ---    
                                                   --------      --------
Deferred tax assets
  Non-employee stock options                        175,500           ---
  Book over tax depreciation and amortization       309,663       303,813
  Inventory capitalization and related reserves     821,479       620,765
  Net operating loss carryforward                15,073,313    12,954,863
  Nondeductible expense and reserves                160,861        85,383
                                                -----------   -----------
Total deferred tax assets                        16,540,816    13,964,824
Valuation allowance for deferred tax assets     (16,540,816)  (13,964,824)
                                                -----------   ----------- 
Net deferred tax asset                                  ---           ---      
                                                -----------   -----------
Net deferred tax                                   $    ---    $      ---  
                                                ===========   ===========   
</TABLE>

There was no  provision  for  income  taxes in the year ended  December  31,
1998 and the year ended  December  31, 1997 as the Company  incurred  losses
in those years.

A  reconciliation  between  federal  statutory  income  tax  rates  and  the
effective tax rate of the Company at December 31 is as follows:

<TABLE>
                                                        December 31,   December 31,
                                                           1998           1997 

<S>                                                       <C>           <C>    
US federal statutory benefit rate                         (35.0)%       (35.0)%
Tax net operating loss carryovers                          39.0          39.0
US state tax  benefit, net of federal income tax effect     4.0          (4.0)
                                                         ---------     ---------
Effective rate on operating loss                            ---           --- 
                                                         ---------     ---------
</TABLE>
 
The Company has US net  operating  loss  carryfowards  available at December
31, 1998 of  approximately  $38.6 million for US tax purposes to offset income
in future years.  These  carryfowards  will expire in the years 2000 through
2012, 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,  1998  of  approximately
$950,000;  these  carryforwards  will  expire in the years  2003 and 2004 if
not used.

In addition,  the Company has future  deductible  research  and  development
costs for Canadian  federal tax  purposes of  $400,000.  These costs have an
indefinite carryover period.

NOTE 13:  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,
1998,  amounts  outstanding  under these loans total  $128,684 in  principal
and  $12,698 in accrued  interest  receivable.  The loans are secured by the
common stock,  bear  interest at 5.9% and are due April 30, 2000.  The loans
were made when the  Company's  share price was $2.00 per share.  As of April
15,  1999 the  Company's  share  price  was $0.63  per  share.  For the year




<PAGE>
                                      F-18

ended  December 31, 1998,  Cycomm has taken a reserve of $88,470  related to
the impairment of the loan collateral.

The Company  retained  the  consulting  services  of  Corstone  Corporation,
which  previously  employed the current Chief  Executive  Officer and former
Chief  Financial  Officer.  The current  Chief  Executive  Office and former
Chief  Financial  Officer have no direct or indirect  ownership  interest in
Corstone  Corporation.  These consulting services included financial,  legal
and  administrative  services.  No consulting fees were paid to Corstone for
the year ended  December  31,  1998.  Consulting  fees paid to Corstone  for
the year ended December 31, 1997 were $26,750.

NOTE 14: SEGMENT AND RELATED INFORMATION

The Company has adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, which changes the way in which the
Company reports information about its operating segments.  The information
for 1997 has been restated from the prior year's presentation in order to
conform to the 1998 presentation.


Cycomm's three business segments have separate management teams and
infrastructures that offer different products and services.  The segments
are described below.

Mobile Computing: This segment manufactures the PCMobile product, a
ruggedized laptop computer designed to function in environments such as
extreme weather, shock, moisture and vibration.  The PCMobile is sold
primarily to police and fire departments for use in their vehicles.


Secure Computing: The Secure Computing segment sells computers to the U.S.
government and to governments of other NATO countries to be used by
agencies that deal with top secret and other sensitive information. Secure
computers protect against data interception by eliminating the
electromagnetic signals which are produced by normal computer systems


Communications  Security: The Communications  Security segment engineers and
develops  custom  communications  equipment for classified  U.S.  government
agencies.  Historically,  this  segment  also  manufactured  scrambling  and
encryption   devices   to  be  used  with   cellular   phones   to   prevent
eavesdropping  from  third  parties.   Cycomm  no  longer  manufactures  the
cellular phone  scrambling and encryption  devices,  but the Company intends
to license the technology to other manufacturers.

In the  Industry  Segment  Data table,  the Company also breaks out Cycomm's
"Corporate"  costs.  Corporate  costs are  related to the  operation  of the
Company's  executive  office,  and include executive  salaries,  shareholder
relations  costs,  interest  expenses,   legal  and  accounting  costs,  and
depreciation and amortization costs.

<PAGE>
                                      F-19

The following  tables,  present  financial  information by industry  segment
and geographic region.

<TABLE>
Industry Segment Data                       December 31,      December 31,
                                               1998              1997 
                                            -----------       ------------ 
Sales
<S>                                         <C>               <C>       
      Mobile Computing                      $13,154,871       $8,064,465
      Secure Computing                        4,348,376        5,787,487
      Communications security                 1,488,340        1,826,715
                                            -----------      -----------    
                                            $18,991,587      $15,678,667
                                            ===========      ===========
Loss from Operations
      Mobile Computing                       $1,928,734         $261,655
      Secure Computing                        3,602,001        2,250,819
      Communications Security                    26,065          225,419
      Corporate                               2,035,318        1,853,780
                                             ----------       ----------
                                             $7,592,118       $4,591,673
                                             ==========       ==========
Identifiable Assets
      Mobile Computing                       $6,386,522       $6,017,684
      Secure Computing                        3,199,363        6,331,510
      Communications Security                   462,969          819,104
      Corporate                                 963,363        2,782,978
                                            -----------      -----------
                                            $11,012,217      $15,951,276
                                            ===========      ===========                                            
Depreciation and Amortization
      Mobile Computing                       $1,286,995         $302,280
      Secure Computing                          604,651          235,651
      Communications Security                    28,972           37,683
      Corporate                                 184,498          475,384
                                             ----------       ----------
                                             $2,105,116       $1,050,998
                                             ==========       ==========                                             
Capital Expenditures
      Mobile Computing                         $129,313         $146,889
      Secure Computing                          116,818          273,237
      Communications Security                    78,011            7,326
      Corporate                                   3,554           45,997
                                               --------         --------
                                               $327,696         $473,449
                                               ========         ========                            
 
Geographic Region Data                       December 31,      December 31,
                                                 1998              1997 
                                             -----------       ----------- 
Sales
      United States                         $18,501,016      $12,583,557
      Canada                                    490,571        3,095,110
                                            -----------      -----------
                                            $18,991,587      $15,678,667
                                            ===========      ===========                                            
Loss from Operations
      United States                          $7,214,187      $ 3,999,957
      Canada                                    377,931          591,716
                                             ----------      -----------
                                             $7,592,118      $ 4,591,673
                                             ==========      ===========
Identifiable Assets
      United States                          $4,625,695      $ 9,933,593
      Canada                                  6,386,522        6,017,683
                                            -----------      -----------
                                            $11,012,217      $15,951,276
                                            ===========      ===========
</TABLE>

Included  in  United  States  sales  are  export  sales  of  $1,566,617  and
$3,986,814  for  the  year  ended  December  31,  1998  and the  year  ended
December 31, 1997, respectively.

NOTE 15:  MAJOR CUSTOMERS

The Company is not dependent  upon any single  customer  that  purchases its
products.  However,  sales to two major  customers in the mobile computing 
segment  comprise of 16% and 15%, respectively  of  consolidated  sales for 
the year ended  December 31, 1998. Sales  to  two  major  customers comprise  
9%  and  9%,  respectively,   of consolidated sales for the year ended 
December 31, 1997.



<PAGE>
                                      F-20
NOTE 16:  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  $700,000 or 28% of the outstanding  accounts
receivable  related one to 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 17:  EMPLOYEE 401(K) PLAN

The Company  maintains an employee  401(k) plan. The plan,  which covers all
permanent  U.S.  employees  21  years  of  age  or  older,  stipulates  that
participating  employees  may elect to  contribute  up to 20% of their total
compensation  to the plan,  not to exceed the maximum  amount  allowable  by
Internal   Revenue   Service   regulations.   The  Company   matches   these
contributions   in  an   amount   up  to  3%  of  the   employee's   salary.
Participant's  contributions vest immediately and Company contributions vest
over a six  year  period.  Company  contributions  to the  plan  charged  to
operations  for  the  year  ended  December  31,  1998  and the  year  ended
December 31, 1997, totalled $93,967 and $77,030.

NOTE 18:  SUBSEQUENT EVENTS

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 halted on April 13, 1999 and Cycomm will be delisted 
from the AMEX on April 30, 1999.  The Company intends to apply for 
trading on the Over-the-Counter Bulletin Board (OTCBB) immediately
following the delisting from the AMEX.

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. to
an investment group led by that subsidiary's current management.  The
transaction is contingent upon approval by the Company's Board of Directors
and its secure lenders. Proceeds of any sale would be used to pay down a 
portion of the Company's secured line of credit and to fund the Company's 
working capital.  For the year ended December 31, 1998, Cycomm Secure 
Solutions had revenues of $4,348,376, a net loss of $4,087,890, and net
liabilities at December 31, 1998 were $4,110,122.

The Company is currently negotiating the sale of its secure telecommunications 
subsidiary,  Val-Comm  Inc. to an  investment  group led by  that subsidiary's
current  management.  The transaction is  contingent upon the approval of the 
Board of Directors. Proceeds of any sale would be used to fund the Company's 
working capital.  For the year ended December 31, 1998, Val-Comm had revenues 
of $1,409,539, net income of $159,550 and net assets at December 31, 1998 were
$374,912.

On February 28, 1999, the $3,000,000 of 12%  convertible  debentures held by
the Company became due and payable.  The holders of the  debentures  granted
the Company an  extension  of the payment  date until  March 31,  1999.  The
Company is currently  negotiating a further extension,  and believes it will
be  successful  in  extending  the  maturity  of the debt and  reducing  the
interest rate of the debentures.

The Company has proposed a settlement to M3i Technologies, Inc. (M3i)
regarding the lawsuit over PCMobile earn-out calculations.  M3i was
seeking over $2 million in damages, to be paid in cash. The terms of the
proposed settlement call for Cycomm to sign a promissory note for an
amount to be determined based on the date of the payment.  The note will
be $700,000 if it is repaid before the first anniversary of the settlement
date, $1,100,000 if repaid before the second anniversary of the settlement
date, and $1,500,000 if repaid before the third anniversary of the
settlement date.  The Company and M3I currently believe that a settlement
in this form is attainable, however, there can be no assurances that such
a settlement can be reached.

On January 19, 1999 7 shares of Series B preferred stock with principal 
and accrued dividends of $381,356 were converted into 282,617 shares of 
common stock.