On January 25, CYNET Incorporated announced that it had been accepted in Microsoft’s Mobile Solutions Partner Program. This was an apparent coup for the six-year-old minority-owned business headquartered in Houston, Texas, and looked to be its first step toward redefining itself from a fax-broadcasting services company to a hot new wireless player. The news also helped to buoy CYNET’s floundering stock, which had tumbled from $10 a share down to pennies during 2000.
Just another technology success story, you say? It certainly seems that way, until you delve further into CYNET. What’s troubling is a single statement in the January 25 press release, which said, "…the company has already developed the CYPAQ." The problem was, that statement was blatantly false, and CYNET executives knew it to be false. In fact, the CYPAQ does not exist…never has.
At least not beyond a concept.
The CYPAQ was purported to be a dual slot expansion pack for the popular Compaq iPAQ Pocket PC. It was unveiled in Las Vegas at Comdex in November 2000 by CYNET executives and immediately drew the interest of PDA enthusiasts, as well as Microsoft. I first saw the CYPAQ at the Pocket PC Fan Fest at Bally’s Casino during the week of Comdex. Although bulky, the CYPAQ offered two expansion slots, enabling the iPAQ to use two PC Cards, say, a wireless modem card and a GPS or Storage card, at the same time. The vertical market solutions envisioned by the combination of an iPAQ, a CYPAQ, and a couple of off-the-shelf PC Cards seemed unlimited.
But the problem was, the prototype CYPAQs that CYNET executives demonstrated at Comdex did not work. CYNET had contracted to have three Compaq PC Card Expansion Packs modified to accomodate a Type III PC Card (such as CYNET’s analog modem card) and to add a second Type II slot. However, the second slot did not–and could not–work, for several reasons.
The most obvious reason is that the iPAQ would not recognize the second slot without modifications to the iPAQ’s system software. This would ultimately require consumers to upgrade their iPAQs by "flashing" the upgraded software to ROM. CYNET did not have the expertise or ability to make these system software changes, but Compaq did.
But there was yet another reason that CYNET could not make the CYPAQ concept a reality–money. Brighthand’s investigation into CYNET Incorporated uncovered a cash-strapped company that struggled at times to meet payroll. There had been recent layoffs and it has been said that CYNET was down to its last $100,000, certainly not enough to bankroll a project like the CYPAQ. But Compaq certainly had the cash to do it.
Eventually Compaq designed, engineered and developed its own Dual-Slot PC Card Expansion Pack, which is currently being manufactured in Taiwan.
So what’s become of the CYPAQ? Well, it was only a concept, it seems.
The problem is, CYNET entered into distribution agreements with several retailers, promising them first crack at the CYPAQ. When CYNET executives realized they wouldn’t be able to fulfill those agreements, rather than discuss the situation with the retailers they came up with a solution. They would purchase Compaq Dual-Slot PC Card Expansion Packs and silkscreen the CYNET logo on the back.
While this may seem like a worthy solution, it brought with it several additional problems for retailers and consumers. First, several retailers had already taken pre-orders for the CYPAQ and had promised customers that they would be first in line to receive one. Now, they could no longer guarantee that promise. Second, some of the pre-orders were from foreign customers who also prepaid by wire transfer. Some retailers have existing agreements with Compaq that prevent them from selling and shipping Compaq products outside the U.S., so they would have to refund that money. Third, CYNET changed the original price to that of the Compaq Expansion Pack, which was considerably higher, thus reducing their profit margin to nearly nothing.
First, several retailers had already taken pre-orders for the CYPAQ and had promised customers that they would be first in line to receive one. Now, they could no longer guarantee that promise. Second, some of the pre-orders were from foreign customers who also prepaid by wire transfer. Some retailers have existing agreements with Compaq that prevent them from selling and shipping Compaq products outside the U.S., so they would have to refund that money. Third, CYNET changed the original price to that of the Compaq Expansion Pack, which was considerably higher, thus reducing their profit margin to nearly nothing.
CYNET Incorporated (OTC: CYNE) has had its share of bumps in the road. It went public on January 17, 2000 and its stock quickly rose to $10 a share, before beginning a long slide down to $0.09 a share. It’s experienced an SEC investigation, tremendous management and staff turnover, layoffs, significant writeoffs due to overstated assets, and its CPA firm, BDO Seidman, resigned–a highly troubling sign.
Recently, CYNET has been attempting to sell off the bread-and-butter of its business, its fax-broadcast products and services. It appeared they had a buyer in January when France-based I-Media Group, Inc. agreed to purchase the fax-broadcast division for $6.7 million. But less than a month later it appeared that the deal had gone sour, or at least the terms were significantly amended.
Still, the biggest controversy to some observers is the rise and fall of CYNET’s stock price during a two-week period that corresponds with its January 25 Microsoft Partner announcement. CYNET stock rose from $0.09 to $1.00 during that time, before settling back down to $0.11.
Of course it would be up to the Securities and Exchange Commission to determine whether CYNET’s statement in its January 25 press release was in its opinion misleading and contributed to the immediate rise in the stock price, but it’s certainly created an aura of suspicion.
So, what does all this mean for PDA enthusiasts? Well, many who ordered CYPAQs will likely receive Compaq Dual-Slot PC Card Expansion Packs, some with the CYNET logo (in addition to the etched Compaq logo) silkscreened on the back. Others may be out of luck when retailers must cancel their orders and refund their money to comply with prior Compaq agreements.
But it is fairly safe to say that no one will receive a CYPAQ developed and manufactured by CYNET.
On May 22, 2001 CYNET’s Board of Directors ratified the appointment of Robert P. Demyanovich as President/COO. Vincent W. Beale, Sr. has stepped down as President and Bernard B. Beale has stepped down as Chief Operating Officer (COO). Brighthand has also learned that Chief Technology Officer John Tollefsen had recently resigned.
Demyanovich will institute dramatic cost cutting initiatives, including layoffs, designed to return CYNET to profitability. There have been persistent rumors since our article that CYNET is having difficulty meeting payroll.
On April 3, 2002, Robert P. Demyanovich stepped down as President/COO and Greg Smith resigned as CFO. CYNET’s stock is at $0.03 a share.