<PAGE>
U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB-A1
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- ---------------
Commission File No. 0-26913
CYBERTEL, COMMUNICATIONS CORP.
------------------------------
(Name of Small Business Issuer in its Charter)
NEVADA 86-0862532
------ ----------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
4275 Executive Square, Suite 510
La Jolla, California 92037
---------------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (858) 646-7410
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
(1) Yes X No (2) Yes No X
--- --- --- ---
<PAGE>
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:
November 15, 1999
3,513,309
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Financial Statements of the Registrant required to be filed with
this 10-QSB Quarterly Report were prepared by management, and commence on the
following page, together with Related Notes. In the opinion of management,
the Financial Statements fairly present the financial condition of the
Registrant.
<PAGE>
CYBERTEL COMMUNICATIONS CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
Sept. 30, '99 Sept. 30, '98
<S> <C> <C>
ASSETS
Current Assets
Cash $ 273,634 $ 104,796
Accounts Receivable 56,353 500
Total Current Assets 329,987 105,296
Fixed Assets
Equipment 93,612 10,697
Accumulated Depreciation (4,179) (2,612)
Total Fixed Assets 89,433 8,085
Other Assets
Deposits 4,500 4,500
Total Other Assets 4,500 4,500
TOTAL ASSETS $ 423,920 $ 117,881
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Other Current Liabilities
Accounts Payable $ 28,613 $ 3,718
Accrued Interest 1,673 910
Loans from founding stockholder 12,700 12,700
Current portion-long term debt 2,554 2,312
Total Other Current Liabilities 45,540 19,640
Total Current Liabilities 45,540 19,640
Long Term Liabilities
Long term debt 2,575 4,945
Total Long Term Liabilities 2,575 4,945
Total Liabilities 48,115 24,585
Equity
Retained Earnings (1,439,156) (274,515)
Net Income (762,783) (774,386)
Capital Stock 3,409 2,408
Stock Subscriptions Receivable (113,500) (101,000)
Paid in capital 2,687,835 1,240,789
Total Equity 375,805 93,296
TOTAL LIABILITIES & EQUITY $ 423,920 $ 117,881
</TABLE>
UNAUDITED
<PAGE>
CYBERTEL COMMUNICATIONS CORPORATION
PROFIT AND LOSS
<TABLE>
<CAPTION>
Jan - Sept. '99 Jan - Sept. '98
<S> <C> <C>
Revenues $ 1,602,333 $ 7,866
Cost of Goods Sold 1,556,536 0
Gross Profit 45,797 7,866
Operating Expenses
Selling 11,844 20,657
General and Administrative 800,774 757,939
Depreciation 1,567 2,400
Interest (income) (6,355) (595)
Interest Expense 750 1,851
Total Operating Expenses 808,580 782,252
NET INCOME (LOSS) $ (762,783) $ (774,386)
Net (loss) per common share $ (0.25) $ (0.38)
Weighted average common shares
outstanding 3,108,512 2,062,321
UNAUDITED
</TABLE>
<PAGE>
CYBERTEL COMMUNICATIONS CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Jan - Sept.'99 Jan - Sept.'98
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (762,783) (774,386)
Adjustments to reconcile
Net Income to net cash
provided by operations:
Accounts Receivable (55,076) 15,973
Subscriptions receivable 34,500 (76,000)
Financing Costs 0 (30,000)
Accounts Payable 26,371 0
Stock Issued for Services 160,250 626,218
Net cash provided by
Operating Activities (596,738) (238,195)
INVESTING ACTIVITIES
Equipment (82,915) (2,496)
Accumulated Depreciation 1,567 2,400
Net cash provided by
Investing Activities (81,348) (96)
FINANCING ACTIVITIES
Capital Stock 602 692
Paid in capital 900,774 339,308
Net cash provided by
Financing Activities 901,376 340,000
Net cash increase for period 223,290 101,709
Cash at beginning of period 50,344 3,087
Cash at end of period 273,634 104,796
</TABLE>
UNAUDITED
Note 1. Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to form 10-QSB of Item 10 of
Regulation S-B. Accordingly, they do not include all of the information for
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine month period
ended September 30, 1999 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1999.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
- --------------------------------------------------------------------
Plan of Operation.
- ------------------
The Company began actively marketing in April, 1999. It is
anticipated that it will produce approximately $4,390,000 in revenue in the
1999 fiscal year and approximately $12,762,000 in fiscal 2000. Gross profit
would be approximately $175,394, and $3,185,280, respectively. In
the next 12 months, the Company intends to employ 10 IP Gateways throughout
the western United States in order to transport long-haul Voice Over the
Internet traffic ("VOIP," i.e., long distance voice traffic transported as
digital electronic data packets over the internet), both domestically and
internationally. The Company's financing requirements in this regard are
discussed under the heading "Liquidity," below.
The Company's Strategic Partnership Agreements with Bell Atlantic
and Level 3 Communications allow it to collocate its Gateway equipment and
terminate traffic in areas that the Company has not or does not intend to
locate Gateways. The Company has very actively begun to employ its Affinity
Group Marketing strategy and has contracted with three of its seven targeted
groups; it is negotiating with the remaining four. The total membership
population of the Company's seven targeted groups is over 40 million.
Management expects that its marketing efforts will be financed through its
proposed fundraising, as discussed under the heading "Liquidity," below.
The three groups with which the Company has contracted are: the
Tailhook Association; Miles Ahead Ministries; and the Marine Corps Reserve
Officers Association. Each agreement requires each group to forward a
marketing piece to its members; the marketing pieces will recommend a
telecommunications plan to the members, which will include long distance, toll
free service, paging, cellular service, internet access, pre-paid and regular
calling cards and other telecommunications services. The Company will provide
each group with a billing summary of all participants' accounts each month and
pay each group a percentage of each participant's net telephone bill. The
contracts will be in place for periods of time ranging from 12 months to 36
months, with each group having an option to renew for an additional term.
The Company also intends to build a captive agent network for direct
marketing purposes to supplement its Affinity Group Marketing programs. The
Company has retained the Southwestern Companies to conduct door-to-door
residential solicitation of new customers. These operations began on October
3, 1999, which is subsequent to the period covered by this Report. The
Company has also begun its telemarketing efforts, which entail contacting
members of the Marine Corps Reserve Officers Association and the Tailhook
Association. The Southwestern Companies are entitled to a commission of 20%
of gross sales from its efforts. As of the date of this Report, the Company
and the Southwestern Companies do not have a written contract.
Management is also seeking viable acquisition candidates. Several
synergistic targets have been identified and initial contacts are being made.
The Company intends to make acquisitions that will allow it to offer value-
added services and products to its customer base. There can be no assurance
that the Company will be successful in locating and completing the acquisition
of any suitable candidate. Even if the Company is successful in this regard,
it can provide no assurance that any acquisition will be profitable.
The Company's projections are based on the following assumptions and
limitations:
The Company's business plan details a stair step process whereby it
will lease telecommunications services that can be marketed directly to its
primary affinity groups. The Company currently has contracts with three of
the seven affinity organizations originally targeted. The combined membership
of the three contracted affinity groups is 25,000 members. The Company has
just begun contacting affinity group members and is realizing a 38% acceptance
rate. This acceptance rate substantially exceeds the 12.5% rate detailed in
the business plan. The Company is currently in contract discussions with
three more affinity groups. It is anticipated that all seven groups will be
contracted by year end, although the Company can make no assurances in this
regard. The total membership of the seven affinity groups is 40,000,000
members. The Company believes this population and its current acceptance rate
should provide the revenues detailed in the projections. Additionally, the
affinity group marketing plan is only one of several currently being test
marketed.
The second revenue source detailed is the wholesaling of
telecommunications services. The Company is buying international
telecommunication services from Flat Rate Communications and selling these
services to LD Exchange.Com, Inc. The Company is currently pursuing other
wholesale agreements as well. The profit margin is 3% to 4% on the
wholesaling of telecommunications services.
Management projects that 1999 revenues from its affinity group
program will total $90,000, with revenues from its wholesaling operations
totaling $4,300,000. For the 2000 fiscal year, management projects these
revenues to be $6,762,000 and $6,000,000, respectively.
In arriving at its revenue projections for its affinity groups
program, the Company assumes that on average each residential customer will
use approximately 200 minutes per month at a cost to the customer of
approximately $0.10 per minute, and that the number of residential customers
will increase from approximately 600 in September, 1999, to approximately
60,300 in December, 2000.
The cost of goods sold currently reflects the cost of a leased
network whereby the Company can transmit customer calls. The cost of goods
reflects the use of the telephone lines, billing and collections and customer
service. The rate used in the projections to reflect these costs is $0.07.
To control cost, the Company has entered into subcontract arrangements to
facilitate billing and collections and customer service. These costs are a
calculation of the services provided. As such they are a true marginal cost.
The Company's projections for its wholesaling operations assume
volume of 2,000,000 monthly minutes through December 2000, at an average rate
of $0.25 per minute. Projected cost of goods sold will be $0.25 per minute
through December 2000.
The Company has commenced the development of its own Internet
Protocol Network. It is anticipated that the planned network will be
operational by early 2000. With this network in place, the Company will have
control of its pricing for the transmission of telecommunications services.
The projection reflects a modest decrease in the cost of goods sold when the
network is operational. The Company believes the reduction of cost will be
more substantial but is reflecting a modest reduction to be conservative.
The Company's selling, general and administrative costs will be
reduced by management's intentions to subcontract significant services such as
billing and collections and customer service. The fundamental costs will be
1)the maintenance of the Company's own Internet Protocol Network and 2)the
marketing to and maintenance of affinity group relationships. The projections
reflect a management group that is primarily marketing driven and that will
target and service National Affinity Groups. The remainder of management will
monitor the subcontractor relationships to maintain the quality of service the
Company intends to provide.
The telecommunication industry holds a certain amount of risk due to
the highly competitive nature of the industry and capital required. The
reason the Company is building its own IP Network is to be in control of its
destiny with regard to price competition. To build this network the Company
has sought out the technology that is compatible with internet requirements.
The Company currently has agreements to provide sufficient funding in the
short term. The company is currently negotiating with Schwartz Institutional
Finance, National Capital and Capital Growth Planning to provide the long term
resources necessary to complete the Internet Protocol Network and the
infrastructure required to support the Company's planned customer base.
The foregoing contains "forward-looking" statements and information.
Actual results may differ materially from those projected in such forward-
looking statements and there is no assurance that the projected results will
be obtained.
Results of Operations.
- ----------------------
Nine months ended September 30, 1999, compared to nine months ended September
30, 1998.
Revenues for the period ended September 30, 1999, increased to
$1,602,333 as compared to $7,866 for the period ended September 30, 1998, as
the result of the wholesaling of long distance telecommunications services.
General and administrative costs have risen to $800,774 for the
period ended September 30, 1999, as compared to $757,939 for the period ended
September 30, 1998. One component of this expense has been common stock
issued for services. Stock issued for services represents an expense of
$160,250 for the period ended September 30, 1999, as compared to $626,218 for
the period ended September 30, 1998. Other general and administrative costs,
such as payroll, marketing and legal, have increased as the Company has begun
to implement its business plan.
Liquidity and Capital Resources.
- --------------------------------
The Company has cash reserves sufficient to fund operations over the
near term. However, additional capital requirements needed for planned growth
will require the Company to seek additional outside financing. On a long term
basis, the Company is negotiating agreements with Swartz Private Equity, LLC;
Oxford International and Capital Growth Planning to provide at least
$5,000,000 in a private placement of restricted securities to complete its
Internet Protocol Network and provide additional working capital.
Year 2000
- ---------
The Company uses a 16-line Triad System Star Plus Modavi, which is a
digital telecommunications system that can be used for both voice and data.
In addition, the Company uses Dell personal computers in its office. It has
determined that both its telecommunications system and its personal computer
system are Year 2000 compliant.
The Company's system vendors have given verbal assurance that their
systems are Year 2000 compliant. System vendors for the Company's IP telephony
operations are Cisco and Inter-Tel, both of which NASDAQ listed firms. None of
the Company's IP telephony systems are main frame based; they are PC based.
The two digit date problem is not a PC issue per se, and if it is a PC issue
it is resolved at little cost by readjusting the Bios inherent in the PC
motherboard.
Level 3 Communications and MCI/WorldComm are other providers. Both
of these companies have given the Company verbal assurances that they are in
Year 2000 compliance.
The worst case scenario, as management sees it, is that the power
grid could fail and the Company's telephony systems would not have power. This
has been resolved by Level3 and MCI/World Com by diesel powered back up
generator systems that are in stand-by mode ready to supply power to the
telephony systems in case of short term power failure. These backup power
generating systems have the capability to sustain power generation for long
periods of time as long as fuel is available. A considerable amount of diesel
fuel is stored at both Level 3 and MCI/WorldComm facilities. The Company's
contingency plan is to continue to monitor the backup power systems at the
switching sites along with monitoring the diesel fuel supplies.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
- ----------------------------
On July 19, 1999, the Roman J. Kownacki, M.D. Pension Fund; and
Roman J. Kownacki and Mary Jean Kownacki, as Trustees of the Kownacki Family
Trust dated February 8, 1972 (collectively, "Kownacki"), filed a Complaint for
Judgment Debtor's Interest in Property or Debt to Satisfy Money Judgment in
the Superior Court of the State of California for the County of San Diego (the
"Complaint"). The case was designated Case No. EC18601.
The Complaint sought (i) a declaration that Company securities held
directly or beneficially by the Company's President, Richard D. Mangiarelli,
are the property of Kownacki; (ii) an order that the securities be delivered
to the marshal of the County of San Diego for satisfaction of a judgment in
the amount of $170,470.82 that Kownacki had obtained against Mr. Mangiarelli
on May 28, 1997; (iii) an order to show cause why the Company should not be
enjoined from transferring such securities to any person or otherwise
disposing of the securities; (iv) a temporary restraining order and a
preliminary injunction to that effect; and (v) Kownacki's costs of suit and
attorney's fees and such other relief as the Court deemed proper.
On August 5, 1999, the Court entered an Order (i) enjoining the
Company, during the pendency of the action, from transferring to Mr.
Mangiarelli, concealing, selling or otherwise changing the form of title on
Mr. Mangiarelli's securities; (ii) requiring the Company to transfer all such
securities in its possession to the Marshal of the County of San Diego upon
demand, for application to the satisfaction of the judgment in favor of
Kownacki; (iii) that the Company disclose the existence of the Order to anyone
who inquires as to Mr. Mangiarelli's ownership interest in the Company's
securities; (iv) not accept any lien or other encumbrance upon Mr.
Mangiarelli's stock, options or right to exercise stock options or acquire
shares as a condition to his employment with the Company; and (v) advise the
Securities and Exchange Commission of the restrictions placed upon such stock
on or before August 10, 1999.
In the event that any shares that are beneficially owned by Mr.
Mangiarelli are transferred to Kownacki, Kownacki would have the right to vote
those shares at any meeting of the Company's stockholders. The Company has
not received any indication of how Kownacki would vote the shares. However,
management does not anticipate that any such transfer would effect a change in
control of the Company, since Mr. Mangiarelli does not directly own any shares
of the Company's common stock and the 6M Family Trust, which is controlled by
Mr. Mangiarelli's family, owns only 17% of the Company's outstanding shares.
Accordingly, management does not believe that such transfer would have any
effect on its existing contracts or its future operations. Regardless of the
outcome of this matter, Mr. Mangiarelli intends to remain as a director and
executive officer of the Company and to continue with his present managerial
responsibilities.
Item 2. Changes in Securities and Use of Proceeds.
- ---------------------------------------------------
Recent Sales of Unregistered Securities.
----------------------------------------
Common Stock
------------
<TABLE>
Date Number of Aggregate
Name Acquired Shares Consideration
---- -------- --------- -------------
<S> <C> <C> <C>
Founders 8/1/96 2,000,000 (1)
Subscribers of
offering under
Rule 504 (2) 125,000 (3) $250,000
Subscribers under (4) 350,000 $ 45,500
second Rule 504
offering
Paul Mills 6/1/97 90,000 $180,000
Kaplan Trust 6/1/97 50,000 $ 10,000
Paul Ferandell 6/1/97 50,000 $ 25,000
Tony Cesare 6/1/97 10,000 $ 2,500
Equity Advisors
International 187,500
Four consultants 8/17/98 133,000 Services
valued at
$266,000
Jimmy Villalobos 8/17/98 3,000 $ 750
Daniel J. Sevier 8/17/98 4,000 $ 1,000
Five consultants 8/21/98 36,800 Services
valued at
$73,600
Southwest Products 12/23/98 25,000 $ 50,000
Southwest Products 1/21/99 10,000 $ 20,000
Three consultants 2/2/99 12,000 Services
valued at
$24,000
National Capital
Merc. 2/19/99 16,000 $ 40,800
National Capital
Merc. 3/25/99 20,000 $110,000
Rufus Young, Jr. 3/26/99 3,300 Services
valued at
$16,500
Jeffery Rush 4/20/99 10,000 Services
valued at
$20,000
Telebil 4/20/99 100,000 Services
valued at
$200,000
26 consultants 5/27/99 97,400 Services
valued at
$194,800
Holders of warrants
issued under Rule
504 offering (5) 375,000 $737,100
Eight consultants (6) Warrants to Services
purchase valued at
195,077 $390,154
shares
(1) Of this amount, a total of 1,783,000 were authorized for
issuance on August 1,1996, and were issued on April 16, 1998,
for a combination of cash and services.
(2) Subscriptions under this offering were made at various times
from January, 1998 through July, 1998.
(3) This offering was of 125,000 units, at a price of $2.00 per
unit. Each unit consisted of one share of the Company's
common stock and warrants to purchase up to three additional
shares at a price of $2.00 per share. As of the date of this
Report, all or substantially all of these warrants have been
exercised.
(4) This offering was subscribed by various persons in March, 1998.
(5) These warrants were exercised over a period of time ranging from
approximately February 19, 1999, to February 28, 1999.
(6) These warrants were issued from June, 1997 to February, 1998.
They expired on or about March 10, 1999.
</TABLE>
Management believes each of the foregoing persons or entities was
either an "accredited investor," or "sophisticated investor" as defined in
Rule 506 of Regulation D of the Securities and Exchange Commission. Each had
access to all material information regarding the Company prior to the offer,
sale or issuance of these "restricted securities." The Company believes these
shares were exempt from the registration requirements of the Securities Act of
1933, as amended (the "1933 Act"), pursuant to Section 4(2) (with respect to
all issuances other than issuances as part the Company's offerings under Rule
504) or 3(b) thereof (with respect to the issuances under the Rule 504
offerings).
The Company has taken the following factors into account in
determining the valuations of the above-referenced shares: (i) the fact that
the shares are "restricted" (with the exception of the shares issued under
Rule 504 of the Securities and Exchange Commission); (ii) the limited market
for the Company's common stock on the OTC Bulletin Board of the NASD; (iii)
the low book value per share ($0.038 at December 31, 1998); and (iv) the
Company's history of limited revenues ($25,962 and $16,004 in 1997 and 1998,
respectively).
Item 3. Defaults Upon Senior Securities.
- ------------------------------------------
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
- --------------------------------------------------------------
None; not applicable.
Item 5. Other Information.
- ----------------------------
None; not applicable.
Item 6. Exhibits and Reports on Form 8-K.
- -------------------------------------------
(a) Exhibits.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYBERTEL, COMMUNICATIONS CORP.
Date: Nov. 15, 1999 By: /s/ Richard D. Mangiarelli
-------------- -------------------------------------
Richard D. Mangiarelli
CEO, President and Director
Date: Nov. 15, 1999 By: /s/ Paul J. Mills
-------------- -------------------------------------
Paul J. Mills
Secretary and Director
Date: Nov. 15, 1999 By: /s/ John E. Jordan
-------------- -------------------------------------
John E. Jordan
Director
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001036148
<NAME> CYBERTEL, COMMUNICATIONS CORP.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 273634
<SECURITIES> 0
<RECEIVABLES> 56353
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 329987
<PP&E> 93612
<DEPRECIATION> 4179
<TOTAL-ASSETS> 423920
<CURRENT-LIABILITIES> 45540
<BONDS> 0
0
0
<COMMON> 3409
<OTHER-SE> 372396
<TOTAL-LIABILITY-AND-EQUITY> 423920
<SALES> 1602333
<TOTAL-REVENUES> 1602333
<CGS> 1556536
<TOTAL-COSTS> 1556536
<OTHER-EXPENSES> 814185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 750
<INCOME-PRETAX> (762783)
<INCOME-TAX> 0
<INCOME-CONTINUING> (762783)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (762783)
<EPS-BASIC> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
