<PAGE>
U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-26913
CYBERTEL COMMUNICATIONS CORP.
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(Name of Small Business Issuer in its Charter)
NEVADA 86-0862532
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(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
4275 Executive Square, Suite 510
La Jolla, California 92037
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(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 X No
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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:
4,624,309
March 31, 2000
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.
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CYBERTEL COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEET
March 31, 2000
2000
ASSETS
Current Assets
Cash $ 2,311,787
Accounts receivable 31,729
Other current assets 151,875
Total Current Assets 2,495,391
Equipment, net of $225,633 and $170,070
accumulated depreciation 144,348
Construction in progress 303,108
Deposits 4,500
TOTAL ASSETS $ 2,947,347
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 3,509
Notes payable 46,971
Accounts payable 109,307
Accrued expenses 212,656
Total Current Liabilities 372,443
Long-term Debt 1,631
Total Liabilities 374,074
STOCKHOLDERS' EQUITY
Preferred stock, no par value,
5,000,000 shares
authorized, 3,000,000 shares
issued and outstanding 2,830,125
Common stock, $.001 par value,
20,000,000 shares authorized,
4,624,309 shares issued and
outstanding 4,624
Paid in capital 4,952,908
Stock subscription receivable ( 119,500)
Retained (deficit) (5,094,884)
TOTAL STOCKHOLDERS' EQUITY 2,573,273
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 2,947,347
<PAGE>
CYBERTEL COMMUNICATIONS CORP.
CONSOLIDATED INCOME STATEMENTS
For the Years Ended March 31, 2000 and 1999
2000 1999
Revenues $ 86,604 $ 551,949
Cost of sales 22,909 (277,003)
63,695 274,946
Operating Expenses
Selling 49,895 30,336
General and
administrative 757,681 345,927
Depreciation 17,901
Interest (income) ( 13,571) ( 203)
Interest expense 605,102
Total Operating
Expenses 1,417,008 376,060
NET INCOME
(LOSS) $(1,353,313) $(101,114)
Net (loss) per
common share $(0.30) $( 0.03)
Weighted average
common shares
outstanding 4,518,309 3,631,000
<PAGE>
CYBERTEL COMMUNICATIONS CORP.
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Three Months Ended March 31, 2000 and 1999
2000 1999
CASH FLOWS USED BY OPERATING ACTIVITIES
Net income (loss) $(1,353,313) $( 101,114)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation 17,901
Changes in:
Accounts receivable 9,813 67,121
Other current assets 25,000
Accounts payable ( 102,550) 106,932
Accrued expenses ( 56,066)
Deferred revenue (144,500)
NET CASH USED BY OPERATING ACTIVITIES(1,459,215) ( 71,561)
CASH FLOWS USED BY INVESTING ACTIVITIES
Purchase of equipment ( 24,212) ( 32,045)
Note receivable ( 150,000)
Construction in progress ( 303,108)
NET CASH USED BY INVESTING ACTIVITIES( 477,320) ( 32,045)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of short-term private debt
placement ( 390,238)
Repurchase of stock
Payments on installment debt ( 21,299)
Net change in credit lines ( 417)
Net change in accrued officer salary ( 1,000)
Sales of preferred stock, net of
costs of fundraising 2,830,125
Sales of common stock, net of
costs of fundraising 1,187,199 248,000
NET CASH FLOWS FROM FINANCING ACTIVITIES 3,604,370 248,000
NET INCREASE IN CASH 1,667,835 144,394
CASH BALANCES
- Beginning of period 643,952 146,210
- End of period $ 2,311,787 $ 290,604
SUPPLEMENTAL DISCLOSURES
Interest paid $ 604,091 $ 0
Income taxes paid 0 0
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NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Cybertel
Communications Corporation have been prepared in accordance with generally
accepted accounting principles and the rules of the Securities and Exchange
Commission ("SEC"), and should be read in conjunction with the audited
financial statements and notes thereto contained in the Company's latest
Annual Report filed with the SEC on Form 10-KSB. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of
operations for the interim periods presented have been reflected herein. The
results of operations for interim are not necessarily indicative of the
results to be expected for the full year. Notes to the financial statements
which would substantially duplicate the disclosure contained in the audited
financial statements for the most recent fiscal year, 1999, as reported in the
10-KSB, have been omitted.
NOTE 2 - STOCK ISSUANCES
In February 2000, the Company received net proceeds of $2,830,125, in
connection with a private placement in 6% Convertible Preferred Stock. This
preferred stock is convertible to Company common stock at any time at a
formula approximating market value. 225,000 warrants were issued to investors
in connection with this funding, and these have an exercise price of $17.40
per share.
On February 14, 2000, the Company began another private placement to sell up
to 1 million common shares at $8 per share. As of March 31, 2000, 100,000
shares had been sold in this offering for $800,000 gross proceeds. As of May
11, 2000, an additional 172,225 shares have been sold for $1,377,800.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
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Plan of Operation.
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It is anticipated that Cybertel Communications Corp. will produce
approximately $12,882,000 in revenue in the 2000 fiscal year and approximately
$35,000,000 in fiscal 2001. Gross profit would be approximately ($1,244,000),
and $6,766,000, respectively. In the next 12 months, the Company intends to
employ 50 IP Gateways throughout the 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 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.
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 wiht 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. 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.
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 Bridgeport Energy Corporation and selling
these services to Justice Telecommunications, Inc. The Company also has
relationships with Flat Rate Communications, Inc., and LD Exchange, Inc., and
is pursuing other wholesale agreements as well. The profit margin is 3% to 4%
on the wholesaling of telecommunications services.
Management projects that 2000 revenues from its affinity group
program will total $2,640,000, with revenues from its wholesaling operations
totaling $8,087,000. For the 2001 fiscal year, management projects these
revenues to be $12,000,000 and $20,000,000, respectively. Cybertel's
subsidiaries, Telenomics, Inc. and Like Dat Music, Inc., project revenues of
$2,155,000 in fiscal 2000 and revenues of $4,200,000 in fiscal 2001.
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
26,000 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 5,000,000 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 2001. 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. See the heading "Liquidity and Capital Resources," of this
caption.
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.
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Three months ended March 31, 2000, compared to three months ended March 31,
2000.
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Revenues for the period ended March 31, 2000, decreased to $86,604 as
compared to $551,949 for the period ended March 31, 2000, as the result of the
development of a new wholesaling program for long distance telecommunications
services.
General and administrative costs have risen to $757,681 for the
period ended March 31, 2000, as compared to $345,927 for the period ended
March 31, 1999. 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.
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On about February 14, 2000, the Company commenced a private
placement of a minimum of 100,000 shares, and a maximum of 1,000,000
"unregistered" and "restricted" shares of its common stock at a price of $8
per share. Subject to the completion of the minimum offering, our placement
agent, Capital Growth Resources, of El Cajon, California, will receive a sales
commission of 10% of the gross proceeds of the offering, together with:
2% of the gross proceeds as a wholesaling fee;
2% of the gross proceeds as a "due diligence" fee;
2% of the gross proceeds as an unaccountable expense allowance;
and
12.5 warrants for every 100 shares sold (together with an
additional 20,000 warrants if the offering is completed within
90 days). Each warrant grants Capital Growth the right to
acquire one "unregistered" and "restricted" share of our common
stock for a period of one year, at a price of $0.01 per share.
As of March 31, 2000, the Company had sold 100,000 shares, for gross
proceeds of $800,000. As of May 11, 2000, an additional 172,225 shares have
been sold, for additional gross proceeds of $1,377,800. The offering is
continuing. Unless the Company is able to sell the maximum amount of its
offering, for total gross proceeds of $8,000,000, or to raise substantial
additional funding, it will not be able to proceed with its expansion plans.
There can be no assurance that the Company will be able to raise such funding.
Effective February 15, 2000, the Company entered into a Securities
Purchase Agreement with Adara Investors, LLC, a Delaware limited liability
company. Under the Securities Purchase Agreement, the Company sold to Adara:
3,000 Shares of its Series A Preferred Stock, at a price of
$3,000,000;
Warrants to purchase 225,000 shares of its common stock; and
For $100, a Supplemental Warrant to purchase an additional
2,000 shares of Series A Preferred Stock (the "Additional
Shares") for $2,000,000, and Stock Purchase Warrants to
purchase up to 150,000 additional shares of common stock.
Adara can exercise the Warrants until February 15, 2004, at a price
of $16.86 per share. It can exercise the Supplemental Warrant until November
15, 2000.
Also on February 15, 2000, Cybertel and Adara executed a
Registration Rights Agreement under which the Company agreed to file, within
45 days of the initial closing date of the Securities Purchase Agreement, a
Registration Statement on Form SB-2, covering the resale of two times:
the number of shares of common stock that Adara would be able
to receive from the conversion of the Shares and the Additional
Shares on the date of filing; and
the maximum number of shares of common stock that Adara would
be able to receive upon exercise of all Warrants that we issued
to Adara under the Securities Purchase Agreement.
The Company must keep the Registration Statement effective until the
earlier of:
the date on which Adara has sold all of the registered
securities;
the date on which Adara may sell the registered securities
immediately, without restriction; and
24 months after the date on which the Registration Statement is
declared effective.
The Company must pay 2% of Adara's $3,000,100 purchase price for
every 30 day period during which:
it has not filed the Registration Statement with the Securities
and Exchange Commission within 45 days of the closing date of
the Securities Purchase Agreement;
the Registration Statement is not effective within 90 days of
the closing of the Securities Purchase Agreement or, if the
Commission does not review it, within three days after the
Company or its counsel receive notice that there will be no
review;
for any period of five days after the effectiveness deadline,
the Company does not have enough shares listed for trading or
reserved for issuance upon the conversion of Adara's
convertible securities; or
for any period of five days after the effectiveness deadline,
the Company becomes aware of any event that makes any statement
in its Prospectus untrue or misleading, or that the Securities
and Exchange Commission has suspended the Registration
Statement.
For each 30 day default period during which the Company has cured
the default, the penalty will be prorated.
The Securities Purchase Agreement closed on February 15, 2000, and
the Company is currently in default of the first penalty provision. There can
be no assurance that it will be able to cure this or any other default in a
timely manner. If not, the Company will have to pay Adara $60,002 for every
30 days that we the Company is in default.
The Registration Rights Agreement also gives Adara "piggyback"
registration rights with respect to these securities.
The Company had cash on hand of $2,311,787 at March 31, 2000. This
will not be sufficient to fund its proposed expansion of its IP network
without substantial additional funding.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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None; not applicable.
Item 2. Changes in Securities and Use of Proceeds.
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Recent Sales of Unregistered Securities.
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On February 14, 2000, the Company issued a total of 9,000
"unregistered" and "restricted" shares of its common stock to James Boston and
George Boston in consideration of $2.00 per share. See the heading "Liquidity
and Capital Resources," for a discussion of the other "unregistered" and
"restricted" securities issued by the Company during the quarterly period
ended March 31, 2000.
Item 3. Defaults Upon Senior Securities.
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None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
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None; not applicable.
Item 5. Other Information.
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None; not applicable.
Item 6. Exhibits and Reports on Form 8-K.
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(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: 5-15-00 By: /s/ Richard D. Mangiarelli
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Richard D. Mangiarelli
CEO, President and Director
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