<PAGE>
As filed with the Securities and Exchange Commission on June 22, 2000.
Registration No. 333-36376
==============================================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(AMENDMENT NO. 1)
CYBERTEL COMMUNICATIONS CORP.
-----------------------------
(Name of small business issuer in its charter)
Nevada 513310 86-0862532
------ ------ ----------
(State or jurisdiction of (Primary Standard Industrial (I.R.S.Employer
incorporation or organization) Classification Code Number) Identification No.)
4320 La Jolla Village Drive, Suite 205
San Diego, California 92122
(858) 646-7410
--------------
(Address and telephone number of principal executive offices)
4320 La Jolla Village Drive, Suite 205
San Diego, California 92122
(858) 646-7410
--------------
(Address of principal place of business
or intended principal place of business)
Richard D. Mangiarelli
4320 La Jolla Village Drive, Suite 205
San Diego, California 92122
(858) 646-7410
--------------
(Name, address and telephone number of agent for service)
Copies to:
Branden T. Burningham, Esq.
455 East 500 South, Suite 500
Salt Lake City, Utah 84111
(801) 363-7411
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering [_]
If this Form is a post effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
==============================================================================
CALCULATION OF REGISTRATION FEE
Title of
Each Proposed Proposed
Class of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price per Offering Registration
Registered Registered Share (1) Price (1) Fee
---------- ---------- --------- --------- ---
Common Stock, 49,451 $8.75 $ 432,696.25 $ 114.23
$0.001 par value shares
Common Stock 2,250,000 $8.75 $19,687,500.00 $5,197.50
underlying shares (2)
convertible
securities (2)
TOTAL. . . . . . . 2,299,451 $8.75 $20,120,196.25 $5,311.73
shares
==============================================================================
(1) Estimated solely for the purpose of calculating the registration fee
under Rule 457(c) under the Securities Act on the basis of the average of the
bid and asked price of our common stock as quoted on the OTC Electronic
Bulletin Board on May 5, 2000.
(2) Represents shares issuable upon conversion of the Company's 6%
Convertible Series A Preferred Stock and the exercise of warrants to purchase
shares of the Company's 6% Convertible Series A Preferred Stock and shares of
the Company's common stock. The Company has agreed to register 200% of the
estimated initial conversion amount of the shares and exercise amount of the
warrants to provide for the possibility of a reduction in the market price for
the shares prior to the conversion of the 6% Convertible Series A Preferred
Stock and/or the exercise of the Company's warrants. Any shares of common
stock not issued on the conversion or exercise will be removed from
registration by post-effective amendment to this Registration Statement. In
accordance with Rule 416 under the Securities Act of 1933, as amended, also
includes such indeterminate number of additional shares of common stock as may
become issuable upon conversion of such 6% Convertible Series A Preferred
Stock or exercise of such warrants (i) resulting from any adjustment in the
applicable conversion price of such preferred shares or the exercise price of
such warrants or (ii) to prevent dilution resulting from stock splits or stock
dividends.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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Cybertel Communictions Corp.
2,299,451 Shares of Common Stock
This prospectus covers an aggregate of 2,299,451 shares of our
common stock, which will be sold, from time to time, by some of our
stockholders. Some of these stockholders have previously received the shares
of common stock from us. The number of shares that our selling stockholders
may sell also includes (i) shares of common stock that one of the
stockholders, Adara Investors LLC, will receive if it converts its shares of
our 6% Convertible Series A Preferred Stock; and (ii) shares of common stock
that Adara will receive if it exercises warrants to purchase shares of our
common stock. We are registering the resale of currently outstanding shares
of our common stock and shares of common stock that will be issued upon the
conversion of the 6% Convertible Series A Preferred Stock and upon the
exercise of the warrants. Unless otherwise indicated, the share calculations
in this prospectus do not take into account the issuance of any shares of
common stock upon conversion of the Preferred Stock or exercise of the
warrants.
We will not receive any money from the stockholders when they sell
their shares of common stock. We have agreed to pay all costs and expenses
relating to the registration of our common stock, but any stockholders who
sell their shares shall be responsible for any related commissions, taxes,
attorney's fees and related charges in connection with the offer and sale of
these securities. The stockholders may sell all or a portion of the shares
registered by this registration statement in private transactions or in the
over-the-counter market at prices related to the prevailing prices of our
common stock at the time of negotiation. The stockholders may sell their
common stock through one or more broker-dealers, and such broker-dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the stockholders.
Our common stock is quoted on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. (the "NASD"), under the symbol "CYTP."
On May 5, 2000, the price of our common stock as quoted on the OTC Bulletin
Board was $8.25.
These securities involve a high degree of risk. See the caption
"Risk Factors," beginning on page 4 of this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of the prospectus. Any representation to
the contrary is a criminal offense.
You may rely only on the information contained in this prospectus.
We have not authorized anyone to provide information different from that
contained in this prospectus. Neither the delivery of the prospectus nor the
sale of common stock means that information contained in this prospectus is
correct after the date of this prospectus. This prospectus is not an offer to
sell or a solicitation of an offer to buy these shares of common stock in any
circumstances under which the offer or solicitation is unlawful.
The date of this prospectus is June 28, 2000.
1
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TABLE OF CONTENTS
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . 3
Prospectus Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Determination of Offering Price and Dilution . . . . . . . . . . . . .10
Selling Security Holders . . . . . . . . . . . . . . . . . . . . . . . 11
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 13
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Directors, Executive Officers, Promoters and Control Persons . . . . . 15
Security Ownership of Certain Beneficial Owners and Management . . . . 17
Description of Securities . . . . . . . . . . . . . . . . . . . . . . .19
Interest of Named Experts and Counsel . . . . . . . . . . . . . . . . .19
Disclosure of Commission Position on Indemnification for Securities . .20
Act Liabilities
Description of Business . . . . . . . . . . . . . . . . . . . . . . . .21
Management's Discussion and Analysis or Plan of Operation . . . . . . .39
Description of Property . . . . . . . . . . . . . . . . . . . . . . . .42
Certain Relationships and Related Transactions . . . . . . . . . . . . 42
Market for Common Equity and Related Stockholder Matters . . . . . . . 44
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 45
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 47
Changes in and Disagreements with Accountants on Accounting and . . . .62
Financial Disclosure
2
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AVAILABLE INFORMATION
We file periodic reports with the Securities and Exchange
Commission. These documents may be inspected and copied at the Public
Reference Room of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the Commission at 1-800-
SEC-0330 for additional information. Our Commission filings are also
available from the Commission's web site: http://www.sec.gov.
We have filed a registration statement with the Commission on Form
SB-2, under the Securities Act of 1933, with respect to the securities
described in this prospectus. This prospectus is filed as part of the
registration statement. It does not contain all of the information set forth
in the registrations statement and the exhibits and schedules filed with it.
For further information about us and the common stock described by this
prospectus, we refer you to the registration statement and to the
exhibits and schedules filed with it. Copies of these documents may be
inspected at or obtained from the Public Reference Branch.
PROSPECTUS SUMMARY
CYBERTEL COMMUNICATIONS CORP.
-----------------------------
Since this is a summary of the terms of the common stock described
in this prospectus, it does not contain all of the information that may be
important to you. This prospectus contains "forward-looking" information
within the meaning of the Private Securities Litigation Reform Act of 1995.
We believe that the forward-looking statements contained in this prospectus
are within the meaning of the safe harbor provided by Section 27A of the
Securities Act of 1933. Forward-looking statements contained in this
prospectus involve known and unknown risks, uncertainties and other factors
that could cause actual results, financial or operating performance to differ
from the future results, financial or operating performance or achievements
expressed or implied by such forward-looking statements. You should read the
following summary and the "Risk Factors" section along with the more detailed
information , financial statements and the notes to the financial statements
appearing elsewhere in this prospectus before you decide whether to purchase
the common stock described in this prospectus.
The Company
-----------
Cybertel Communications Corp. is a provider of long distance voice
and data telecommunications services. We use the network switching and
transport facilities of Tier I long distance providers such as MCI/WorldCom;
Level 3 Communications; and Bell Atlantic Network Services, Inc., to provide a
broad array of integrated long distance telecommunications services such as
long distance, calling cards, paging and wireless communications seamlessly
and reliably.
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The Offering
------------
Securities offered by us . . . None
Securities that may be sold
by our stockholders . . . . . . 2,299,451 shares of our common stock.
Use of proceeds . . . . . . . . We will not receive any money from any
stockholders when they sell their shares of
common stock.
Offering Price . . . . . . . . .Market prices prevailing at the time of sale,
at prices related to the prevailing market
prices, at negotiated prices or at fixed
prices, all of which may change.
Transfer Agent . . . . . . . . .Pacific Stock Transfer Company, 5844 South
Pecos Road, Suite D, Las Vegas, Nevada 89120,
serves as the transfer agent and registrar for
our outstanding securities.
RISK FACTORS
------------
An investment in shares of our common stock is very speculative and
involves substantial risks. In addition to the general investment risks and
other information in this prospectus, you should carefully consider the
following factors before making an investment decision.
We Have a Limited Operating History.
------------------------------------
Cybertel was incorporated in June, 1996 for the purpose of engaging
in any lawful activity. Our plan of operations calls for us to create an
international, facilities-based communications network. However, we are still
in a formative stage. You should be aware that new businesses in a highly
competitive industry normally encounter many difficulties. It is not clear
that we will succeed with our business plans or in marketing our products and
services. As a consequence, we can not assure you that we will be able to
operate profitably in the future.
4
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We Have Had Negative Operating Results.
---------------------------------------
Cybertel is still a development stage company. We have not yet
earned an annual profit. Our gross revenues and net losses for the three
calendar years ended December 31, 1999, are shown below:
Year ended Gross Net
December 31, Revenues Loss
------------ -------- ----
1997 $ 25,962 $ 72,405
1998 (Restated) $2,572,731 $1,216,792
1999 $3,105,570 $2,250,265
During the three months ended March 31, 2000, we lost an additional
$1,353,313, on gross revenues of $86,604.
We may continue to report losses on an annual basis and our business
may never be profitable.
Any substantial downturn in economic conditions or any significant
price decreases in the telecommunications industry could hurt our business.
Economic conditions such as inflation may also make attractive financing rates
unavailable to us or our customers and may hurt our business. Deflation may
also reduce our income if our costs of providing services increase from the
time that we sell the services until the time that we provide them.
We Operate in a Highly Competitive Industry.
--------------------------------------------
We will be operating in a highly competitive industry. Most of our
competitors have much more experience in the industry and have many more
assets and customers than we have. As a result, we may not be able to compete
successfully in the telecommunications industry. See the caption "Competitive
Business Conditions" of this prospectus.
We Are Subject to Governmental Regulation.
------------------------------------------
Internet service providers ("ISP" or "ISPs") are generally
considered to be "enhanced service providers" within the United States and are
presently exempt from federal and state regulations governing common carriers.
However, this is an expanding medium that may be the subject of future
regulation by federal and state agencies. In April, 1998, the Federal
Communications Commission (the "FCC") indicated that it will examine whether
certain forms of "phone-to-phone" Internet protocol are information services
or telecommunication services. In September, 1999, the FCC initiated a
notice of inquiry regarding voice or Internet telephony (both computer-to-
computer and phone-to-phone Internet telephony), seeking comment on the
availability of Internet telephony, the extent to which it has begun to
replace traditional telecommunications services, the percentage of disabled
persons who utilize Internet telephony and whether it falls under the purview
of Section 255 of the Telecommunications Act of 1996 (the "Telecommunications
Act"). Also, in 1998, two regional bell operating companies advised Internet
5
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telephony providers that these companies would impose access charges on
Internet telephony traffic. The Public Utilities Commissions of Nebraska and
Colorado have dismissed petitions regarding these companies, but Nebraska has
indicated that it will hold a public hearing to consider and seek comment on
the following issues: (1) whether its preliminary finding that traffic to ISPs
is "local" in nature is correct; (2) how carriers should compensate each other
for calls placed to ISPs; (3) whether interexchange carriers providing
Internet telephony must pay intrastate access charges; and (4) whether ISPs
and providers of Internet telephony should contribute to the state's universal
service fund. We can not presently assess the potential adverse effects,
including the possibility of charging for the use of Internet telephone use,
that any such regulation may have.
We Rely Heavily on Existing Management.
---------------------------------------
Our operations depend primarily upon the experience and expertise of
Richard Mangiarelli (Chief Executive Officer, President and director) and Paul
Mills (Chairman of the Board and Secretary). The loss of either Mr.
Mangiarelli or Mr. Mills would seriously impede our operations.
We also depend on our ability to attract and retain qualified
management, administrative and sales personnel to support our anticipated
growth. We can not assure you that we will be able to attract qualified
personnel. We carry $1,000,000 in key man insurance on the life of Mr.
Mangiarelli. We do not have key man insurance on the lives of our other
officers. We have entered into employment contracts with Mr. Mangiarelli and
with James D. Boring and Richard Schmidt. Each of these employment contracts
contains an Exhibit 1 titled "Employee Non-Disclosure, Non-Competition and
Assignment of Inventions Agreement." Under these agreements, Messrs.
Mangiarelli, Boring and Schmidt agreed not to engage in or have a financial
interest in any activity or business that competes with our business.
Technology in Our Industry Evolves Rapidly.
-------------------------------------------
The telecommunications industry is characterized by rapidly evolving
technology. We believe that our success will depend on our ability to offer
timely new services based on evolving technologies and industry standards. We
intend to develop new services. However, we may not be able to develop these
new services or to obtain new technologies on favorable terms. In addition,
the market may not accept these services and technologies. Our competitors may
develop products or services that are technologically superior to ours or that
achieve greater market acceptance. Our competitors' development of any
superior technology, or our inability to successfully respond to such a
development, could make our existing products or services obsolete and could
hurt our business.
We Do Not Expect to Pay Dividends on Our Common Stock.
------------------------------------------------------
We have never paid any cash dividends on our common stock. We do
not expect to pay any dividends in the foreseeable future.
6
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The Holders of our Preferred Shares Have a Dividend Preference.
---------------------------------------------------------------
Even if we decide to pay dividends on our common stock in the
future, we must pay all accrued dividends to the holders of our Series A 6%
Convertible Preferred Stock first. This makes it even less likely that we
will pay dividends to our common stock holders in the foreseeable future. See
the heading "General" under the caption "Description of Business" and the
heading "Dividends" under the caption "Market for Common Equity and Related
Stockholder Matters."
Shares Eligible for Future Sales.
---------------------------------
Of the 4,713,468 currently issued and outstanding shares of our
common stock, approximately 2,717,239 are freely tradeable, and approximately
1,996,229 are "unregistered" and "restricted" securities. Our restricted
securities are restricted from resale other than through a transaction
complying with the provisions of Rule 144, adopted under the Securities Act of
1933, or some other exemption from registration. Of our 1,996,229
"unregistered" and "restricted" securities, approximately 585,600 have been
held for over one year and are eligible for resale under Rule 144.
Under Rule 144, if certain information about the operating and
financial affairs of the Company is publicly available, stockholders who have
held restricted securities for a period of one year may sell in any three
month period up to:
the greater of 1% of our outstanding common stock; or
the average weekly reported volume of common stock trading
during the four calendar weeks preceding the filing of a notice
of proposed sale.
Under Rule 144(k), non-affiliates may make unlimited sales of
restricted stock if they have held their shares for two years, regardless of
the other Rule 144 requirements. Future sales of our shares under Rule 144
could depress the market price of our common stock.
We Are in Default of a Registration Rights Agreement.
-----------------------------------------------------
We have prepared this prospectus, and have registered the shares
that the selling stockholders are selling, in accordance with a Registration
Rights Agreement that we have executed with Adara Investors LLC, a Delaware
limited liability company. The Registration Rights Agreement requires us to
pay $60,002 to Adara for every 30 days that we are in default of the
Registration Rights Agreement. We are currently in default, and will be
required to make at least one penalty payment to Adara. See the caption
"Description of Business" for a full discussion of our agreement with Adara.
7
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Our Directors and Officers May Face Conflicts of Interest.
----------------------------------------------------------
Although they have no present plans to do so, our directors and
officers may become officers, directors, controlling shareholders or partners
of other entities engaged in a variety of businesses. Their involvement in
these activities may create conflicts of interest over use of time and
corporate opportunity.
The Market Value of Our Common Stock Has No Relation to Its Book
Value.
------
There is no correlation between the market price of our common stock
and its book value. As of December 31, 1999, the net book value of a share of
our common stock was $(0.02). The average closing bid price of a share of our
common stock during the quarterly period ending on that date was $5.3125 per
share. This price does not necessarily bear any relationship to our asset
value, net worth or other established criteria of value. You should not
consider it to be the actual value of Cybertel or our common stock. Based on
this "book value" determination of the value of our common stock, it is highly
overvalued. We can not assure you that present or future stockholders will be
able to resell their shares at a profit.
The Limited Market for Our Shares Will Make Their Price More
Volatile.
---------
The market for our common stock is very limited. A larger market
may never develop or be maintained. The market for our common stock is likely
to be volatile and many factors may affect the market. These include, for
example:
Our success, or lack of success, in marketing our products and
services;
Competition;
Governmental regulations; and
Fluctuations in operating results.
The stock markets have experienced, and will probably continue to
experience, extreme price and volume fluctuations. These fluctuations have
affected the market price of many small capital companies' shares, and have
often been unrelated to the companies' operating results. These broad market
fluctuations, as well as general economic and political conditions, may
decrease the market price of our common stock in any market that develops.
8
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Our Stock May be Considered "Penny Stock."
------------------------------------------
Our common stock may be deemed to be "penny stock" as that term is
defined in Reg. Section 240.3a51-1 of the Securities and Exchange Commission.
Penny stocks are stocks:
with a price of less than five dollars per share;
that are not traded on a "recognized" national exchange;
whose prices are not quoted on the NASDAQ automated quotation
system (NASDAQ-listed stocks must still have a price of five
dollars or more; or
in issuers with net tangible assets less than $2,000,000 (if
the issuer has been in continuous operation for at least three
years) or $5,000,000 (if in continuous operation for less than
three years), or with average revenues of less than $6,000,000
for the last three years.
Subject to compliance with applicable listing standards, we plan to
attempt to qualify for listing on NASDAQ. However, our common stock is
currently traded on the OTC Bulletin Board of the NASD.
Section 15(g) of the 1934 Act, and Reg. Section 240.15g-2 of the
Securities and Exchange Commission require broker-dealers dealing in penny
stocks to provide potential investors with a document disclosing the risks of
penny stocks and to obtain a manually signed and dated written receipt of the
document before effecting any transaction in a penny stock for the investor's
account. We urge potential investors in our common stock to obtain and read
this disclosure carefully before purchasing any shares of "penny stock."
Reg. Section 240.15g-9 of the Securities and Exchange Commission
requires broker-dealers in penny stocks to approve the account of any investor
for transactions in such stocks before selling any penny stock to that
investor. This procedure requires the broker-dealer to:
obtain from the investor information about his or her financial
situation, investment experience and investment objectives;
reasonably determine, based on that information, that
transactions in penny stocks are suitable for the investor and
that the investor has enough knowledge and experience to be
able to evaluate the risks of penny stock transactions;
provide the investor with a written statement setting forth the
basis on which the broker-dealer made his or her determination;
and
receive a signed and dated copy of the statement from the
investor, confirming that it accurately reflects the investor's
financial situation, investment experience and investment
objectives.
9
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Compliance with these requirements may make it harder for investors
in our common stock to resell their shares to third parties.
We Will Face Many Risks in Executing Our Growth Strategy.
---------------------------------------------------------
A principal component of our growth strategy is to build a
telecommunications network in the United States. Our ability to do this
depends on a number of factors, including:
the availability of attractive opportunities;
our ability to acquire these opportunities on economically
feasible terms;
our ability to obtain the money necessary to finance our
acquisition of facilities and to cover any necessary sales,
marketing and operation expenses;
our ability to market and sell services; and
our ability to manage rapidly growing operations effectively
and to our customers' satisfaction.
We can not assure you that we will be successful in any of these
areas.
USE OF PROCEEDS
---------------
We will not receive any part of the proceeds from our stockholders'
sale of our common stock.
DETERMINATION OF OFFERING PRICE AND DILUTION
--------------------------------------------
We will not receive any money from the stockholders when they sell
their shares of common stock. The stockholders may sell all or part of their
common stock in private transactions or in the over-the-counter market at
prices related to the prevailing prices of our common stock at the time of
negotiation. Because we can not accurately predict the prices of such sales,
we can not accurately estimate the amount of any dilution that may result from
the purchase of these shares. However, the net tangible book value of our
common stock on December 31, 1999, was $(0.02) per share. Net tangible book
value per share is determined by subtracting our total liabilities from our
total tangible assets and dividing the remainder by the number of shares of
common stock outstanding.
You should not ascribe any value to our common stock, since we lack
any established public market for these securities and they have a negative
tangible book value. You should also be aware of our limited operating
history and revenues, lack of profits and dividends, and the other risk
factors discussed in this prospectus. You will probably suffer significant
dilution of the value you may ascribe to the shares you receive under this
prospectus.
10
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Any public market for our common stock may be less than the sales
price of the shares sold by our stockholders. Purchasers face the risk that
their shares will not be worth what they paid for them.
SELLING SECURITY HOLDERS
------------------------
The following table shows the following information for our selling
stockholders:
The number of shares of our common stock that they beneficially owned as
of May 22, 2000 and that are covered by this prospectus; and
The number of shares to be retained after this offering, if any.
Common Stock (1)
----------------
Number of Shares
Owned Prior to Number of Shares
and Registered Beneficially Owned
Name of Selling Stockholder in the Offering after the Offering(2)
--------------------------- --------------- ------------------
Adara Investors LLC 2,250,000 (3) -0-
Jerry L. Adams 750 -0-
James A. Boston 1,688 1,520
Loretta I. Cook 2,060 2,000
Ryan D. Cravens 1,031 2,000
Nerese S. Crayton 275 -0-
Frank Grubb 750 -0-
Lois C. Hull 412 -0-
Randy P. Masciarelli 137 -0-
Douglas W. Miller 5,329 2,500
Mark F. Miller 700 -0-
Daniel J. Sevier 3,841 3,500
Richard D. Simpson 549 1,200
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David R. Strawn 1,000 -0-
Mark E. Stutzman 1,099 3,074
Symbion, Ltd. 14,707 -0-
Thomas E. Thompson 563 1,000
Eric M. Tice 100 100
Lauren M. Tice 100 50
Thomas M. Tice 1,860 2,000
Jimmy Villalobos 12,500 50,000
(1) We assume that none of the selling stockholders will purchase
any shares in this offering.
(2) This assumes the sale of all shares being registered.
(3) Consists of (i) up to 1,500,000 shares issuable upon the
conversion of our 6% Convertible Series A Preferred Stock; and (ii) 750,000
shares issuable upon the exercise of warrants. Adara Investors LLC will
receive the shares offered by this prospectus upon conversion of our 6%
Convertible Series A Preferred Stock or exercise of the warrants.
On February 15, 2000, we entered into an agreement with Adara.
Under the Agreement, we issued shares of 6% Convertible Series A Preferred
Stock and warrants. The estimated number of shares that we can issue upon
conversion of the 6% Convertible Series A Preferred Stock is based on an
estimated conversion price of $8.33 per share of common stock. The actual
number of shares of common stock issuable upon conversion of the 6%
Convertible Series A Preferred Stock is indeterminable. It is subject to
adjustment and could be materially less or more than the estimated number,
depending on factors that we can not predict, including the future market
price of the common stock. The 1,500,000 shares registered for issuance upon
conversion of the 6% Series A Preferred Stock represents 200% of the total
amount of shares that we believe we will issue to Adara in the conversion. We
will deregister any shares that we do not actually issue in the conversion and
will not issue those shares to Adara.
The number of outstanding shares of our common stock may increase
due to a stock split, dividend or antidilution adjustments. As a result, the
number of shares of common stock issuable upon such conversion or exercise and
subject to this prospectus is indeterminate. This prospectus relates to the
resale of the entire indeterminate number of shares of common stock.
12
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PLAN OF DISTRIBUTION
--------------------
We are registering the shares of our common stock covered by this
prospectus.
We will pay the costs, expenses and fees of registering the common
stock. Our stockholders will pay any underwriting or brokerage commissions
and similar selling expenses relating to the sale of their shares.
Our stockholders may sell our common stock at market prices
prevailing at the time of the sale, at prices related to the prevailing market
prices, at negotiated prices or at fixed prices. Any of these prices may
change. Our stockholders may sell some or all of their common stock through:
Ordinary broker's transactions, which may include long or short
sales;
Purchases by brokers, dealers or underwriters as principal and
resale by those purchasers for their own accounts under this
prospectus;
Market makers or into an existing market for the common stock;
Transactions in options, swaps or other derivatives; or
Any combination of the selling options described in this
prospectus, or by any other legally available means.
In addition, our stockholders may enter into hedging transactions
with broker-dealers, who may engage in short sales of our common stock in the
course of hedging the positions they assume. Finally, our stockholders may
enter into options or other transactions with broker-dealers that require the
delivery of our common stock to those broker-dealers. Subsequently, the
shares may be resold under this prospectus.
In their selling activities, our stockholders will be subject to
applicable provisions of the Securities Exchange Act of 1934, and its rules
and regulations, including Regulation M. These rules may limit the timing of
our stockholders' sales.
Those of our stockholders and any broker-dealers involved in the
sale or resale of our common stock may qualify as "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933. In addition, the
broker-dealers' commissions, discounts or concessions may qualify as
underwriters' compensation under the Securities Act of 1933. If any broker-
dealer or any of our stockholders qualifies as an "underwriter," they will be
subject to the prospectus delivery requirements of Section 154 of the
Securities Act of 1933.
13
<PAGE>
In conjunction with sales to or through brokers, dealers or agents,
our stockholders may agree to indemnify those brokers, dealers or agents
against liabilities arising under the Securities Act of 1933. We do not know
of any existing arrangements between our stockholders and any other
stockholder, broker, dealer, underwriter or agent relating to the sale or
distribution of our common stock.
In addition to selling their common stock under this prospectus, our
stockholders may:
Transfer their common stock in other ways not involving market
makers or established trading markets, including by gift,
distribution or other transfer; or
Sell their common stock under Rule 144 of the Securities Act of
1933, if the transaction meets the requirements of Rule 144.
We have advised our stockholders that, during the time each is
engaged in distribution of their common stock, each much comply with Rule 10b-
5 and Regulation M under the Securities Exchange Act of 1934. They must do
all of the following under those rules:
Not engage in any stabilization activity in connection with our
common stock;
Furnish each broker who may be offering our common stock on
behalf of our stockholders the number of copies of this
prospectus required by each broker; and
Not bid for or purchase any of our common stock or attempt to
induce any person to purchase any of our common stock, other
than as permitted under the Securities Exchange Act of 1934.
Any of our stockholders who may be "affiliated purchasers," as
defined in Regulation M, have been further advised that they must coordinate
their sales under this prospectus with each other and us for the purposes of
Regulation M.
To the extent required by the Securities Act of 1933, a supplemental
prospectus will be filed, disclosing:
The name of any such broker-dealers;
The number of securities involved;
The price at which such securities are to be sold;
The commissions paid or discounts or concessions allowed to
such broker-dealers, where applicable;
That such broker-dealers did not conduct any investigation to
verify the information set out in this prospectus, as
supplemented; and
Other facts material to the transaction.
14
<PAGE>
There is no assurance that any of our stockholders will sell any of
our common stock.
LEGAL PROCEEDINGS
-----------------
Cybertel was a party to Case No. EC18601. The case was dismissed by
the Superior Court of the State of California for the County of San Diego on
December 10, 1999. For a description of this proceeding, see the heading
"Changes in Control" of the caption "Security Ownership of Certain Beneficial
Owners and Management."
To the knowledge of management, no federal, state or local
governmental agency is presently contemplating any proceeding against us. No
director, executive officer or other person who may be deemed to be an
"affiliate" of Cybertel or owner of record or beneficially of more than five
percent of its common stock is a party adverse to Cybertel or has a material
interest adverse to Cybertel in any proceeding.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
------------------------------------------------------------
The following table sets forth the names of all of our current
directors and executive officers. These persons will serve until the next
annual meeting of the stockholders or until their successors are elected or
appointed and qualified, or their prior resignation or termination.
<TABLE>
<CAPTION>
Date of Date of
Positions Election or Termination
Name Held Designation or Resignation
---- ---- ----------- --------------
<S> <C> <C> <C>
Richard D. CEO 6/96 *
Mangiarelli President 6/96 *
Director 6/96 *
Paul J. Mills Chairman 6/96 *
Director 6/96 *
Secretary 6/96 *
John E. Jordan Director 6/96 *
</TABLE>
* These persons presently serve in the capacities
indicated.
15
<PAGE>
Business Experience.
--------------------
Richard D. Mangiarelli, Chief Executive Officer, President and
Director. Mr. Mangiarelli is 59 years old. In 1985, he founded USA Energy
Corporation, a licensed general and electrical contractor dedicated to energy
conservation contracting. He was the Chief Operating Officer of Fulham
Company, an electronic ballast manufacturer, from 1993 to 1995. Mr.
Mangiarelli holds a BA degree from the University of Connecticut and an MBA
degree from Pepperdine University. He is a licensed general contractor and
licensed electrical contractor and is retired from the United States Marine
Corps at the rank of Colonel.
Paul J. Mills, Secretary and Chairman of the Board of Directors.
Mr. Mills, age 77, has been a principal in Mills and Associates, a management
and consulting firm since 1985. Prior thereto, he founded and served as
president of a marketing company called Southwest Solar Products, Inc. from
1980 to 1986.
John E. Jordan, Director. Mr. Jordan is 63 years of age. In 1959,
he founded the Jordan Companies, a group of privately held, diversified
companies engaged in energy related engineering, manufacturing and marketing
activities, defense and aerospace consulting and international negotiations
and representation. He has served as chief executive officer and president of
these companies for over 20 years. Mr. Jordan is a graduate of Stanford
University, the Marine Corps Command and Staff College, the National Defense
University-Industrial College of the Armed Force program, the Naval War
College, and served as an Officer in both the U.S. Air Force and the Marine
Corps.
Significant Employees.
----------------------
Other than our executive officers, we do not have any employees who
are expected to make a significant contribution to our business.
Family Relationships.
---------------------
There are no family relationships between any director or executive
officer.
Involvement in Certain Legal Proceedings.
-----------------------------------------
During the past five years, no present or former director, executive
officer or person nominated to become a director or an executive officer of
Cybertel:
(1) was a general partner or executive officer of any business
against which any bankruptcy petition was filed, either at the time of the
bankruptcy or two years prior to that time;
(2) was convicted in a criminal proceeding or named subject to a
pending criminal proceeding (excluding traffic violations and other minor
offenses);
16
<PAGE>
(3) was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities or banking
activities; or
(4) was found by a court of competent jurisdiction (in a civil
action), the Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and the judgment
has not been reversed, suspended or vacated.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Security Ownership of Certain Beneficial Owners.
------------------------------------------------
The following table sets forth the share holdings of our directors
and executive officers and those persons who own more than five percent of our
common stock as of May 22, 2000.
<TABLE>
<CAPTION>
Number of Shares Percentage
Name and Address Beneficially Owned of Class(1)
---------------- ------------------ --------
<S> <C> <C>
Richard D. Mangiarelli (2) 12,000 0.3%
4320 La Jolla Village Dr.
Suite 205
San Diego, California
92122
Paul J. Mills 270,000 (3) 5.7%
4320 La Jolla Village Dr.
Suite 205
San Diego, California
92122
John E. Jordan 24,000 0.5%
4320 La Jolla Village Dr.
Suite 205
San Diego, California
92122
</TABLE>
17
<PAGE>
(1) These figures do not take into account any shares of common
stock issuable upon conversion of our 6% Convertible Series A
Preferred Stock or the exercise of any warrants.
(2) The 6M Family Trust, which is controlled by Mr. Mangiarelli's
family holds all of these shares.
(3) Mr. Mills' adult children hold 190,000 of these shares. Mr.
Mills may be deemed to have voting control over these shares.
Changes in Control.
-------------------
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:
a declaration that our securities held directly or beneficially
by our President, Richard D. Mangiarelli, are the property of
Kownacki;
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;
an order to show cause why we should not be enjoined from
transferring such securities to any person or otherwise
disposing of the securities;
a temporary restraining order and a preliminary injunction to
that effect; and
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:
enjoining us, 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;
requiring us to transfer all such securities in our possession
to the Marshal of the County of San Diego upon demand, for
application to the satisfaction of the judgment in favor of
Kownacki;
that we disclose the existence of the Order to anyone who
inquires as to Mr. Mangiarelli's ownership interest in our
securities;
18
<PAGE>
not to 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
Cybertel; and
that we advise the Securities and Exchange Commission of the
restrictions placed upon such stock on or before August 10,
1999.
On December 10, 1999, the Kownacki suit was dismissed without the
payment of any shares beneficially owned by Mr. Mangiarelli. As a result, the
Kownacki suit will not result in any change in control of Cybertel.
DESCRIPTION OF SECURITIES
-------------------------
We have the following two classes of securities authorized:
20,000,000 shares of common voting stock with a par value of
one mill ($0.001) per share; and
5,000,000 shares of preferred stock with a par value of one
mill ($0.001) per share.
Our common stock holders have one vote per share on each matter
submitted to a vote at a meeting of stockholders. Our shares of common stock
do not carry cumulative voting rights in the election of directors.
Our common stockholders have no pre-emptive rights to acquire
additional shares of common stock or other securities. The common stock
carries no subscription or conversion rights. All shares of common stock now
outstanding are fully paid and non-assessable.
Our preferred stock will have such rights and preferences as the
Board of Directors may authorize. Effective February 10, 2000, our Board of
Directors designated 5,000 shares of our class of preferred stock as "Series A
6% Convertible Preferred Stock." For a description of the rights and
preferences of our Series A 6% Convertible Preferred Stock, see the heading
"General" of the caption "Description of Business" and the heading "Dividends"
of the caption "Market for Common Equity and Related Stockholder Matters."
INTEREST OF NAMED EXPERTS AND COUNSEL
-------------------------------------
Our financial statements as of December 31, 1999, have been included
herein in reliance on the report of Malone & Bailey, PLLC, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of that firm as experts in accounting and auditing.
We have not hired any expert or counsel on a contingent basis. No
expert or counsel will receive a direct or indirect interest in Cybertel, and
no such person was a promoter, underwriter, voting trustee, director, officer
or employee of Cybertel.
19
<PAGE>
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
-----------
Section 78.7502(1) of the Nevada Revised Statutes ("NRS")
authorizes a Nevada corporation to indemnify any director, officer, employee,
or corporate agent "who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, except an action by or
in the right of the corporation" due to his or her corporate role. Section
78.7502(1) extends this protection "against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with the action, suit or proceeding if he
acted in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful."
Section 78.7502(2) of the NRS also authorizes indemnification of
the reasonable defense or settlement expenses of a corporate director,
officer, employee or agent who is sued, or is threatened with a suit, by or in
the right of the corporation. The party must have been acting in good faith
and with the reasonable belief that his or her actions were in or not opposed
to the corporation's best interests. Unless the court rules that the party is
reasonably entitled to indemnification, the party seeking indemnification must
not have been found liable to the corporation.
To the extent that a corporate director, officer, employee, or
agent is successful on the merits or otherwise in defending any action or
proceeding referred to in Section 78.7502(1) or 78.7502(2), Section 78.7502(3)
of the NRS requires that he be indemnified "against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection
with the defense."
Unless ordered by a court or advanced pursuant to Section 78.751(2),
Section 78.751(1) of the NRS limits indemnification under Section 78.7502 to
situations in which either (1) the stockholders, (2)the majority of a
disinterested quorum of directors, or (3) independent legal counsel determine
that indemnification is proper under the circumstances.
Section 78.751(2) authorizes a corporation's articles of
incorporation, bylaws or agreement to provide that directors' and officers'
expenses incurred in defending a civil or criminal action must be paid by the
corporation as incurred, rather than upon final disposition of the action,
upon receipt by the director or officer to repay the amount if a court
ultimately determines that he is not entitled to indemnification.
Section 78.751(3)(a) provides that the rights to indemnification and
advancement of expenses shall not be deemed exclusive of any other rights
under any bylaw, agreement, stockholder vote or vote of disinterested
directors. Section 78.751(3)(b) extends the rights to indemnification and
advancement of expenses to former directors, officers, employees and agents,
as well as their heirs, executors, and administrators.
Regardless of whether a director, officer, employee or agent has
the right to indemnity, Section 78.752 allows the corporation to purchase and
maintain insurance on his behalf against liability resulting from his or her
corporate role.
20
<PAGE>
Article IX of our Articles of Incorporation limits the personal
liability of a director or executive officer for damages for breach of
fiduciary duty to acts or omissions involving intentional misconduct, fraud
or a knowing violation of law. In addition, Article X provides for
indemnification of the Company's directors and executive officers to
substantially the same extent as the NRS.
This is only a summary of the indemnification provisions of the NRS
and our Articles of Incorporation. You are urged to review our Articles of
Incorporation for the actual text of their indemnification provisions.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Cybertel pursuant to the foregoing provisions, or otherwise, we
have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
DESCRIPTION OF BUSINESS
-----------------------
General.
--------
Cybertel was organized on June 13, 1996, for the purpose of engaging
in any lawful activity. At inception, Cybertel was authorized to issue
20,000,000 shares of non-assessable common voting stock, par value one mill
($0.001) per share. In addition, we are authorized to issue 5,000,000 shares
of preferred stock having a par value of one mill ($0.001) per share, with
such rights and preferences as the Board of Directors shall determine. Until
approximately May, 1999, Cybertel was a development stage company.
In November and December, 1999, we received net proceeds of $390,238
from loans with a face value of $500,000. The loans were due six months from
the date of origination and bore interest at the rate of 14% per annum. The
note investors also received a total of 75,000 "unregistered" and "restricted"
shares of our common stock on a pro rata basis, and certain employees of
Capital Growth Resources, the placement agent, received 50,000 such shares as
a placement fee. These shares are a portion of the shares currently being
registered. See the caption "Recent Sales of 'Unregistered' Securities" of
this prospectus.
We paid the note in full on February 29, 2000. The total payoff
amount was $508,555, including principal and accrued interest. This payoff
amount came from the proceeds of our funding with Adara. We allocated the
rest of the proceeds to working capital.
On December 30, 1999, we entered into a Reorganization Agreement
with Telenomics, Inc., a California corporation, and all of the stockholders
of Telenomics. Under the Reorganization Agreement, we issued 600,000
"unregistered" and "restricted" shares of our common stock to the Telenomics
stockholders in exchange for all of the outstanding voting securities of
Telenomics. These shares amounted to approximately 9.4% of our outstanding
voting securities immediately after the completion of the Reorganization
21
<PAGE>
Agreement, taking into account the securities that we issued as outlined in
the next paragraph. Telenomics became a wholly-owned subsidiary of Cybertel
on the closing of the Reorganization Agreement.
Telenomics is a Hewlett Packard Channel Partner, providing telephone
accounting and management software solutions on HP servers since 1983. It
is also a Hewlett Packard equipment reseller of the HP/9000, HP/3000 and HP
workstations through a national authorized reseller license with Hewlett
Packard with a "best in class" status.
Telenomics and its authorized resellers manufacture and distribute
PWARE software products that are designed to reside on Hewlett Packard servers
in an open environment. This allows easy interface to existing modules on the
server, such as financial, human resources and other applications. PWARE is
also designed to reduce dependency on software vendors and to replace the
stand alone PC call accounting system sold through telephone vendors. PWARE
is a multi-user system with both an unlimited terminals-based server and a
per-seat MS Windows Client Server based front end.
Also on December 30, 1999, Cybertel entered into an Agreement
and Plan of Reorganization with T. J. Knowles, the sole stockholder of Like
Dat Music, Inc., a California corporation. Under the Plan of Reorganization,
we issued 100,000 "unregistered" and "restricted" shares of our common stock
to Mr. Knowles in exchange for all of the outstanding voting securities of
Like Dat Music. These shares amounted to approximately 1.6% of our
outstanding voting securities immediately after the completion of the
Telenomics and Like Dat Music acquisitions. Like Dat Music became a
wholly-owned subsidiary of Cybertel on the closing of the Plan of
Reorganization.
As part of the Telenomics acquisition, we acquired computer and
office furniture with a book value of approximately $70,000. The only other
asset of Telenomics was its software code for its call accounting software.
The development expenses of this software have been deducted as an expense and
are not reflected on its balance sheet.
Like Dat Music is an established and award-winning commercial music
and sound design company. It produces original music for sale or license to
the advertising, broadcast and film industries. Its products and services are
used in television and radio commercials, television network and cable
promotions, corporate industrial and trade films and shows, feature film
trailers and motion pictures, television programming, and in Internet-
related applications such as on-site kiosks and web sites. It also provides
specialized digital sound recording services and innovative consumer music
products for sale, private labeling and license.
Like Dat Music had virtually no tangible assets, except its
copyright music. The development expenses of these assets have also been
deducted as an expense. There is no carrying value for these assets on its
balance sheet.
Effective February 10, 2000, our Board of Directors designated 5,000
shares of our class of preferred stock as "Series A 6% Convertible Preferred
Stock," with holders thereof being entitled to receive dividends equal to 6%
of the Liquidation Preference (i.e., $1000 per share of Series A Preferred
Stock) per year. At our election, we may pay these dividends either in shares
of our common stock or in cash. If Cybertel is dissolved, the holders of
Series A Preferred Stock will be entitled to receive the Liquidation
Preference, plus any accrued but unpaid dividends, whether or not we have
declared them. Each holder of Series A Preferred Stock is also entitled to
vote as if he or she owned the number of whole shares of common stock into
which his or her shares of Series A Preferred Stock are convertible
immediately after the close of business on the record date for determining the
stockholders who are entitled to notice of and to vote at any stockholder
22
<PAGE>
meeting or, in the case of matters that are approved by the consent of
stockholders without a meeting, on the date of such consent.
Each holder of Series A Preferred Stock may convert his or her
shares, at any time, into the number of shares of our common stock that is
determined by dividing $1000, plus the amount of any accrued but unpaid
dividends, by the Conversion Price. The Conversion Price is the lower of
110% of the average closing bid price of our common stock for
the five trading days immediately preceding the initial closing
date of our Securities Purchase Agreement as discussed below;
and
80% of the average of the three lowest closing bid prices of
our common stock for the 25 trading days immediately preceding
the conversion date. If the closing bid price of our common
stock is $8 per share, Adara has the option to convert any or
all shares of Series A Preferred Stock into common stock.
On about February 14, 2000, we began a private placement of a
minimum of 100,000 shares, and a maximum of 1,000,000 "unregistered" and
"restricted" shares of our 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.
On June 20, 2000, our Board of Directors resolved to:
decrease the offering price under the private placement from
$8 per share to $6 per share;
increase the number of shares under the private placement from
1,000,000 to 1,333,334; and
provide for Capital Growth to receive 145,000 warrants if the
maximum 1,333,334 shares is sold, with that number to be
reduced on a pro rata basis if less than the maximum offering
is sold.
As of the date of this prospectus, we have raised the minimum gross
proceeds under this offering, and the offering is continuing. Capital Growth
has earned 34,028 warrants for its services, but we have not yet formally
issued the warrants.
Effective February 15, 2000, we entered into a Securities Purchase
Agreement with Adara Investors, LLC, a Delaware limited liability company.
Under the Securities Purchase Agreement, we sold to Adara:
3,000 Shares of our Series A Preferred Stock, at a price of
$3,000,000;
Warrants to purchase 225,000 shares of our common stock; and
23
<PAGE>
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 the Registration Rights Agreement, we
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.
We 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.
We must pay 2% of Adara's $3,000,100 purchase price for every 30 day
period during which:
we have 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 we or
our counsel receive notice that there will be no review;
for any period of five days after the effectiveness deadline,
we do 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,
we become aware of any event that makes any statement in this
prospectus untrue or misleading, or that the Securities and
Exchange Commission has suspended the Registration Statement.
24
<PAGE>
For each 30 day default period during which we have cured the
default, the penalty will be prorated.
The Securities Purchase Agreement closed on February 15, 2000, and
we are currently in default of the first penalty provision. We can not assure
you that we will be able to cure this or any other default in a timely manner.
If we can not, we will have to pay Adara $60,002 for every 30 days that we are
in default.
The Registration Rights Agreement also gives Adara "piggyback"
registration rights with respect to these securities.
Due to a typographical error in our Articles of Incorporation, our
original name was "Cybertel, Communications Corp." On March 15, 2000, we
filed with the Nevada Secretary of State a Certificate of Correction to show
that our correct name is "Cybertel Communications Corp." with no comma.
On June 8, 2000, our Board of Directors unanimously resolved to
amend our Bylaws to authorize: (i) the calling of special meetings of
stockholders by the President at the written request of the holders of 10% or
greater of our issued and outstanding shares; and (ii) the stockholders'
removal of directors with or without cause.
On June 13, 2000, we entered into an Agreement and Plan of
Reorganization with LDVL, Inc., a New Jersey corporation, and LDVL's
stockholders. Under the Agreement, we agreed to acquire all of LDVL's
outstanding shares in exchange for 700,000 "unregistered" and "restricted"
shares of our common stock. We also agreed to issue to five of the LDVL
stockholders warrants to purchase a total of 51,783 "unregistered" and
"restricted" shares of our common stock at a purchase price of $8.00, and to
fund LDVL up to $1,300,000, with $500,000 of this amount payable upon closing
of the Agreement.
Some of LDVL's stockholders exercised dissenter's rights. As a
result, we will pay approximately $294,000 for these dissenting stockholders'
shares.
Following the completion of the Agreement, we will have about
5,434,243 shares outstanding. Unless otherwise indicated, share calculations
in this prospectus do not include the shares to be issued to the LDVL
stockholders.
LDVL is a telecommunications services company specializing in the
resale of xDSL (Digital Subscriber Loop) circuits through a network of
Regional Bell Operating Company sales agents as well as other top tier dealers
within the United States. These agents and dealers sell network services to
small, intermediate and large corporations.
Principal Products or Services and Their Markets.
-------------------------------------------------
Long Distance Service.
----------------------
Cybertel intends to offer basic "1 plus" and "800" long distance
services. Management believes it will be successful as a provider of these
basic services because of the volume discounts it has been able to negotiate
with underlying carriers and its ability to direct customer call traffic over
the transmission networks of more than one carrier. We have negotiated
pricing ranging from $0.049 to $0.056 per minute for switchless services, and
ranging from $0.041 to $0.044 with guarantees to the carriers of certain
minimum monthly volume. If we do not meet these minimum volumes, we will
still be responsible for paying for them. As we expand our network of
switching facilities, we will be better able to choose among the transmission
networks of different carriers to take advantage of the most favorable rates.
We negotiate with each carrier for the best rates we can get. Volume
and "ramp up" periods affect our costs. If we are able to project substantial
volumes in the mid-term future, underlying carriers are willing to
negotiate a better rate. We have no way to gauge what underlying carriers
charge to others, as that is not public information. However, management knows
that Cybertel's charges to its customers are very competitive. As an example,
a customer using 200 minutes per month and subscribing to AT&T's 7 cent per
minute plan would pay $19.95 when AT&T's $5.95 monthly recurring charge is
25
<PAGE>
added. A Cybertel customer using the same 200 minutes would pay $19.80 at our
9.9 cent per minute rate.
Initially, we will charge our customers on the basis of minutes or
partial minutes of usage. Our rates may vary with the distance, duration,
time of day of the call and the type of call. The facilities selected for
call transmission do not affect our rates, but the type of call does.
Our wholly-owned subsidiary, Telenomics, does our billing for us.
In the near future, we hope to provide our customers a flat rate
long distance calling service throughout the United States. We will bill
in six-second increments.
Debit and Prepaid Calling Cards.
--------------------------------
We offer travel and debit cards with low long distance rates. We
charge either per unit fees or bill subscriber monthly. Our cards work the
same as other calling cards. The absences of transaction fees per call as
well as lower per minute charges make these cards extremely attractive.
Prepaid calling cards also limit the user's liability for lost, stolen or
abused cards, since the minutes are preset and added to each card in limited
amounts at the subscriber's direction. We began receiving revenues from these
cards in August, 1999.
Internet Access.
----------------
This is generally the newest and fastest growing product for
telecommunications providers. Cybertel packages a service which includes
domain registration and services such as design, placement, and advertising;
Web sites; monthly access to the Internet for dial-up and dedicated usage
(telecommunications lines reserved for use by particular customers); and
a discounted 800 service to respond to the customers' eventual order flow. We
expect that this package will include e-mail, Web browser, Internet dialer,
and search engines, all priced substantially below major carrier providers for
software and initial access. We expect to price these services at $16.50 per
month, as compared to monthly rates for other internet service providers
ranging from $19.95 to $21.95 per month. The bundling of these services will
provide a "one-stop" arrangement for small and middle-sized business
subscribers. Since many small businesses do not employ computer specialists
and are owned or managed by people who are not Internet experts, we believe
that a one-stop approach gives us easy access to a steadily growing demand.
26
<PAGE>
Distribution Methods of the Products or Services.
-------------------------------------------------
Affinity Groups.
----------------
Cybertel is expanding the reseller concept of transporting
data through a facilities-based carrier that bills and collects from the
end-user customers. We do this by targeting our products to specific niche
markets. We market to large associations whose members form a loyal base and
are loyal to their organization and wish to support it financially. We offer
these associations discounted long distance services at wholesale prices.
Part of the long distance charges go to the subscribers' organization when
they pay their monthly bills. We solicit the long distance services through
the subscriber's organization.
We believe that our strategy will let us introduce and sell our
services to many more users than we could contact directly or get through
advertising. The sponsoring group has a vested interest in obtaining
all telecommunications business from its affiliated members because it stands
to gain substantial commissions once the group's calls reach certain volume
levels. Our strategy also applies to fund raisers and promotional events, and
personalized prepaid calling cards provide an excellent promotion for the
sponsoring entity.
Management hopes to increase market share in each market segment of
our business through a combination of direct sales efforts targeted to
corporate and individual clients and through acquisition of competitive firms
in our industry. We will use public relations tactics to conserve resources
and to increase our credibility and visibility. These tactics will include
editorial coverage in industry-specific media and general interest
publications.
Other marketing opportunities include:
industry trade shows;
membership in professional and business organizations;
cross promotional events;
direct mail and lead-generated promotional literature;
direct sales; and
in-house telemarketing.
Cybertel intends to hire sales and marketing staff to help us create
a strong direct response campaign. We will emphasize quality service at a low
price and superior customer service. We train our customer service
representatives to be courteous and helpful. Our representatives can access
a customer's account instantaneously and bring up the type of information that
will help them solve the customer's problem.
To date, we have marketed our products primarily through Affinity
Groups. We intend to finance its marketing activities in the short term
through equity financing, and in the long term through cash flow.
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<PAGE>
Internet Protocol Network.
--------------------------
Cybertel is building a telecommunications network in the United
States. We plan to build local networks in 56 cities. The networks will
connect with a national long distance network. We will focus primarily on the
residential market in order to complement our Affinity Group marketing
programs. The Internet Protocol ("IP") based network will provide a full
range of communications services including long distance and data transmission
as well as other enhanced services to the domestic and international markets.
Additionally, we will offer a range of Internet access services at varying
capacity levels such as 56 kilobits per second or 1.5 megabits per second. We
will offer different features and security levels to meet the needs of
our residential and business customers. In June, 1999, we established our
first IP Gateway in San Diego, California. The IP Gateway digitizes a
communications signal and transports it over the internet.
We believe that the shift toward IP-based networks is as important
as the shift from the telegraph to the telephone and from mainframe to
personal computers. The move toward IP-based networks is a move from
traditional "circuit switched" networks that were designed primarily for voice
communications, and which have existed form almost a century, to newer "packet
switched" networks using IP. The new technology makes it possible to move
information at a much lower cost, because packet switching technology makes
more efficient use of network capacity.
The internet is a worldwide communications network of interconnected
computers that share information, generally over high-bandwidth fiber optic
cables. Information that moves over the internet is broken down into pieces
known as "packets." Each packet is coded with address information for
delivery to the proper destination, sent through the internet and reassembled
into its original form so the recipient can use the information upon delivery.
This process is made possible using two important internet communications
protocols: Transmission Control Protocol ("TCP"); and Internet Protocol
("IP"). TCP divides and reassembles the packets. IP ensures that the packets
reach the correct destination.
By contrast, the basic design of the telephone network has not
changed for more than 100 years. The telephone system is a circuit-switched
network. This technology dedicates a circuit for the entire duration of the
transmission.
In an IP network there is no single, unbroken connection between
sender and receiver. When information is sent, it is broken into small
packets that share lines with other transmissions, over many different routes
at the same time, which are then reassembled at the receiving end. As a
result, the internet is much more efficient than the present circuit-switched
network. A call on a circuit-switched network is like a single car taking up
an entire stretch of freeway by itself, while an IP network can fill all lanes
of the freeway with hundreds of vehicles, all destined for different exits.
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<PAGE>
Major communications carriers would like to add IP-based switching
technology to portions of their networks, but because of the immense
investment that these companies have already made in their existing networks,
they continue to retain extensive networks based on the older and less
efficient circuit switching technology. Cybertel believes it is well
positioned for the fundamental shift to the new technology because we
have no investment in, or commitment to, the older technology. We plan to
design the network to be upgradeable, so that it can evolve as the technology
evolves.
In March, 1999, we signed a service agreement with General Telecom,
Inc., a Massachusetts corporation. The agreement allows us to use General
Telecom's telecommunications equipment for a one-year term, renewable for five
additional one-year periods. Our fees will be based on usage volume and line
types, with a minimum monthly payment of $3,250 per month.
We executed an agreement with Level 3 Communications on March 12,
1999. Under the agreement, Level 3 agreed to allow us to "co-locate" our
internet access equipment and switches in Level 3's switching centers in all
50 states and to use Level 3's state of the art fiber optic network. This
allows us to place our telecommunications equipment in Level 3's co-location
cabinets and to send voice and data traffic over the Internet without having
to build a fiber optic network of our own. This saves us money. The
agreement with Level 3 is for a term of three years. We pay a flat rate of
$2,800 per month.
On October 1, 1999, Cybertel and WorldCom Network Services, Inc., a
Delaware corporation, entered into a Telecommunications Services Agreement
under which WorldCom agreed to provide certain telecommunications services for
us to resell. These services included:
switched domestic and international outbound long distance
telephone service;
switched toll-free service;
calling cards; and
dedicated outbound and toll-free service.
The per-minute rates for these services vary by geographic area and
are set forth in Amendment No. 1 to the Telecommunications Services Agreement.
We pay our charges within 30 days of the date of invoice. A late charge of 1-
1/2% (or the maximum legal rate, if less) applies to any unpaid balance.
We have also entered into a contract with Bell Atlantic Corporation.
The contract gives us the right to terminate IP long distance and data traffic
on Bell Atlantic's network. This will allow us to deliver IP telephony calls
originating outside of Bell Atlantic's region through the Public Service
Telephone Network 24 hours per day, seven days per week, on Bell Atlantic's
29
<PAGE>
Termination Gateways. The agreement also allows us to sell wholesale
termination on Bell Atlantic's lines to third parties and will make it
possible for us to deliver calls from anywhere in the world to the Northeast
Corridor of the United States via Bell Atlantic's IP telephony network. We
pay all charges within 30 days of Bell Atlantic's invoice, with interest at a
rate of 1.25% per month on all overdue balances. Bell Atlantic also reserves
the right to terminate service, upon seven days' notice, if we become more
than 30 days delinquent in our account.
Under our agreement with Bell Atlantic, we pay Bell Atlantic a rate
based on the number of minutes that Bell Atlantic's Termination Gateways are
being used, with a minimum monthly payment of $4,800. The term of the
agreement is one year, with automatic yearly renewals until either party gives
the other notice of non-renewal at least 90 days before the expiration of the
current term.
Acquisition Strategy.
---------------------
Cybertel wants to become a one-stop service provider for a variety
of services. Management believes Cybertel can do this through an acquisition
strategy that:
enhances our sales force capability;
broadens our service offerings; and
increases our customer base and revenue.
Status of any Publicly Announced New Product or Service.
--------------------------------------------------------
On July 7, 1999, we publicly announced our contract with Bell
Atlantic.
Competitive Business Conditions.
---------------------------------
The communications and information services industry is highly
competitive. Many of our existing and potential competitors have financial,
personnel, marketing, customer bases and other resources significantly greater
than ours.
We face significant competition within the telecommunications
industry. Our principal competitors include Level 3, IDT, Delta 3 and USA
Talks. The first three competitors are national and the last is regional.
All of these entities have much greater financial, sales and marketing,
personnel and other resources than we do. As a result, they may be able to
grow faster and more profitably. We believe that consolidation in the
telecommunications industry will increase competition.
The marketing and pricing activities of major competitors such as
AT&T, MCI/WorldComm and Sprint significantly influence the industry. We
30
<PAGE>
believe that AT&T, MCI/WorldCom and Sprint historically have chosen not to
concentrate their direct sales efforts on small and medium sized businesses,
but these carriers still control about 85% of that market. AT&T, MCI/WorldCom
and Sprint have also introduced new service and pricing options that are
attractive to smaller commercial users, and they may market to these customers
more aggressively in the future. AT&T and, as an interim measure, the
structurally separate interexchange affiliates of the seven regional Bell
operating companies ("RBOCs") have recently been reclassified as non dominant
carriers. They can now meet competition by modifying rates and service
offerings without pricing constraints or extended waiting periods. These
reclassifications may make it more difficult for us to compete for long
distance customers. In addition, many large regional long distance carriers
and new entrants in the industry compete directly with us by concentrating
their marketing and direct sales efforts on small to medium sized commercial
users. These activities include national advertising campaigns and
telemarketing programs.
The suppliers with whom we will contract for call transmission may
also be our competitors. Both the interexchange carriers and local exchange
carriers that will be providing transmission services for us have access to
information about our customers for whom they provide the actual call
transmission. Interexchange carriers, or "IXCs," are telecommunications
companies that provide interstate or intrastate telecommunications services
between local exchanges. Local exchange carriers, or "LECs,"are
telecommunications companies that provide telecommunications services in a
geographic area in which calls generally are transmitted without toll charges.
Because these IXCs and LECs are potential competitors of ours, they could use
information about our customers, such as their calling volume and patterns of
use, to their advantage. The Telecommunications Act, which became law in
1996, has strengthened the rules which govern the privacy of customer
proprietary information by expressly prohibiting telecommunications carriers
which receive this information from resale carriers for purposes of providing
telecommunications services to those resale carriers from using it for their
own marketing purposes.
In addition, our success will depend on our ability to continue to
buy transmission services and access from these carriers at a significant
discount below the rates that they make available to our targeted customers.
Regulatory trends have had, and may continue to have, a significant
impact on competition in the telecommunications industry. As a result of the
Telecommunications Act, the RBOCs can now provide, and are providing or have
announced their intention to provide, long distance service originating (or in
the case of "800" service, terminating) outside their local service areas or
offered with other services, such as wireless services. Following application
to and upon a finding by the Federal Communications Commission that an RBOC
faces facilities-based competition and has satisfied a congressionally
mandated "competitive checklist" of interconnection and access obligations, an
RBOC can provide long distance service within its local service area. The
entry of these well-capitalized and well-known entities into the long distance
service market could significantly change the competitive environment in which
we operate.
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<PAGE>
The Telecommunications Act also removes all legal barriers to
entry into the local telecommunications market. It directs incumbent local
exchange carriers to:
allow competing telecommunications service providers to
interconnect their facilities with the local exchange network;
acquire network components on an unbundled basis; and
resell local telecommunications services.
Incumbent local exchange carriers, or "ILECs," are companies
historically providing local telephone service. The Telecommunications Act
also seeks to facilitate local telecommunications competition by requiring
ILECs, among other things, to allow end users to retain their telephone
numbers when changing service providers and to place short-haul toll calls
without dialing long access codes. In response to these regulatory changes,
MCI/WorldCom and AT&T have each announced their intention to enter the local
telecommunication market. MCI/WorldCom has announced that it will invest more
than $2 billion in fiber optic rings and local switching equipment in major
metropolitan markets throughout the United States. AT&T has announced
that it filed applications in all 50 states to provide local
telecommunications services.
Even though the Telecommunications Act opens new markets to
Cybertel, the nature and value of these business opportunities will partly
depend on subsequent regulatory interpretation of the statute's
requirements. The FCC has promulgated rules implementing the local
competition provisions of the Telecommunications Act. Each state must now
individually adopt regulations applying the new national guidelines. We
expect that ILECs will actively resist competitive entry into the
local telecommunications market and will try to undermine the operations and
the service offerings of competitive providers. This would leave carriers
such as Cybertel, which are dependent on ILECs for network services,
vulnerable to anti-competitive abuses. We can not assure you that federal and
state regulators will implement and enforce the local competition provisions
of the Telecommunications Act in a way that will permit us to compete in the
local telecommunications market or that subsequent legislative or judicial
actions will not hurt our ability to do so.
In addition, federal and state regulators are likely to provide
ILECs with increased pricing flexibility for their services as competition in
the local market increases. If regulators allow ILECs to lower their rates
substantially, provide excessive volume and term discount pricing, charge
excessive fees for network interconnection or access to unbundled network
elements, or refuse resale services at wholesale rates, we could lose our
ability to competitively provide local service.
Sources and Availability of Raw Materials.
------------------------------------------
None; not applicable.
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<PAGE>
Dependence on One or a Few Major Customers.
-------------------------------------------
None; not applicable.
Need for Governmental Approval of Principal Products or Services.
-----------------------------------------------------------------
Our communications service business will face varying degrees of
federal, state, local and international regulation.
Effect of Existing or Probable Governmental Regulations on the Business.
------------------------------------------------------------------------
Regulatory Background
---------------------
Today's domestic long distance telecommunications industry was
principally shaped by a 1984 court decree that:
required ATT&T to divest itself of its 22 Bell operating
companies, or "BOCs";
organized the BOCs under seven regional Bell operating
companies, or "RBOCs"; and
divided the country into some 200 Local Access Transport Areas,
or "LATAs."
The decree gave the ILECs, which include the seven RBOCs as well as
independent local exchange carriers, the right to provide local telephone
service, local access service to long distance carriers and intra-LATA long
distance service. However, the decree prohibited the RBOCs from providing
inter-LATA service. The decree gave AT&T and the other interexchange carriers
the right to provide inter-LATA service. IXCs were prohibited from providing
local telephone service.
A typical inter-LATA long distance telephone call begins with the
local exchange carrier, or "LEC," transmitting the call through its local
network to a connection point with an IXC. The IXC, through its switching
and transmission network, transmits the call to the LEC serving the area where
the recipient of the call is located. The receiving LEC then completes the
call over its local facilities. For each long distance call, the originating
LEC charges an access fee. The IXC also charges a fee for its transmission of
the call. A portion of the fee consists of a terminating fee, which is passed
on to the LEC which delivers the call. To encourage the development of
competition in the long distance market, the decree required LECs to provide
all IXCs with access to local exchange services "equal in type, quality and
price" to that provided to AT&T. The goal of these "equal access" and related
provisions was to prevent preferential treatment of AT&T. As a result of the
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<PAGE>
decree, customers of all long distance companies were eventually allowed to
initiate their calls through simple "1 plus" dialing, rather than having to
dial longer access or identification numbers and codes.
The Telecommunications Act will significantly alter the
telecommunications industry. The decree has been lifted and the
Telecommunications Act has eliminated all restrictions and obligations
associated with it. The seven RBOCs may now provide long distance service
originating (or in the case of "800" service, terminating) outside their local
service areas or offered with other services, including wireless services.
Following application to the FCC, and upon a finding by the FCC that an RBOC
faces facilities based competition and has satisfied a congressionally
mandated "competitive checklist" of interconnection and access obligations, an
RBOC will be permitted to provide long distance service within its local
service area. However, in so doing, it will face a variety of structural and
nonstructural safeguards intended to minimize abuse of its market power in
these local service areas.
Having opened the interexchange market to RBOC entry, the
Telecommunications Act also removes all legal barriers to competitive entry by
interexchange and other carriers into the local telecommunications market and
directs RBOCs to allow competing telecommunications service providers such as
Cybertel to interconnect their facilities with the local exchange network, to
acquire network components on an unbundled basis, and to resell local
telecommunications services. In addition, the Telecommunications Act prevents
IXCs that serve more than five percent of pre-subscribed access lines in the
U.S. from jointly marketing their local and long distance services until the
RBOCs have been permitted to enter the long distance market or for three
years, whichever is sooner. This gives all other long distance providers a
competitive advantage over the larger long distance providers in the newly
opened local telecommunications market. As a result of the Telecommunications
Act, long distance carriers will face significant new competition in the long
distance telecommunications market, but will also have significant new
business opportunities in the local telecommunications market.
Legislative, judicial and technological factors have helped to
create the foundation for smaller long distance providers to emerge as
legitimate alternatives to AT&T, MCI/WorldCom and Sprint for long distance
telecommunication services. The FCC has required that all IXCs allow the
resale of their services, and the decree substantially eliminated different
access arrangements as distinguishing features among long distance carriers.
In recent years, national and regional network providers have substantially
upgraded the quality and capacity of their domestic long distance networks.
This has resulted in significant excess transmission capacity for voice and
data communications. Cybertel believes that, as a result of digital fiber
optic technology, excess capacity has been, and will continue to be, an
important factor in long distance telecommunications. As a consequence, not
only have smaller long distance service providers received legal protection to
compete with the network based carriers, they also represent a source of
traffic to carriers with excess capacity. Resellers have now become an
integral part of the long distance telecommunications industry.
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<PAGE>
Federal
-------
The FCC classifies Cybertel as a non-dominant carrier. As a result,
we are subject to relaxed regulation. Historically, the FCC has either excused
or presumed non-dominant carriers' compliance with many of the statutory
requirements and regulations to which dominant carriers are subject. These
include most reporting, accounting and record keeping obligations. However,
the FCC imposes many of these requirements on non-dominant carriers whose
annual operating revenues exceed $100 million. The FCC retains the
jurisdiction to impose fines or other penalties on, or to act upon complaints
against, any common carrier, including non-dominant carriers, for failure to
comply with its statutory or regulatory obligations. The FCC also has the
authority to impose more stringent regulatory requirements on Cybertel and to
change its regulatory classification. In the current regulatory atmosphere,
however, we believe that the FCC is unlikely to do so.
Non-dominant carriers also face miscellaneous regulations that, for
instance, dictate the materials required to document and the procedures
necessary to verify a consumer's election to change its preferred long
distance telephone provider, mandate disclosure of rate and other data
associated with the provision of operator services and require contribution to
a variety of FCC-mandated funds and payment of various regulatory and other
fees. The FCC and the states have generally increased enforcement of these
regulations, particularly with respect to those that govern the verification
of consumer elections to change long distance service providers.
Among domestic carriers, only the ILECs are classified as dominant
carriers, although ILECs currently would only be classified as dominant in
their provision of long distance telecommunications services if they were to
provide such services other than through structurally separate affiliates. As
a consequence, the FCC regulates many of their rates, charges and services to
a greater degree than Cybertel's, although the FCC is currently evaluating
proposals to streamline and otherwise relax its regulation. The structurally
separate inter-exchange affiliates of the RBOCs have recently been
reclassified as non-dominant carriers and, accordingly, have the same
flexibility as Cybertel in meeting competition by modifying rates and service
offerings without pricing constraints or extended waiting periods. We can not
gauge the impact on us of the reclassification of AT&T and the RBOC
interchange affiliates as non-dominant carriers, but it could make it more
difficult for us to compete for long distance customers.
With the passage of the Telecommunications Act, the RBOCs are now
free to offer local service outside their respective local telephone service
areas as well as local service bundled with wireless, enhanced and other
ancillary services. Following application to and upon a finding by the FCC
that an RBOC faces facilities-based competition and has satisfied a
congressionally mandated "competitive checklist" of interconnection and access
obligations, the RBOC will be permitted to provide long distance service
within its local service area. In so doing, it will face a variety of
structural and nonstructural safeguards intended to minimize abuse of its
35
<PAGE>
market power in these local service areas. As a result of the removal
of the legal barriers to competitive entry into the local market, long
distance carriers like Cybertel will be allowed to compete with the RBOCs
in the provision of local service. It is impossible to predict the impact of
RBOC entry into the long distance telecommunications market on our business
and prospects, but it could make it more difficult for us to compete for long
distance customers.
We have all necessary authority to provide domestic interstate
telecommunications services under current laws and regulations. The FCC has
granted us authority to provide international telecommunications services
through the resale of switched services of U.S. facilities-based carriers.
The FCC reserves the right to condition, modify or revoke this international
authority for violations of federal law or rules. It also reserves the right
to approve assignments and transfers of control of this authority.
Both domestic and international non-dominant carriers must maintain
tariffs on file with the FCC. Although the FCC has the authority to review
the tariffs of non-dominant carriers, and the rates and charges they specify,
they are presumed to be lawful and are seldom contested. As a domestic
non-dominant carrier, we are permitted to make tariff filings on a single
day's notice and without cost support to justify specific rates. As an
international non-dominant carrier, we have always been required to include,
and have included, detailed rate schedules in our international tariffs. As a
result of recent FCC action, we may now make tariff filings on a single day's
notice.
Prior to a 1995 court decision, Southwestern Bell v. FCC, 43 F.3rd
1515 (D.C.Cir. 1995), the FCC permitted domestic non-dominant carriers to
charge a "reasonable range of rates" instead of the detailed schedules of
individual charges required of dominant carriers. In reliance on the FCC's
past practice of allowing relaxed tariff filing requirements for non-dominant
domestic carriers, Cybertel and most of its competitors did not maintain
detailed rate schedules for domestic offerings in their tariffs. Until the
two year statute of limitation expires, we could be held liable for damages
for our failure to do so, although we believe that such an outcome is highly
unlikely and would not hurt our operations.
To date, the FCC has exercised its regulatory authority to set rates
only with respect to the rates of dominant carriers, and it has increasingly
relaxed its control in this area. The FCC does not regulate our rates
or those of any other long distance telecommunications provider, including
AT&T, although it would regulate the rates charged by any ILEC that elected to
provide interexchange services other than through a structurally separate
affiliate. While the FCC continues to cap the prices that determine
interstate calls, it has allowed the ILECs some geographically restricted
pricing flexibility when they face competition in a given market.
The FCC plans to start a comprehensive review of its access charge
structure, evaluating embedded costs and subsidies that produce current access
charge levels. It is currently conducting a rulemaking procedure to
36
<PAGE>
implement the universal service provisions of the Telecommunications Act and
will be determining in that proceeding the contributions that
telecommunications companies such as Cybertel will be required to make to
support universal service. The FCC also has completed a rulemaking proceeding
to implement the local competition provisions of the Telecommunications Act.
In that proceeding, the FCC has set forth comprehensive national rules and
guidelines for states and local competitors to follow. Among other things,
the guidelines govern the interconnection obligations among telecommunications
carriers, including interconnection with the local exchange network, and
access to a minimum set of unbundled network elements, as required by the
Telecommunications Act. The FCC also has established pricing methodologies
for both the FCC and the states to follow in implementing the
Telecommunications Act's requirement that interconnection and access to
unbundled network elements be made available by ILECs at cost-based rates with
a reasonable profit.
The FCC has tried to respond to the Telecommunications Act's goal of
increased competition through its so-called "trilogy" of access charge reform,
universal service and local competition proceedings. The FCC does not expect
this framework to be complete until state public service commissions complete
their own efforts to implement the Telecommunications Act's provisions. Until
the FCC's "trilogy" of proceedings is completed, and until these state actions
are taken, we will not be able to judge the final impact of the FCC's
arrangements on our operations.
The Telecommunications Act grants the FCC authority to forbear from
applying any statutory requirement or regulation to classes of carriers or
services if it determines that it would be unnecessary and contrary to the
public interest. Using this authority, the FCC has already reduced, and has
proposed further reductions in, its regulation of non dominant IXCs such as
Cybertel. It has also proposed "mandatory de-tariffing" for the domestic
offerings of non-dominant IXCs. This proposed rule, if adopted, would not
only relieve us of our obligation to file tariffs for our domestic
interexchange offerings, but would prohibit all non-dominant IXCs, including
AT&T, Sprint and MCI/WorldComm, from filing such tariffs. We can not
presently estimate the impact on us of mandatory de-tariffing. However, such
an action would make it more difficult for the FCC to enforce its resale and
nondiscrimination requirements.
State
-----
Our intrastate long distance telecommunications operations are also
subject to various state laws and regulations, including initial
certification, registration and notification, and various tariffing and
reporting requirements. We are certified in 23 states and are going through
the certification process in the remaining 27 states. We intend to
continuously monitor regulatory developments in all 50 states and intend to
obtain licenses wherever feasible. Once we become certified, we will have to
file an annual statement with each state's Public Utilities Commission.
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<PAGE>
Research and Development.
-------------------------
Other than developing and expanding its telecommunications network,
Cybertel does not intend to undertake any research and development activities.
We have not incurred any research and development expenses since our
inception. However, Telenomics incurred research and development expenses of
$145,848 and $144,000 during our December 31, 1999, and 1998, calendar years.
Costs and Effects of Compliance with Environmental Laws.
--------------------------------------------------------
None; not applicable. However, environmental laws, rules and
regulations may have an adverse effect on any business venture that we view
as an attractive acquisition, reorganization or merger candidate. These
factors may limit the number of potential candidates available to the Company
for acquisition, reorganization or merger.
Number of Employees.
--------------------
We have 18 full-time employees and two part-time employees.
Reports to Security Holders.
----------------------------
The National Association of Securities Dealers, Inc. requires that
all issuers maintaining quotations of their securities on the OTC Bulletin
Board file periodic reports under the Securities Exchange Act of 1934.
Cybertel does file periodic reports with the Securities and Exchange
Commission under Section 13 of the 1934 Act.
The public may read and copy any materials that we file with the
Securities and Exchange Commission at the Commission's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains an Internet site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission. The address
of that site is http://www.sec.gov.
We intend to furnish to our stockholders annual reports containing
financial statements audited and reported upon by our independent accounting
firm and such other periodic reports as we may determine to be appropriate or
as the law may require.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
Cybertel began actively marketing in April, 1999. During the
calendar year ended December 31, 1999, it produced revenues of $3,105,570,
with net income of $(2,250,265). We expect to produce approximately
$12,762,000 in the calendar year ended December 31, 2000. In the next 12
months, we intend to employ 56 IP Gateways throughout the United States in
order to transport long-haul Voice Over the Internet traffic, both
domestically and internationally. Voice Over the Internet, or "VOIP," is long
distance voice traffic transported as digital electronic data packets over the
internet. Our financing requirements in this regard are discussed under the
heading "Liquidity," below.
As discussed under the heading "Internet Protocol Network," our
agreements with Bell Atlantic and Level 3 Communications allow us to collocate
our Gateway equipment and terminate traffic in areas that we have not or do
not intend to locate Gateways. We have very actively begun to employ our
affinity group marketing strategy and have contracted with three of our seven
targeted groups. We are negotiating with the remaining four. The total
membership population of our seven targeted groups is over 40 million.
Management expects that our marketing efforts will be financed through our
fundraising efforts.
We have contracted with the Tailhook Association; Miles Ahead
Ministries; and the Marine Corps Reserve Officers Association. Each affinity
group agreement requires the affinity group to forward a marketing piece to
its members. The marketing pieces will recommend a telecommunications plan to
the members. These plans will include long distance, toll free service,
paging, cellular service, internet access, pre-paid and regular calling cards
and other telecommunications services. We will provide each group with a
billing summary of all participants' accounts each month and will 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.
We also intend to build a captive agent network to conduct direct
marketing and supplement our affinity group marketing programs. We have
conducted a test marketing program with the Southwestern Companies to perform
door-to-door residential solicitation of new customers. These operations
began on October 3, 1999. We have also begun our telemarketing efforts,
through which we contact 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 their efforts. As of the
date of this prospectus, Cybertel and the Southwestern Companies do not have a
written contract.
Management is also seeking viable acquisition candidates. We intend
to make acquisitions that will allow us to offer value-added services and
products to our customer base. We may not be successful in locating or
acquiring any suitable candidate. Even if we are successful in this regard,
we can not assure you that any acquisition will be profitable.
39
<PAGE>
We base our projections on the following assumptions and
limitations.
Our business plan details a stair-step process under which we will
lease telecommunications services that can be marketed directly to our primary
affinity groups. We currently have contracts with three of the seven affinity
organizations that we have targeted. The combined membership of these three
affinity groups is 25,000 members. Our acceptance rate is about 38%.
We are currently in contract discussions with three more affinity
groups. We expect that all seven groups will be contracted by year end,
although we can make no assurances in this regard. The total membership of
the seven affinity groups is 40 million members. We believe this population
and our current acceptance rate should provide the revenues detailed in the
projections, although we can not make any guarantees.
The wholesaling of telecommunications services is our second revenue
source. We are buying international telecommunication services from Flat Rate
Communications and selling these services to LD Exchange.Com, Inc. We are
currently pursuing other wholesale agreements as well. The profit margin is
3% to 4% on the wholesaling of telecommunications services.
For the 2000 fiscal year, management projects revenues from our
affinity group program and our wholesaling operations to be $6,762,000 and
$6,000,000, respectively.
In arriving at its revenue projections for its affinity groups
program, Cybertel 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. We also assume 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 through which we 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 costs, we have entered into subcontract arrangements to
facilitate billing and collections and customer service.
Our projections for our wholesaling operations assume volume of
2,000,000 monthly minutes through December 2000, at an average rate of $0.25
per minute. We project cost of goods sold will be $0.25 per minute through
December 2000.
Cybertel has begun developing its own Internet Protocol Network. We
expect that the network will be operational by fall 2000. With this network
in place, we will have control of our pricing for the transmission of
telecommunications services.
The projection reflects a modest decrease in the cost of goods sold
when the network is operational. We believe that the cost reduction will
be more substantial, but are reflecting a modest reduction to be conservative.
40
<PAGE>
We believe that our selling, general and administrative costs will
be reduced through the subcontracting of significant services such as billing
and collections and customer service. The maintenance of our Internet
Protocol Network and the marketing to and maintenance of affinity group
relationships will be our largest costs.
The telecommunication industry is highly competitive and requires
abundant capital. We are building our own IP Network so that we can control
our prices. To build this network, we have sought out internet-compatible
technology.
The foregoing contains "forward-looking" statements and information,
all of which is modified by reference to the caption "Risk Factors" and the
following additional factors:
Cybertel's business operations have yet to generate a profit.
Our present customer base, amounting to approximately 1,800
residential customers providing gross monthly revenues of
approximately $15,000 per month, is insufficient to cover
monthly general and administrative expenses of approximately
$50,000. The cost of leased telephone lines is in addition to
general and administrative expenses.
Sales of "restricted securities" by persons who will have
satisfied the required holding period for resale under Rule 144
of the Securities and Exchange Commission in the very near
future will substantially increase the number of shares
available in the "public float," and to the extent any recent
price increases in the trading market for shares of Cybertel's
common stock was the result of a greater demand over the
supply, these additional shares will have an adverse effect on
the trading market for our common stock on the OTC Bulletin
Board. Also, the filing of Notices on Form 144 can have the
effect of a "cap" on the market, until the shares covered
thereby are sold. See the caption "Market for Common Equity
and Related Stockholder Matters" of this prospectus.
The initial planned 10 IP Gateways of our Internet Protocol
Network, estimated to take approximately three months to
complete, depending upon funding, will cost approximately
$2,500,000, including hardware, software and setup costs.
These gateways would allow us to originate telecommunications
traffic in 10 cities. A complete Internet Protocol Network
throughout the United States would require approximately 56
gateways at a cost of approximately $14,000,000, and, depending
upon available funding, as to which we can provide no
assurance, would take approximately six months to complete.
A completed Internet Protocol Network will not ensure the
success of our present or proposed business operations. Any
anticipated revenues would not come for several months after
completion and until there was a sufficient customer base; or
we could wholesale traffic at very low margins, which would
substantially alter our projected revenues.
41
<PAGE>
Cybertel may not be able to build its Internet Protocol Network
with satisfactory technology to attract customers.
Targeted affinity group members may choose not to switch long
distance carriers, regardless of whether the affinity group to
which they belong determines to align with Cybertel; this
development would adversely effect our revenue projections and
our potential for success.
Actual results may differ significantly from those projected in our
forward-looking statements. We may not obtain the projected results.
Results of Operations.
----------------------
At December 31, 1999, we had total assets of $853,031, as compared
with total assets of $399,563 at December 31, 1998.
During the calendar years ended December 31, 1999, and 1998, we had
net losses of ($2,250,265) and ($1,216,792), respectively. We received
revenues of $3,105,570 and $2,572,731 in our two most recent calendar years.
During the three months ended March 31, 2000, we received revenues
of $86,604, and incurred a net loss of $1,353,313. This compares with
revenues of $551,949 and a net loss of $101,114 during the three months ended
March 31, 1999.
Liquidity and Capital Resources.
--------------------------------
We had cash resources of $643,952 and $146,209, respectively, at
December 31, 1999 and 1998. As of March 31, 2000, we had cash on hand of
$2,311,787. Management believes that our current cash on hand will be
sufficient to meet our expenses during the next 12 months.
DESCRIPTION OF PROPERTY
-----------------------
We lease our principal executive offices, which are located at 4320
La Jolla Village Drive, Suite 205, San Diego, California. These offices
consist of approximately 3698 square feet of office space. We pay $8,000 per
month in rent. The lease began on March 1, 2000, and will expire on December
31, 2001.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Transactions with Management and Others.
----------------------------------------
Except as indicated below, during the calendar year ended December
31, 1999, there were no material transactions, series of similar transactions,
currently proposed transactions, or series of similar transactions, to which
Cybertel or any of its subsidiaries was or is to be a party, in which the
42
<PAGE>
amount involved exceeded $60,000 and in which any director or executive
officer, or any security holder who is known to Cybertel to own of record or
beneficially more than five percent of its common stock, or any member of the
immediate family of any of the foregoing persons, had a material interest.
On March 29, 1999, Cybertel issued 30,000 shares to the 6M Family
Trust, in consideration of $3,900.
Certain Business Relationships.
-------------------------------
Except as indicated under the heading "Transactions with Management
and Others," during the calendar year ended December 31, 1999, there were no
material transactions, series of similar transactions, currently proposed
transactions, or series of similar transactions, to which Cybertel or any
of its subsidiaries was or is to be a party, in which the amount involved
exceeded $60,000 and in which any director or executive officer, or any
security holder who is known to Cybertel to own of record or beneficially
more than five percent of its common stock, or any member of the
immediate family of any of the foregoing persons, had a material interest.
Indebtedness of Management.
---------------------------
Except as indicated under the heading "Transactions with Management
and Others," during the calendar year ended December 31, 1999, there were no
material transactions, series of similar transactions, currently proposed
transactions, or series of similar transactions, to which Cybertel or any
of its subsidiaries was or is to be a party, in which the amount involved
exceeded $60,000 and in which any director or executive officer, or any
security holder who is known to Cybertel to own of record or beneficially
more than five percent of the its common stock, or any member of the
immediate family of any of the foregoing persons, had a material interest.
Parents of the Issuer.
----------------------
Cybertel has no parents.
Transactions with Promoters.
----------------------------
Except as indicated under the heading "Transactions with Management
and Others," during the calendar year ended December 31, 1999, there were no
material transactions, series of similar transactions, currently proposed
transactions, or series of similar transactions, to which Cybertel or any
of its subsidiaries was or is to be a party, in which the amount involved
exceeded $60,000 and in which any promoter or founder, or any member of the
immediate family of any of the foregoing persons, had a material interest.
43
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
Market Information.
-------------------
Quotation of our common stock on the OTC Bulletin Board of the NASD
only began on August 3, 1998. We can not assure you that any established
market for our common stock will develop or sustain itself. Even if a market
develops, members of management and others may sell "restricted securities"
under Rule 144 of the Securities and Exchange Commission. These sales may
bring down the price for our stock. Rule 144 requires that a seller hold his
or her shares for at least one year before reselling them. We must also make
sure that the public has access to information about us. We will meet this
requirement by filing our periodic reports on time with the Commission.
Sellers under Rule 144 will also have to limit the number of "restricted
securities" that they sell in any 90 day period and will probably have to file
a Notice of Sale with the Commission.
The National Quotation Bureau, LLC, provided the following
quotations. They do not represent actual transactions and they do not
reflect dealer markups, markdowns or commissions.
<TABLE>
<CAPTION>
STOCK QUOTATIONS*
CLOSING BID
Quarter ended: High Low
-------------- ---- ---
<S> <C> <C>
August 3, 1998 2.125 1.375
(first available date)to
September 30, 1998
December 31, 1998 2 1.01
March 31, 1999 8.375 1.65625
June 30, 1999 6.1875 3.875
September 30, 1999 6.4375 3.375
December 31, 1999 7.50 3.125
March 31, 2000 20.125 5.0
</TABLE>
44
<PAGE>
Holders.
--------
As of the date of this prospectus, we have approximately 311
stockholders of record.
Dividends.
----------
We have not declared any cash dividends on our common stock. We
do not intend to declare dividends in the foreseeable future.
The holders of our Series A Preferred Stock are entitled to receive,
out of funds legally available therefor, dividends equal to 6% of the
Liquidation Preference (i.e., $1000 per share of Series A Preferred Stock) per
year. Cybertel has the option to pay these dividends either in shares of our
common stock or in cash.
We must pay dividends on our Series A Preferred Stock before paying
dividends on our common stock. If you are a common stock holder, you will not
receive any dividends at least until we pay all dividends owed to the Series A
Preferred Stock holders.
EXECUTIVE COMPENSATION
----------------------
The following table sets forth the aggregate compensation that we
have paid for services rendered during the periods indicated:
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
ities All
Name and Year or Other Rest- Under- LTIP Other
Principal Period Salary Bonus Annual rictedlying Pay- Comp-
Position Ended ($) ($) Compen-Stock Optionsouts ensat'n
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard 12/31/97 -0- -0- -0- -0- -0- -0- -0-
Mangiarelli 12/31/98 -0- -0- -0- -0- -0- -0- -0-
CEO, Pres. 12/31/99 49,038 -0- -0- -0- -0- -0- -0-
and Director 3/31/00 50,000 -0- -0- -0- -0- -0- -0-
(3 mos.)
45
<PAGE>
Paul J. 12/31/97 -0- -0- -0- -0- -0- -0- -0-
Mills 12/31/98 -0- -0- -0- -0- -0- -0- -0-
Secretary 12/31/99 -0- -0- -0- -0- -0- -0- -0-
and Chairman 3/31/00 -0- -0- -0- -0- -0- -0- -0-
(3 mos.)
John E. 12/31/97 -0- -0- -0- -0- -0- -0- -0-
Jordan 12/31/98 -0- -0- -0- -0- -0- -0- -0-
Director 12/31/99 -0- -0- -0- -0- -0- -0- -0-
3/31/00 -0- -0- -0- -0- -0- -0- -0-
(3 mos.)
</TABLE>
We did not issue or grant any cash compensation, deferred
compensation or long-term incentive plan awards to our management during the
years ended December 31, 1998, or December 31, 1999. In April, 1999, we began
paying our Chief Executive Officer and President, Richard D. Mangiarelli, an
annual salary of $75,000. During the calendar year ended December 31, 1999,
we paid Mr. Mangiarelli $49,038 in salary. Effective October 1, 1999, we
increased Mr. Mangiarelli's salary to $200,000 per year. During the first
quarter of our December 31, 2000, calendar year, we have paid Mr. Mangiarelli
$50,000.
Compensation of Directors.
--------------------------
We do not have any arrangements to compensate our directors for any
services provided as a director. We do not pay any additional amounts to our
directors for committee participation or special assignments.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements.
-------------
On October 1, 1999, we entered into Employment Agreements with
Richard Mangiarelli, James Boring and Richard Schmidt. Each of these
Agreements lasts for a period of three years. Upon the first anniversary of
each Agreement, and each anniversary afterward, the Agreements will be
automatically extended unless we give each employee written notice within 30
days of the anniversary date. Mr. Mangiarelli receives a salary of $200,000,
and Mr. Boring's salary is $72,000 per year. From October 1, 1999, to January
31, 2000, Mr. Schmidt's salary was $5,000 per month. On February 1, 2000, it
increased to $100,000 per year. Messrs. Mangiarelli, Boring and Schmidt are
also entitled to the same benefits as other Cybertel executives receive,
including paid vacation and holidays and leaves of absence. In addition, we
agreed to issue 100,000 "unregistered" and "restricted" shares of our common
stock to Mr. Schmidt in 36 equal monthly installments, beginning November 1,
1999.
The Employment Agreements also permit Messrs. Mangiarelli, Boring
and Schmidt to receive 90 days' salary if Cybertel terminates them without
good reason, and a lump sum payment within 30 days of termination if Cybertel
terminates them for good reason. Other than these provisions, we do not have
any employment contracts, compensatory plans or arrangements which would
result in payments to any director or executive officer because of his or her
resignation, retirement or other termination of employment with us or our
subsidiaries, any change in control of Cybertel, or a change in the person's
responsibilities following a change in control of Cybertel.
46
<PAGE>
FINANCIAL STATEMENTS
--------------------
(i) Financial Statements for the years ended
December 31, 1999 and 1998
Independent Auditors' Report
Balance Sheet - December 31, 1999
Statement of Operations for the years ended
December 31, 1999 and 1998 (restated)
Statements of Consolidated Stockholders' Equity for the
years ended December 31, 1999 and 1998
Statements of Consolidated Cash Flows for the years ended
December 31, 1999 and 1998
Notes to the Financial Statements
(ii) Consolidated Financial Statements for the three months ended
March 31, 2000 (Unaudited)
Consolidated Balance Sheet - March 31, 2000
Consolidated Income Statements for the three months ended
March 31, 2000 and 1999
Statements of Consolidated Cash Flows for the three months ended
March 31, 2000 and 1999
Notes to the Financial Statements
47
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Cybertel Communications Corp.
La Jolla, California
We have audited the accompanying consolidated balance sheets of Cybertel
Communications Corp. as of December 31, 1999 and 1998, and the related
statements of consolidated income, stockholders' equity and cash flows for
each of the years then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cybertel
Communications Corp. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the years then ended.
/s/ Malone & Bailey
MALONE & BAILEY, PLLC
February 25, 2000
Houston, Texas
48
<PAGE>
<TABLE>
CYBERTEL COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<CAPTION>
(restated)
1999 1998
ASSETS
<S> <C> <C>
Current Assets
Cash $ 643,952 $ 146,209
Accounts receivable 41,542 105,583
Other current assets 25,000 34,500
Total Current Assets 710,494 286,292
Equipment, net of $195,931 and $108,116
accumulated depreciation 138,038 108,116
Deposits 4,500 5,155
TOTAL ASSETS 853,031 399,563
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt 3,774 31,271
Notes payable 485,754 47,676
Accounts payable 211,105 107,282
Accounts payable to shareholders 146,946
Accrued expenses 240,805 80,582
Deferred revenue 144,500
Total Current Liabilities 941,438 558,257
Long-term Debt 2,332 2,575
Total Liabilities 943,770 560,832
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares
authorized, no shares issued or outstanding
Common stock, $.001 par value, 20,000,000
shares authorized, 4,515,659 and 3,506,659
shares issued and outstanding, respectively 4,515 3,507
Paid in capital 3,646,318 1,326,531
Retained (deficit) (3,741,571) (1,491,306)
TOTAL STOCKHOLDERS' EQUITY ( 90,738) ( 161,269)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 853,032 $ 399,563
</TABLE>
See accompanying accounting policies
and notes to financial statements.
49
<PAGE>
<TABLE>
CYBERTEL COMMUNICATIONS CORP.
CONSOLIDATED INCOME STATEMENTS
For the Years Ended December 31, 1999 and 1998
<CAPTION>
(restated)
1999 1998
<S> <C> <C>
Revenues $ 3,105,570 $ 2,572,731
Cost of sales 2,391,843 1,770,864
713,727 801,867
Operating Expenses
Selling 119,661 166,593
General and administrative
- paid in cash or accrued 1,443,215 670,417
- paid in stock 1,045,500 976,218
Research and development 145,848 144,000
Depreciation 59,855 50,084
Interest (income) ( 11,503) ( 2,875)
Interest expense 161,416 14,222
Total Operating Expenses 2,963,992 2,018,659
</TABLE>
See accompanying accounting policies
and notes to financial statements.
50
<PAGE>
<TABLE>
CYBERTEL COMMUNICATIONS CORP.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1999 and 1998
<CAPTION>
Stock
Common Stock Subscrip. Paid in Retained
Shares $ Rec. Capital Deficit Totals
<S> <C> <C> <C> <C> <C> <C>
Balances,
December 31, 1997 1,716,050 $1,716 $(25,000) $304,686 $(274,515) $ 6,887
Shares issued for
purchase of
Telenomics: 600,000 600 (206,143) (205,543)
Like Dat Music: 100,000 100 19,361 19,461
Stock issued
- for cash 393,750 394 376,606 377,000
- less:
subscriptions
receivable (88,500) (88,500)
- for services 696,859 697 1,393,021 1,393,718
- less costs of
fundraising
- in cash paid (30,000) (30,000)
- in stock issued (417,500) (417,500)
Net income (loss)
- Cybertel (1,164,640)(1,164,640)
- Telenomics 128,819 128,819
- Like Dat Music (180,970) (180,970)
Balances,
December 31, 1998
(as restated) 3,506,659 3,507 (113,500)1,440,031(1,491,306) ( 161,269)
Stock issued
- for cash 654,550 654 1,160,646 1,161,300
- less:
subscriptions
receivable (6,000) (6,000)
- for services 229,100 229 1,145,271 1,145,500
- for debt
interest 125,000 125 116,870 116,995
- less costs of
fundraising
- in stock
issued (97,000) (97,000)
Net (loss)
- Cybertel (2,237,854)(2,237,854)
- Telenomics (121,682) (121,682)
- Like Dat Music 109,271 109,271
Balances,
December 31, 1999 4,515,309 $4,515$(119,500)$3,765,818 $(3,741,571)$(90,738)
</TABLE>
See accompanying accounting policies
and notes to financial statements.
51
<PAGE>
<TABLE>
CYBERTEL COMMUNICATIONS CORP.
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Years Ended December 31, 1999 and 1998
<CAPTION>
(restated)
1999 1998
<S> <C> <C>
CASH FLOWS USED BY OPERATING ACTIVITIES
Net income (loss) $(2,250,265)$(1,216,792)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 59,855 50,084
Stock issued for services & interest 1,165,495 992,218
Changes in:
Accounts receivable 64,041 18,907
Other current assets ( 25,000) 800
Accounts payable 128,655 11,255
Amounts payable to shareholders ( 12,100) ( 17,169)
Accrued expenses 29,303 ( 1,334)
Deferred revenue ( 144,500) 144,500
NET CASH USED BY OPERATING ACTIVITIES ( 984,516) ( 17,531)
CASH FLOWS USED BY INVESTING ACTIVITIES
Purchase of equipment ( 89,776) ( 3,073)
Deposit refund 655
NET CASH USED BY INVESTING ACTIVITIES ( 89,121) ( 3,073)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term private debt placement 390,238
Repurchase of stock ( 35,000)
Payments on installment debt ( 27,043) ( 29,146)
Net change in credit lines 22,285
Sales of common stock, net of
costs of fundraising 1,185,900 224,000
NET CASH FLOWS FROM FINANCING ACTIVITIES 1,571,381 159,854
NET INCREASE IN CASH 497,743 139,250
CASH BALANCES
- Beginning of period 146,209 6,959
- End of period $ 643,952 $ 146,209
SUPPLEMENTAL DISCLOSURES
Interest paid $ 16,591 $ 13,460
Income taxes paid 0 0
</TABLE>
See accompanying accounting policies
and notes to financial statements.
52
<PAGE>
NOTE 1 - ACCOUNTING POLICIES
Nature of Business. Cybertel Communications Corp. ("Company") was
incorporated in Nevada in June, 1996. The Company sells telecommunications
services to commercial customers and began operations in 1997. In early 2000,
the Company ceased buying long-distance capacity from large carriers, and
signed contracts with MCI-Worldcom, Bell Atlantic, and Level (3)
Communications, LLC to install and support leased switches, to carry long-
distance traffic. In December 1999, the Company acquired Telenomics, Inc.
("Telenomics") and Like Dat Music, Inc. ("LDM") by exchanging stock in
transactions recorded using the pooling-of-interests method of accounting (see
Note 2).
Telenomics sells Hewlett-Packard HP3000 minicomputers and develops and markets
telephone productivity management and accounting software, principally using
the Oracle and Informix databases running on the HP3000.
LDM is a full-service digital music producer and licensing agent for post-
scoring, lyrics and sound design. LDM sells to ad agencies, networks, and
multi-media companies.
1999 and 1998 financial statements are prepared on a consolidated basis, and
have been restated to show the acquisitions of Telenomics and LDM as if they
occurred on January 1, 1998, with consolidated operations since that date.
Estimates and assumptions. Preparing financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenue and expenses at the balance sheet date and for the period then ended.
Actual results could differ from these estimates.
Revenue recognition occurred when products or services are delivered. The
Company earns a fractional portion of long-distance charges as a referral fee.
Beginning May 1999, the Company began purchasing time from carriers and
reselling it to its customers.
Equipment is computer-related and is stated at cost. Depreciation is computed
by the straight-line method using rates based on estimated 3- to 5-year lives
of the related assets.
Income taxes are computed using the tax liability method of accounting,
whereby deferred income taxes are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates that will be in effect when the differences
reverse.
Loss per share is reported under Statement No. 128 of the Financial Accounting
Standards Board ("FAS 128"). FAS 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share exclude any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share are very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
53
<PAGE>
presented and, where appropriate, restated to conform to the FAS 128
requirement. For 1998, warrants outstanding are not included in the earnings
calculation because their effect in a loss year would be antidilutive.
NOTE 2 - ACQUISITIONS OF TELENOMICS AND LDM
Telenomics was formed in 1982 and was acquired by the Company on December 23,
1999, by exchanging 600,000 shares of Company stock for 100% of the
outstanding shares of Telenomics. LDM was formed in 1995 and was acquired by
the Company on December 28, 1999, by exchanging 100,000 shares of Company
stock for 100% of the outstanding shares of LDM. These two acquisitions were
accounted for as poolings of interests and accordingly prior period financial
statements have been restated to include the combined results of operations,
financial position and cash flows of Telenomics and LDM.
There were no material transactions between the Company, Telenomics and LDM
prior to the acquisitions. All accounting policies used are consistent.
SFAS No. 131, "Disclosures about Segments of an Enterprise" require
disclosures of information about operating segments in annual financial
statements. Operating segments are defined as components of an enterprise for
which separate financial information is available that is evaluated regularly
by the chief operating decision maker(s) in deciding how to allocate resources
and in assessing performance. Here, both Telenomics and LDM were closely held
prior to their acquisition by the Company. The owners of both continue to
manage each business, and each is a distinctly different business. Telenomics
and LDM will continue to be managed as separate business segments.
There are no foreign sales of any entity.
The following information presents certain balance sheet and income statement
data as required by both SFAS No. 131 and APB Opinion No. 16:
Cybertel Telenomics LDM Totals
As of December 31, 1999:
Current assets $ 411,940 $ 297,542 $ 1,013 $ 710,495
Fixed assets
Balances, 12-31-97 11,912 114,921 33,449 160,282
Additions, 1998 3,073 3,073
Additions, 1999 89,776 89,776
Depreciation, '98 & '99 (28,029) (54,116) (28,449) (110,594)
Total fixed assets 76,732 60,805 5,000 142,537
Total assets $488,671 $358,347 $ 6,013 $ 853,032
As of December 31, 1998:
Total assets $ 98,706 $259,505 $41,352 $ 399,563
Year Ended December 31, 1999:
Revenues $1,601,689 $1,084,916 $418,965 $3,105,570
Cost of sales 1,612,855 705,667 73,321 2,391,843
54
<PAGE>
Selling, general and
administrative 2,059,695 324,110 224,571 2,608,376
Research and development 145,848 145,848
Depreciation 25,629 23,121 11,105 59,855
Interest (income) (11,503) (11,503)
Interest expense 152,866 7,853 697 161,416
Net income (loss) $(2,237,853) $(121,683) $109,271 $(2,250,265)
Year Ended December 31, 1998:
Revenues $ 16,004 $2,302,209 $254,518 $ 2,572,731
Cost of sales 1,579,313 191,551 1,770,864
Selling, general and
administrative 1,177,909 409,135 226,184 1,813,228
Research and development 144,000 144,000
Depreciation 2,400 30,995 16,689 50,084
Interest (income) (1,926) (949) (2,875)
Interest expense 2,262 10,896 1,064 14,222
Net income (loss) $(1,164,641) $ 128,819 $(180,970) $(1,216,792)
Major customers (> 10% of individual segment sales revenues) include
Telenomics (Clark County, Washington, 36% in 1999; Gregg Appliances, Inc., 15%
in 1998), and LDM (Prolong Super Lubricants, Inc., 69% in 1999). Telenomics
buys substantially all of its Hewlett-Packard computer equipment from a single
distributor, but has the right to buy from other authorized distributors. No
other single customers nor any vendors comprise more than 10% of any single
segment's total revenues or costs.
NOTE 3 - NOTES PAYABLE
In November and December 1999, the Company obtained net proceeds of $390,238
in loans with a face value of $500,000, due 6 months from origination. Total
interest costs include the $109,762 discount, face interest at 14% and the
value of 125,000 shares issued in connection with this transaction. The
interest is accrued along the 6-month life of the loans. As of December 31,
1999, total interest charges of $769,762 is allocated $144,093 to 1999 and
$625,669 to 2000. The carrying amount of $417,336 includes the $390,238
principal plus $27,098 in accrued interest.
Telenomics has a $50,000 line of credit with Bank of America, N.A. This
account allows for the extension of credit on demand, and is not
collateralized. The credit line accrues interest at Bank's prime rate plus
4.525%. The balance as of December 31, 1999, is $47,388.
Other notes payable total $21,030 to various banks and credit cards, is
unsecured, and bears interest at 12% - 18%.
NOTE 3 - INSTALLMENT DEBT
The Company capitalized three equipment leases payable in 16 to 26 equal
remaining monthly installments totaling $370, using a 10% discount factor.
55
<PAGE>
The debt is secured by the equipment, with a net book value as of December 31,
1999, of $6,069. The total remaining principal portion of $6,106 is due
$3,774 in 2000, $2,044 in 2001, and $288 in 2002.
NOTE 3 - ACCOUNTS PAYABLE TO SHAREHOLDERS
In 1997, a Company founding shareholder loaned $12,700 to the Company. This
loan was repaid in 1999. The founding shareholder of Telenomics was owed
accrued salary of $145,746 as of December 31, 1997. Portions were paid in
1998 and 1999, with the balance remaining at $130,946 as of December 31, 1999.
NOTE 4 - INCOME TAXES
As of December 31, 1999, the Company has approximately $3,600,000 in unused
unconsolidated net operating loss carryforwards which expire $250,000 in 2014,
1,150,000 in 2018 and $2,200,000 in 2019. Internal Revenue Code Section 382
restricts the ability to use these carryforwards whenever an ownership change
as defined occurs. The Company incurred such an ownership change on September
28, 1998, when the total of cash sales to the public and stock issued for
services exceeded this 50% level. As a result of this ownership change,
$800,000 of the Company's net operating loss available to offset future
profits is restricted to $140,000 per year.
Net prior operating losses of Telenomics are not available to offset future
income as the ownership of the Company changed 100% when it was acquired by
the Company. LDM was an S Corporation, with all income and losses passing
through to its shareholders until its acquisition by the Company.
NOTE 5 - COMMON STOCK
During 1999 and 1998, the Company sold 651,550 and 393,750 shares of stock for
net proceeds of $1,155,300 and $377,000, respectively, pursuant to two
placement offerings exempt from registration under Rule 504 of the Securities
and Exchange Commission. "Subscriptions receivable" represents shares issued
for cash in 1998 and collected in early 1999. The $88,500 balance is shown as
a reduction in Stockholders' Equity.
General and administrative expenses paid in stock were $1,045,500 and $976,218
in 1999 and 1998, respectively.
NOTE 6 - PRIOR STOCK REPURCHASE BY SUBSIDIARY
At formation in 1995, LDM had a 90% majority shareholder and a California
couple as 10% minority shareholders. The 10% minority shareholders loaned the
Company $240,000 in 1995 and 1996. As partial consideration for the loan, an
additional 10% of LDM was transferred by the majority to the minority
shareholders. One of the minority shareholders died in early 1998. LDM
negotiated a settlement with the surviving spouse whereby the $240,000 loan
and accrued interest was contributed to capital and the stock was repurchased
by LDM for $35,000, which was paid March 27, 1998.
56
<PAGE>
NOTE 7 - OPERATING LEASES
The Company maintains office space in La Jolla and Temecula, California.
Total rent obligations are $10,536 per month for up to 36 months. Minimum
lease payments due are $107,896 in 2000, $126,432 in 2001, $30,432 in 2002,
and $2,536 in 2003.
NOTE 8 - SUBSEQUENT EVENTS
In January 2000, the Company issued 1,000,000 stock options to its president,
Richard Mangiarelli, pursuant to the discretion of its Board of Directors.
These options have a $5 exercise price, a 5-year life, and vest immediately.
The Company received net proceeds of $2,830,125 in February 2000 in connection
with a private placement of $3 million 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 February 25, 2000, 15,000
shares have been sold in this offering for $120,000 gross proceeds.
57
<PAGE>
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
58
<PAGE>
CYBERTEL COMMUNICATIONS CORP.
CONSOLIDATED INCOME STATEMENTS
For the Three Months 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
59
<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
60
<PAGE>
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.
61
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
----------
Cybertel has not dismissed any principal independent accountant, and
no such accountant has resigned or declined to stand for re-election, since
Cybertel's inception in June, 1996.
------------------------------------------------------------------------------
------------------------------------------------------------------------------
62
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors And Officers
-----------------------------------------
Section 78.7502(1) of the Nevada Revised Statutes ("NRS")
authorizes a Nevada corporation to indemnify any director, officer, employee,
or corporate agent "who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, except an action by or
in the right of the corporation" due to his or her corporate role. Section
78.7502(1) extends this protection "against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with the action, suit or proceeding if he
acted in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful."
Section 78.7502(2) of the NRS also authorizes indemnification of
the reasonable defense or settlement expenses of a corporate director,
officer, employee or agent who is sued, or is threatened with a suit, by or in
the right of the corporation. The party must have been acting in good faith
and with the reasonable belief that his or her actions were in or not opposed
to the corporation's best interests. Unless the court rules that the party is
reasonably entitled to indemnification, the party seeking indemnification must
not have been found liable to the corporation.
To the extent that a corporate director, officer, employee, or
agent is successful on the merits or otherwise in defending any action or
proceeding referred to in Section 78.7502(1) or 78.7502(2), Section 78.7502(3)
of the NRS requires that he be indemnified "against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection
with the defense."
Unless ordered by a court or advanced pursuant to Section 78.751(2),
Section 78.751(1) of the NRS limits indemnification under Section 78.7502 to
situations in which either (1) the stockholders, (2)the majority of a
disinterested quorum of directors, or (3) independent legal counsel determine
that indemnification is proper under the circumstances.
Section 78.751(2) authorizes a corporation's articles of
incorporation, bylaws or agreement to provide that directors' and officers'
expenses incurred in defending a civil or criminal action must be paid by the
corporation as incurred, rather than upon final disposition of the action,
upon receipt by the director or officer to repay the amount if a court
ultimately determines that he is not entitled to indemnification.
Section 78.751(3)(a) provides that the rights to indemnification and
advancement of expenses shall not be deemed exclusive of any other rights
under any bylaw, agreement, stockholder vote or vote of disinterested
directors. Section 78.751(3)(b) extends the rights to indemnification and
advancement of expenses to former directors, officers, employees and agents,
as well as their heirs, executors, and administrators.
63
<PAGE>
Regardless of whether a director, officer, employee or agent has
the right to indemnity, Section 78.752 allows the corporation to purchase and
maintain insurance on his behalf against liability resulting from his or her
corporate role.
Article IX of our Articles of Incorporation limits the personal
liability of a director or executive officer for damages for breach of
fiduciary duty to acts or omissions involving intentional misconduct, fraud
or a knowing violation of law. In addition, Article X provides for
indemnification of the Company's directors and executive officers to
substantially the same extent as the NRS.
The foregoing is only a summary of the indemnification provisions of
our Articles of Incorporation. See the Exhibit Index.
Item 25. Other Expenses of Issuance And Distribution
-------------------------------------------
The following table sets forth the expenses which we expect to incur
in connection with the registration of the shares of common stock being
registered hereby. All of these expenses, except for the Commission
registration fee, are estimated:
Securities and Exchange Commission registration fee........$ 5,311.73
Legal fees and expenses....................................$60,000
Accounting fees............................................$ 1,500
Printing and engraving expenses............................$ 500
Transfer agent fees........................................$ 1,500
Miscellaneous..............................................$ 2,500
--------
Total................................................ $71,311.73
Item 26. Recent Sales of Unregistered Securities
---------------------------------------
The following table reflects the sales of our unregistered securities
from inception through May 12, 2000, and the securities issuances that are to
take place under the Agreement and Plan of Reorganization with LDVL:
<TABLE>
<CAPTION>
Common Stock
------------
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
64
<PAGE>
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 6/12/98 187,500 Services
valued at
$375,000
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
65
<PAGE>
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
Five consultants 7/27/99 46,100 Services
valued at
$230,500
Two consultants 8/12/99 58,000 Services
valued at
$290,000
Note holders 11/19/99 75,000 (7)
Capital Growth 11/19/99 50,000 (8)
Resources
Merger Communications 12/15/99 77,000 Services
valued at
$385,000 (9)
Atlas Securities 12/22/99 100,000 $ 250,000
T.J. Knowles 12/27/99 100,000 Like Dat Music
acquisition
Telenomics 12/28/99 600,000 Telenomics
stockholders acquisition
James Boston 2/14/00 7,500 $ 15,000
George Boston 2/14/00 1,500 $ 3,000
Private placement 3/31/00 100,000 $ 800,000
investors
Private placement 5/11/00 272,225 $2,177,800
investors
LDVL stockolders 6/13/00 700,000 LDVL
acquisition (10)
Five LDVL 6/13/00 Warrants to LDVL
stockholders purchase acquisition (10)
51,783 shares
(1) Of this amount, we authorized a total of 1,783,000 for
issuance on August 1,1996. These shares were issued on April
16, 1998, for a combination of cash and services.
(2) The purchasers under this offering made their subscriptions
at various times from January, 1998 through July, 1998.
(3) We offered 125,000 units, at a price of $2.00 per
unit. Each unit consisted of one share of our
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
Registration Statement, the warrant holders have exercised all
or substantially all of these warrants.
(4) Various persons subscribed to this offering in March, 1998.
(5) The warrant holders exercised these warrants over a period of
time ranging from approximately February 19, 1999, to February
28, 1999.
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<PAGE>
(6) We issued these warrants from June, 1997 to February, 1998.
They expired on or about March 10, 1999.
(7) We issued these shares to the holders of the notes on our
$500,000 bridge loan as partial consideration for
such loan.
(8) We issued these shares as a placement fee in connection with
our $500,000 bridge loan.
(9) We have not yet formally issued these shares, but Merger
Communications has earned them. All calculations herein take into account the
issuance of these shares.
(10) We executed an Agreement and Plan of Reorganization with LDVL on
June 13, 2000. As of June 20, 2000, we had not yet issued these shares and
warrants.
</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 about Cybertel prior to the offer, sale or
issuance of these "restricted securities." We believe 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 our offerings under Rule 504) or
3(b) thereof (with respect to the issuances under the Rule 504 offerings).
We have taken the following factors into account in determining the
valuations of these 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 our 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) our history of limited revenues ($25,962 and
$16,004 in 1997 and 1998, respectively).
Item 27. Exhibits
--------
The following exhibits are filed as a part of this Registration
Statement:
<TABLE>
<CAPTION>
Exhibit
Number Description (1)
------ ------------
<S> <C>
3.1 Articles of Incorporation dated June 13, 1996 (2)
3.2 Certificate of Correction (2)
3.3 Bylaws, as amended
5.1 Opinion of Branden T. Burningham, Esq. regarding legality (2)
67
<PAGE>
10.1 Agreement and Plan of Reorganization (2)
Exhibit A-Stockholders of Like Dat Music.
Exhibit B-Cybertel Financial Statements. (3)
Exhibit C-Exceptions.
Exhibit D-Like Dat Music Financial Statements.
Exhibit E-Exceptions.
Exhibit F-Investment Letter.
Exhibit G-Cybertel Compliance Certificate.
Exhibit H-Like Dat Music Compliance
Certificate.
10.2 Reorganization Agreement (2)
Schedule A-Telenomics Stockholder.
Schedule of Debt and Equity Holders.
Schedule B-Conflicts or Contract Defaults.
Schedule C-Subsidiaries and Prior Dealings.
Schedule D-List of Assets.
Schedule E-Exceptions to Titles.
Schedule F-Material Change to Financials.
Schedule G-Permits, Franchises and Licenses.
Schedule H-Contracts Affecting Assets.
Schedule I-Contracts Requiring Future
Performance.
Schedule J-Disposition of Assets.
Schedule K-Insurance.
Schedule l-Employee Pensions and Sick Leave
Policies.
Schedule M-Litigation.
Schedule N-Cybertel Subsidiaries.
Schedule O-Cybertel Securities and Exchange
Commission Filings.
Schedule P-Cybertel Disclosure Documents.
Exhibit 1-Telenomics Financial Statements.
Exhibit 2-Investment Letter.
Exhibit 3-Cybertel Financial Statements. (3)
Exhibit 4-Shareholders Agreement.
Exhibit 5-Finders.
Exhibit 6-Telenomics Promissory Note
10.3 Securities Purchase Agreement, with exhibits thereto (2)
10.4 Employment Agreement with Richard Mangiarelli (2)
10.5 Employment Agreement with James Boring (2)
10.6 Employment Agreement with Richard Schmidt (2)
10.7 Telecommunications Services Agreement with Worldcom
Network Services, Inc., with Amendment No. 1 thereto (2)
10.8 Carrier Service Agreement with Flat Rate Communications, Inc. (2)
10.9 Carrier Service Agreement with LD Exchange.com, Inc. (2)
10.10 Agreement and Plan of Reorganization
Exhibit A-LDVL stockholders
Exhibit B-Warrant recipients
Exhibit C-Cybertel financial statements (4)
Exhibit D-Litigation
Exhibit E-LDVL financial statements
Exhibit F-Material changes
Exhibit G-Investment Letter
Exhibit H-Certificate of Officer
21.1 List of Subsidiaries (2)
23.1 Consent of Malone & Bailey, PLLC
23.2 Consent of Branden T. Burningham, Esq.
27 Financial Data Schedule
68
<PAGE>
(1) Summaries of all exhibits contained within this
Registration Statement are modified in their
entirety by reference to these Exhibits.
(2) Each of these documents was filed with Cybertel's
original Registration Statement on Form SB-2, filed
May 5, 2000.
(3) Incorporated by reference from our Registration
Statement on Form 10-SB, as amended, and our
Quarterly Report on Form 10-QSB for the quarterly
period ended September 30, 1999.
(4) Incorporated by reference from our Annual Report
on Form 10-KSB for the calendar year ended
December 31, 1999.
Item 28. Undertakings
------------
Cybertel hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and
(iii) include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, to treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to our directors, executive officers
and controlling persons the foregoing provisions or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than our payment of expenses incurred or paid by any of our
directors, executive officers or controlling persons in the successful defense
of any action, suit or proceeding) is asserted by such director, executive
officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by us is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
69
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing of Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned in the
City of La Jolla, State of California, on June 20, 2000.
CYBERTEL COMMUNICATIONS CORP.
By /s/ Richard D. Mangiarelli
---------------------------------
Richard D. Mangiarelli, CEO,
President and Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following person in the capacities
and on the dates stated.
/s/ Richard D. Mangiarelli
---------------------------------
Richard D. Mangiarelli, CEO,
President and Director
/s/ Paul J. Mills
----------------------------------
Paul J. Mills, Secretary and
Director
/s/ John E. Jordan
----------------------------------
John E. Jordan, Director
70
<PAGE>
Date Filed: June 22, 2000 SEC File No. 333-36376
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CYBERTEL COMMUNICATIONS CORP.
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