UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to _____________
Commission file number 0-27807
CybeRecord, Inc.
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(Exact name of small business issuer as specified in its charter)
Florida 91-1985843
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
800 Bellevue Way NE, 4th Floor, Bellevue, WA 98004
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(Address of principal executive offices)
(425) 990-5593
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(Issuer's telephone number)
As of August 1, 2000, there were 16,746,864 shares of CybeRecord, Inc.'s Common
Stock, par value $.01 per share, outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements...............................................1
Item 2. Plan of Operation..................................................6
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................9
SIGNATURES.................................................................10
Note: Items 1, 2, 3, 4 and 5 under Part II - Other Information have been omitted
because they are not applicable.
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
CYBERECORD, INC.
(A Development Stage Company)
BALANCE SHEETS
June 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
ASSETS (Unaudited) (Audited)
--------------- --------------
<S> <C> <C>
Current Assets
Cash $ 180,809 $ 111,154
Certificate of Deposit 50,000
Prepaid expenses and deposits 21,864 15,194
--------------- --------------
Total current assets 252,673 126,348
Furniture and Equipment, at cost,
less accumulated depreciation of $20,940
at June 30, 2000 and $3,940 at December 31, 1999
and $3,940 at December 31, 1999 115,059 25,328
Capitalized Development Costs 657,101
--------------- --------------
$ 1,024,833 $ 151,676
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 69,423 $ 21,436
Stockholders' Equity
Common stock, par value $.01 167,469 154,719
Additional paid-in capital 6,560,769 4,342,269
Deficit accumulated during the
development stage (5,772,828) (4,366,748)
--------------- --------------
955,410 130,240
--------------- --------------
$ 1,024,833 $ 151,676
=============== ==============
</TABLE>
See Notes to Financial Statements
1
<PAGE>
CYBERECORD, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS Unaudited
For the Three Months and Six Months Ended June 30, 2000 and 1999, and the Period
From September 27, 1996 to June 30, 2000
<TABLE>
<CAPTION>
Total
Accumulated
During
Development
Stage
(September 27,
Three Months Ended Six Months Ended 1996 to
------------------------------ ----------------------------- June 30,
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999 2000)
------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues, Interest income $ 7,670 $ - $ 14,777 $ - $ 14,777
Expenses
Write-off of acquired research
and development 3,000,000 3,000,000 3,000,000
Research and development 128,317 96,699 128,317 272,124
General and administrative 925,278 65,587 1,324,158 9,199 2,515,481
------------- -------------- ------------- ------------- --------------
925,278 3,193,904 1,420,857 3,203,103 5,787,605
------------- -------------- ------------- ------------- --------------
Net loss $ (917,608) $ (3,193,904) $ (1,406,080) $ (3,203,103) $ (5,772,828)
============= ============= ============= ============= ==============
Basic loss per share of common stock $ (0.05) $ (0.21) $ (0.09) $ (0.23) $ (0.46)
============= ============= ============= ============= ==============
Weighted average number of
common shares outstanding 16,746,864 15,038,530 16,321,864 13,687,199 12,579,419
============= ============= ============= ============= ==============
</TABLE>
See Notes to Financial Statements
2
<PAGE>
CYBERECORD, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY Unaudited
For the Six Months Ended June 30, 2000 and 1999,
and the Period From September 27, 1996 to June 30, 2000
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Common Paidin Development Receivable for
Shares Stock Capital Stage Shares Sold Total
--------- --------- ------------ ------------ ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances, September 27, 1996 335,864 $ 3,359 $ 769 $ - $ - $ 4,128
Issuance of common stock (October and November 1996) 8,700,000 8,700 49,410 58,110
Net loss (3,192) (3,192)
---------- --------- ------------ ------------ -------- ----------
Balances, December 31, 1996 9,035,864 12,059 50,179 (3,192) 59,046
Issuance of common stock, net of effects of exchange 3,300,000 111,300 128,700 240,000
Additional capital contributed by shareholders 46,700 46,700
Net loss (345,688) (345,688)
---------- --------- ------------ ------------ -------- ----------
Balances, December 31, 1997 12,335,864 123,359 225,579 (348,880) 58
Additional capital contributed by shareholders 83,500 83,500
Net loss (82,251) (82,251)
---------- --------- ------------ ------------ -------- ----------
Balances, December 31, 1998 12,335,864 123,359 309,079 (431,131) 1,307
Issuance of common stock in exchange for
subscriptions receivable (March 1999) 1,970,000 19,700 965,300 (985,000)
Issuance of common stock in exchange for
services (March 1999) 6,000 60 2,940 3,000
Additional capital contributed by shareholders 8,050 8,050
Contribution of shares back to the corporation
(5,000,000) (50,000) 50,000
Issuance of common stock in exchange for
services (April 1999) 90,000 900 36,100 37,000
Issuance of common stock in exchange for
Kristal Group assets (April 1999) 6,000,000 60,000 2,940,000 3,000,000
Collection of subscriptions receivable 500,000 500,000
Net loss (3,203,103) (3,203,103)
---------- --------- ------------ ------------ -------- ----------
Balances, June 30, 1999 15,401,864 154,019 4,311,469 (3,634,234) (485,000) 346,254
Issuance of common stock in exchange for
services (November 1999) 70,000 700 30,800 31,500
Collection of subscriptions receivable 485,000 485,000
Net loss (732,514) (732,514)
---------- --------- ------------ ------------ -------- ----------
Balances, December 31, 1999 15,471,864 154,719 4,342,269 (4,366,748) - 130,240
Issuance of common stock in exchange for
cash (March 2000) 1,275,000 12,750 2,218,500 2,231,250
Net loss (1,406,080) (1,406,080)
---------- --------- ------------ ------------ -------- ----------
Balances, June 30, 2000 16,746,864 $ 167,469 $ 6,560,769 $ (5,772,828) $ - $ 955,410
========== ========= ============ ============ ======== ==========
</TABLE>
See Notes to Financial Statements
3
<PAGE>
CYBERECORD, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS Unaudited
For the Six Months Ended June 30, 2000 and 1999, and the Period
From September 27, 1996 to June 30, 2000
<TABLE>
<CAPTION>
Total
Accumulated
During
Development
Stage
(September 27,
1996 to
June 30,
2000 1999 2000)
------------- ------------- ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (1,406,080) $ (3,203,103) $ (5,772,828)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 17,000 194 20,940
Write-off of purchased inprocess
research and development that had
not reached technological feasibility 3,000,000 3,000,000
Professional fees exchanged for
common stock 40,000 71,500
Changes in operating assets and liabilities
Certificate of Deposit (50,000) (50,000)
Prepaid expenses and deposits (6,670) (23,101) (21,864)
Accounts payable 47,987 6,713 69,423
------------- ------------- ------------
Cash used in operating activities (1,397,763) (179,297) (2,682,829)
Cash Flows From Investing Activities
Purchase of equipment (106,731) (6,968) (135,999)
Capitalized Development Costs (657,101) (657,101)
------------- ------------- ------------
Cash used in investing activities (763,832) (6,968) (793,100)
Cash Flows From Financing Activities
Issuance of common stock 2,231,250 500,000 3,514,360
Capital contribution 8,050 138,250
------------- ------------- ------------
Cash provided by financing activities 2,231,250 508,050 3,652,610
------------- ------------- ------------
Net increase in cash 69,655 321,785 176,681
Cash, beginning of period 111,154 1,307 4,128
------------- ------------- ------------
Cash, end of period $ 180,809 $ 323,092 $ 180,809
============= ============= ============
</TABLE>
See Notes to Financial Statements
4
<PAGE>
Note 1. Basis of Presentation
The accompanying un-audited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and therefore do not include all
disclosures necessary for a fair presentation of financial position, results of
operations, changes in stockholders' equity, and cash flows in conformity with
generally accepted accounting principles. The operating results for interim
periods are un-audited and are not necessarily an indication of the results to
be expected for the full fiscal year. In the opinion of management, the results
of operations as reported for the interim period reflect all adjustments that
are necessary for a fair presentation of operating results.
Note 2. Per Share Information
Basic loss per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding in the
period. Diluted loss per share has not been presented, as inclusion of any such
shares would be anti-dilutive to the loss per share.
Note 3. Capitalized Development Costs
CybeRecord's ScanServer product reached the stage of technological feasibility
as defined by Statements of Financial Accounting Standards ("SFAS") 86 on
February 16, 2000. Technological feasibility was determined in February 2000 as
two prototype units were completed and tested with only insignificant changes
required. Pilot production and customer acceptance are important but secondary
concerns in determining feasibility as CybeRecord's research has determined a
need and demand for the product and the completion of the prototype units with
few needed changes validates the basic design for pilot production.
Additionally, various governmental and safety approvals were also considered in
determining feasibility. The required tests are relatively routine and did not
play a significant role in determining feasibility.
All product development costs prior to February 15, 2000 have been charged to
expense as research and development and all product development costs subsequent
to that date have been included in capitalized development costs.
CybeRecord expects to lease all ScanServer products. Accordingly, SOP 97-2 and
98-9 related to software revenue recognition are not expected to significantly
affect CybeRecord's financial statements.
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<PAGE>
Item 2. Plan of Operation.
Forward-Looking Statements
In describing our plan of operation for the next 12 months as required by Part
I, Item 2 of this report, much of what we say will be "forward-looking
statements." Words such as "expect," "anticipate," "intend," "believe," "plan,"
"objective," "target," "goal," and similar expressions indicate that a statement
is forward-looking. Our forward-looking statements reflect our management's
beliefs and assumptions based on the information we currently have available.
Because our forward-looking statements are based on what we know and expect at
the time we are preparing this report, we cannot be sure that the actual course
of our business activities will correspond to what we say in our forward-looking
statements. There are many risks and uncertainties that could cause the
assumptions we have used to formulate our business plans to turn out to be
wrong. If our assumptions turn out to be wrong, our business's actual
performance could be much worse than we anticipate based on our current
assumptions. If our business does not perform as well as investors expect, or
analysts or investors develop concerns about how well our business will perform,
the trading prices for our stock are likely to decline, perhaps substantially.
Part I, Item 1 of our Third Amendment to Form 10-SB (filed with the Securities
and Exchange Commission on June 21, 2000) identifies the key risks and
uncertainties that we believe could have a serious negative effect on our
business. These risks are described under the heading "Forward-Looking
Statements" in our Third Amendment to Form 10-SB. We direct investors' attention
to that disclosure and caution that if our business does encounter unexpected
problems because of these or other risks and uncertainties, investors could lose
some or all of their investments in our business.
Plan of Operation
In February 2000 we produced two prototype ScanServers that were used for
testing and evaluation. Over the next 12 months, our goal is to move from a
development stage company to commercial production of the ScanServer. As of June
2000, we had received sufficient hardware components to assemble 30 ScanServers
and sufficient computer and electronic components for 10 ScanServers. (We
ordered hardware for a larger number of ScanServers because these components
require custom manufacturing.) We have leased space in Modesto California to
allow us to assemble initial production models of ScanServer units for
commercial shipping. We shipped one completed production model ScanServer at the
end of May 2000. During the month of June 2000, we shipped another eight
ScanServers.
During the month of July 2000, we also undertook a rigorous testing program for
our first run of commercial production ScanServer units. This testing program
revealed a noisy lead screw in the ScanServer's camera lens transport mechanism.
As soon as we made this discovery, we took immediate action to correct the
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problem for future production units, as well as to replace the camera lens
transport mechanisms in each of the units we had shipped during May and June
2000.
Because we focused our efforts on analyzing and correcting the problem with the
lead screw in the camera lens transport mechanism, we did not ship any new
ScanServer units during the month of July 2000. Once we have completed the
process of replacing our previous camera lens transport mechanism with the
re-engineered mechanism, we will resume manufacturing new units (which will also
include the re-engineered mechanism). Our goal going forward will be to achieve
a continuing production rate of approximately 20 units per month. Our initial
target geographical market is the United States, to be followed by Canada, the
United Kingdom, Colombia, Brazil, and Mexico.
Although we currently lease assembly space in Modesto, California, we expect to
shift the bulk of our assembly requirements to an outside contractor as soon as
possible. At the same time, we plan to maintain at least limited capacity for
in-house assembly. We intend for this capacity to act as a safety net. It will
give us the ability to complete a minimal number of ScanServers even if we
experience problems with outside assembly contractors.
As of the filing date of our Form 10-QSB for the Quarter Ended March 31, 2000,
we believed that we had sufficient cash to continue operations at their
then-current level for another four to five months after May 2000. During July
2000, however, several unexpected events placed demands on our available cash
that we had not anticipated when we filed our Form 10-QSB for the Quarter Ended
March 31, 2000. First, in taking steps to verify our accounts payable with
respect to parts we had ordered to assemble our ScanServers, we discovered a
number of invoices that we believed had been paid had not, in fact, been paid.
We received a number of invoices based on verbal orders or orders that had been
issued without using a standard purchase order format. We subsequently advised
vendors and employees that no future invoices would be honored unless the order
was placed using a standard purchase order form. All purchase orders are
presently being generated using our accounting software, and following these
accounting procedures should enable us to avoid significant unexpected expenses
in the future.
In addition, during the month of July 2000 our quality control testing programs
revealed the need to re-engineer the ScanServer's camera lens transport
mechanism (as described above). This required us to order new parts on short
notice, which we needed both to replace transport mechanisms in previously
shipped ScanServer units and to install into future production units. Taking
these critical steps during the month of July 2000 added to the unexpected cash
demands we experienced. The need to modify the ScanServer units we had
previously shipped has also delayed the generation of revenues from those units,
because they could not be placed into service without the necessary
modifications.
7
<PAGE>
Because of these unexpected developments, we found that by the beginning of
August 2000 we were in need of immediate additional cash to fund our operations.
In view of these circumstances, we have obtained approval from our Board of
Directors for a private placement of one-million shares of our Common Stock to
fund our manufacturing, parts purchases, and operations. We believe that through
this private placement we will be successful in securing enough funds for the
continued operation and expansion of the Company through the first quarter of
2001. Our present plan is to be generating enough revenue from the rental of
ScanServers by the end of the first quarter of 2001 to continue at a modest
level of operation.
After the first quarter of 2001, if we have established a on-going commercial
production rate of approximately 20 ScanServer units per month, and if we are
able to consistently and quickly place those units into service, we believe that
we will be able to generate adequate revenues from distributing ScanServers to
continue our operations at the level we contemplate for the remainder of 2000.
Without raising additional funds through further stock sales or commercial
borrowing arrangements, we do not expect to be able to expand the scale of our
production and marketing efforts quickly, but we believe that meeting the goal
of producing and placing into service 20 ScanServer units each month could
sustain our business and allow us to grow slowly. Additional capital investment
or available borrowed funds for our business during the next 12 months would
influence our activities in three key respects: how much advertising we are able
to do, how quickly we can expand the scale of our production operations, and how
quickly we can enter additional geographical markets. If we are able to secure
additional funding through stock sales or borrowing, we would expect to pursue
these areas to the extent we considered it feasible. We cannot, however, be
certain of placing enough ScanServers into service over the next 12 months to
meet our operating requirements. If we do not place enough units, then we will
need to either obtain adequate commercial credit arrangements or sell additional
stock to fund our continuing operations. We do not currently have commitments in
place for obtaining credit or selling any additional stock.
As of June, 2000, we completed the steps necessary to demonstrate compliance
with Federal Communications Commission ("FCC") regulations concerning radio
frequency emissions (under CFR 47, Part 15, Subpart B-1998, Class A). These
steps involved submitting one of our ScanServers to an accredited laboratory for
testing. The ScanServer has passed these tests, as well as tests for compliance
with comparable Canadian regulations (CSA). As of the filing date of this
report, we have received certificates stating that the ScanServer has passed the
applicable tests and the unit used for testing has been returned to us. We have
also received final, detailed reports concerning the ScanServer's compliance
with FCC radio frequency emissions standards.
We have also started the process to receive safety listings from Underwriters
Laboratories, Inc. ("UL") and the European equivalent of UL, known as "CE." As
of the end of July 2000, we have not completed the UL and CE testing process. We
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<PAGE>
must make another commercial production ScanServer unit available to UL to
complete this process. Once we deliver the unit, we expect it will take
approximately two months to complete the UL and CE testing process, during which
time UL will retain one of our production ScanServer units for testing.
The reason we did not apply for FCC approval or UL and other similar listings
sooner is because we needed commercial production ScanServer units to do so.
This is because we had to show that the commercial units we would distribute to
customers (as opposed to prototypes) could pass the applicable tests and satisfy
the applicable standards. Our first commercial production units were assembled
during May 2000, so that is when we began the testing process.
As of August 2000, we do not intend to conduct significant new research and
development efforts relating to the ScanServer during the next 12 months. We
expect to give primary operational focus to manufacturing ScanServers and
placing them into commercial service. As an integral part of moving from product
development to production, we expect to conduct on-going evaluation of possible
ways to improve production and lower costs. We also expect to devote a modest
level of development effort to completion of a roll-film feeder for the
ScanServer. In addition, if sufficient capital is available during the next 12
months, we expect to begin research and development on a machine that will
transfer digital images onto microfilm. As our operations continue, we also
expect to watch for new opportunities to further develop or build on our core
technologies in ways that complement our microfilm scanning business. We do not
currently have any concrete plans in this regard, however.
In June 2000 we leased facilities in Modesto, California to provide space for
our initial in-house assembly activities. Over the next 12 months, we do not
intend to acquire significant new plant or equipment or any other significant
new facilities devoted to the production or assembly of ScanServers.
We do not currently expect to hire a significant number of additional employees
during the next 12 months. We believe that overall, the 22 individuals we
currently employ in management, technical, and sales and marketing positions
should enable us to proceed with production and marketing at our initial target
levels over the next 12 months.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
9
<PAGE>
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarterly period
covered by this report.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CybeRecord, Inc.
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(Registrant)
Date: August 11, 2000 By: /s/ JAMES J. LUCAS
---------------------- ---------------------
James J. Lucas, President and CEO
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