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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-13992
CYBER DIGITAL, INC.
(Name of small business issuer in its charter)
New York 11-2644640
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 Oser Avenue, Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
(516) 231-1200
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B is not contained in this form, and
no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
- ------
This issuer's revenues for its most recent fiscal year are
$45,385.
The aggregate market value of the voting stock held by
nonaffiliates of the Registrant at March 31, 1997 was
$21,206,622 based on a total of 11,716,366 shares held by
nonaffiliates and the closing bid price in the Over-the-Counter
Market on that date which was $1.81.
The number of shares of stock outstanding at March 31, 1997:
17,095,176 shares of Common Stock, par value $.01 per share.
Documents Incorporated by Reference: None
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PART I
ITEM 1 - DESCRIPTION OF BUSINESS
The Company
Cyber Digital, Inc. (the "Company") was incorporated under the
Laws of the State of New York in 1983. It designs, develops,
manufactures, markets and services high performance distributed
digital switching and networking systems that enable both public
telephone exchanges and private network operators to provide
cost effective simultaneous communication of voice and data
services with minimal or no infrastructure cabling. The
Company's systems are based on its proprietary software
technology. Cyber's systems also permit "modemless"
transmission of data between a variety of incompatible and
dissimilar end-user equipment, such as computers, printers, work
stations and data terminals as well as high speed Internet
access over standard telephone lines. The Company believes that
its systems are the only ones available with this capability.
The Company has designed and developed a family of switches
(see "Types of Systems" below) which, by interfacing with
appropriate methods of wireless transmission, can easily and
rapidly provide telecommunications services to consumers who are
underserved or have no service at all as in the case of many
developing countries. The Company's products are suitable for
both densely packed urban areas as well as sparsely populated
rural areas. In the United States, the enactment of the
Telecommunications Act of 1996 has resulted in the creation of a
large market for the Company's products since they are capable
of serving the requirements of some carriers now attempting to
by-pass the regional Bell operating companies.
The Company has sold approximately 75 systems substantially all
of which have been the Cyber Switch Exchange ("CSX"), an
integrated voice and data switch which functions as a private
network for up to 100,000 users. It has sold one Cyber Rural
Exchange ("CRX") which functions as a rural telephone exchange
to serve widely dispersed subscribers. The Cyber Distributed
Central Office ("CDCO") is designed to serve subscribers in
densely populated metropolitan areas. CRXs and CDCOs
communicate with each other by wireless means thereby
eliminating the need for infrastructure cabling.
After development of its first technology in 1987, the Company
targeted the Federal Government market for sale of CSX. CSX was
also sold to a Chinese Government owned joint venture. These
sales established the efficacy of the Company's base technology.
Concurrently with completing the development of CDCO and CRX in
fiscal 1996/97, the Company has targeted the huge emerging
international market which is seeking cost-effective technology
as well as the newly created domestic market for CDCO and CRX
type systems.
On July 11, 1996, the Company concluded a private placement of
its Series A Preferred Stock and accompanying warrants to
accredited institutional investors and received net proceeds of
approximately $1.7 million. On December 30, 1996, the Company
concluded a private placement of 2,000 shares of its Series B-1
Preferred Stock to Syndicated Communications Venture Partners
III, L.P. and received net proceeds of $1.7 million. Proceeds
from these offerings have been or will be used for retirement of
long-term debt, redemption of Preferred Shares prior to
conversion, and to fund research and development, marketing and
production expenses.
Industry Background
Since the advent of telecommunications, voice communication
technologies were developed and managed by large telephone
operating companies which were largely insulated from
competition. The data communications industry grew
independently, and provided the specialized communications link
between computers and office systems. In recent years, there
has also been a proliferation of office systems consisting of
personal computers, work stations, printers and storage devices,
which has resulted in the growth of a separate office automation
industry. These three industries developed in parallel and took
independent approaches to the application of technology.
In the area of voice communications, digital technology enabled
telephone companies to improve the quality of voice
communication and also provide additional features and services
such as call forwarding and conferencing and least-cost-routing
for long distance calls by microprocessor-based software
control. Such digital technology has been applied to both
public exchanges which serve cities, towns and villages and
private branch exchanges (or PBXs) which serve offices and other
large organizations. The need for data communications arose
largely within the office environments. These needs were met by
local area networks ("LANs") which require a different type of
cabling and associated equipment. Such LANs are limited to
small offices typically having less than a hundred data users.
The numerous productivity enhancing devices and systems which
have been introduced into the market by the office automation
industry also created a greater need for the accessing, sharing
and exchange of information. Traditionally, these products and
systems could communicate with one another only if they were
made by the same manufacturer. Furthermore, as the number of
data users increase, where each user is connected to all other
users, a network becomes increasingly complex and less
manageable.
As separate data networks became more prevalent, it became
apparent that a data network which utilizes the existing
telephone cabling would be the most cost effective solution, and
also provide greater manageability with an increasing numbers of
users. In an effort to facilitate such deployment of integrated
voice and data networks (commonly referred to as Integrated
Service Digital Networks ("ISDN"), the International Telephone
Union ("ITU") adopted international standards for ISDN in 1987;
Bell Communications and Research ("BELLCORE") adopted ISDN
standards for the U.S. market in November 1992. It is
anticipated that the combined power of ISDN based switches and
fiber optic cables will provide the basis for the growth in an
array of applications and electronic information services
computer-to-computer communications, office systems integration,
video-text, video-phone, video-conferencing, electronic mail,
informational data bases, Internet and multi-media usage and
access, all simultaneously with voice transmission capability
over the same network.
In technologically advanced countries, extensive public voice
telephone networks are already in place. Innovation and change
in the form of simultaneous voice and data communications are
now taking place in the domain serviced by private networks.
Private networks providing new types of services are, therefore,
growing at a much faster rate than public voice networks. On the
other hand, in the developing world (Eastern Europe, Russia,
China, India, and Latin America), there is demand for voice-only
public networks to serve individuals and business subscribers in
cities, towns and villages. The Company's systems are designed
to meet the sophisticated voice/data needs of private networks
in the United States, and the basic voice-only needs of public
networks in developing countries.
Unlike advanced countries, where the existing public voice
telephone network consists of monolithic centralized digital
switches, developing countries are seeking an alternative cost
effective approach, such as the Company's distributed digital
switching systems. The Company believes that the trend in the
telecommunications industry towards distributed switching from
monolithic centralized switching is similar to the trend in the
computer industry towards distributed networking personal
computers from monolithic centralized mainframe computers.
Similar to the computer industry where personal computing has
been brought closer to the users, the Company's distributed
switching systems are also being installed closer to groups of
subscribers, thereby dramatically reducing the cost of cabling.
The Company believes that with its distributed switching system,
the public telephone operating companies in the developing
countries can rapidly provide telephone services to their
customers. It is substantially easier to install small
distributed switches than large monolithic centralized switches
with its corresponding long cabling infrastructure. The Company
believes that its systems are well suited for developing
countries.
Prior to 1996, regional Bell operating companies (and some
independent telephone operating companies) had a monopoly in
providing local services and long distance access in their
respective defined territories. The enactment of the
Telecommunications Act of 1996 dismantled the barriers between
local and long distance carriers which prevented them from
offering services to one another's customers. Furthermore, the
Telecommunications Act of 1996 also enabled new entrants in the telecom
business to provide both local and long distance services
without any restrictions as to the geographical territory served
subject to such companies obtaining required licenses. These
entrants in the telecom business as well as existing carriers
are seeking to employ new cost effective technologies made
possible by software based systems and applications of wireless
technology. It is believed that the Company's range of products
can satisfy a significant part of this emerging switching market
demand.
Types of Systems
The Company completed the development of its first technology
in 1987, at which time it began marketing its CSX system on a
limited basis. The Company has recently developed additional
new technologies and software that has enabled it to create new
systems such as the CDCO and the CRX for various applications,
primarily the developing countries and local carriers attempting
to bypass the Bell operating companies. Although the Company
has just started to market these new systems, the Company
believes that these systems are capable of providing the
functions for which they have been designed.
Cyber Distributed Central Office
The Company has developed but not yet commercialized the Cyber
Distributed Central Office ("CDCO") which is designed to provide
digital voice communications to subscribers in densely populated
urban areas. The CDCO is essentially a digital switch with
trunk and tandem exchange capabilities enabling it to connect
subscribers served by other exchanges. The CDCO system
interfaces with digital telecommunications networks and older
analog telephone networks. The CDCO system consists of nodes
connected by standard digital links which permit optimization of
the network with respect to specific size, required traffic
capacity, and desired applications. The modularity derived from
the nodal structure of the CDCO provides an economical digital
switching exchange from as little as a few hundred lines up to
1,000,000 lines capacity.
The nodal structure of the system permits changes to the
functionality of the system simply by using different software
while keeping the same common hardware. CDCO's flexibility
offers a vast array of system configurations to Telephone
Operating Companies and Administrations to fulfill a wide range
of applications, including the following:
* Local CDCO exchange serves subscribers in cities and towns.
* Tandem exchange (CSX) serves as a regional exchange connecting
to various local exchanges.
* Toll and transit CDCO exchanges are used for long distance
national service and international gateway.
* Integrated local and tandem exchanges.
* Integrated local, tandem and toll exchanges.
* Integrated local, tandem, toll and transit exchanges.
* Digital Access Cross-connect (CDAC) is a network management
system providing optimal routing and control of heavy traffic
through software.
The flexibility of CDCO systems are further enhanced by
software configurable Peripheral and Switching Nodes performing
the following functions:
* Multi-tenant exchange (CMT) serves subscribers in large office
complexes and buildings where many business tenants can be
served by a resident exchange.
* Urban Line Concentrator (CULC) serves subscribers in congested
areas where traffic is moderate, such as in apartment
dwellings and suburban communities.
* Remote Line Switch (CRLS) serves business subscribers in high
growth areas, such as in industrial parks and complexes, and
university campus settings.
The control functions of the CDCO system are totally
distributed in autonomous processing sub-systems (nodes). Node
processors are loosely coupled and exchange information through
standardized inter-nodal communication digital links. The
distributed approach permits switching systems to be located
closer to groups of subscribers or at subscribers' premises,
which dramatically reduces the cost of wiring and cabling. It
also results in instant installation. Moreover, a failure in
one node does not affect other nodes. In addition, the
distributed approach eliminates bottlenecks as the system offers
multiple routes for call completion.
Cyber Rural Exchange
The Company has developed the Cyber Rural Exchange ("CRX"),
which is a specialized version of the CDCO. The Company has
sold only one CRX system to date, which is currently serving
about 400 users. The CRX is designed to handle the traffic
requirements of widely dispersed single-line users, such as
users in a small town or rural area
CyberSwitch Exchange
CyberSwitch Exchange ("CSX") is a digital switching system
designed for use as a private network for offices, universities,
hospitals and other large organizations. The CSX system employs
nodes, each offering 512 ports, which can be used to network up
to 100,000 users within one mile from each node. Users are
equipped with iSTs which permit communication between data
devices. The CSX system enables data device users to
communicate with other users without single purpose data links
and modems. The system also accommodates traditional analog
telephones. The CSX can be designed to provide voice-only
applications.
Cyber Local Area Network
The Company has developed but not yet commercialized the Cyber
Local Area Network ("CLAN"). CLAN is a data only local area
network which unlike most LANs covering distances of a few
hundred feet at most, can network users up to a distance of
approximately one mile.
Cyber Hub
The Company has developed but not yet commercialized the Cyber
Hub Controller ("CHUB"). CHUB is an integrated voice and data
switch which combines the capabilities of the CLAN and CSX
systems to offer total integrated data and voice communications
capability in a single, multi-purpose system. CHUB offers
digital transmission, switching and networking capabilities,
thus enabling voice and data communications both within a local
area and with the outside world.
Sales and Marketing
Customers
To date, the Company has sold approximately 75
systems, substantially all of which have been the CSX. The
Company has not commercialized the CLAN, the CHUB or the CDCO
and has sold one CRX. The Company has sold its systems to
federal and state government agencies and to Tianchi
Telecommunications Company in China. The Company has been
engaged in limited marketing activities relating to the CSX
system directed principally to the government market due to
constrained financial, personnel and other resources.
In December 1995, the Company signed a manufacturing licensing
contract with the National Telecommunications Company ("NTC") of
Egypt, pursuant to which NTC will assemble the systems in Egypt
with parts provided by the Company. In addition, NTC will
market, install, maintain and service the Company's systems in
Egypt, Kenya, Tanzania, Uganda, Sudan, Yemen, United Arab
Emirates and Qatar. Sales of the Company's products to NTC have
not yet commenced. As at present, NTC is engaged in training
its personnel to fulfill its obligations under the contract.
NTC has been delayed in its performance for a variety of
reasons, including but limited to, necessary training of technical
people and set up of assembly facilities.
In August 1996, the Company entered into a non-exclusive
manufacturing licensing contract with Gujarat Communications &
Electronics Ltd. ("GCEL" - a company based in India) which will,
pursuant to a license, assemble and sell the Company's products
in Russia and certain CIS countries. GCEL has the benefit of
certain financial facilities made available to it under the
terms of an intergovernmental agreement between the Government
of India and Russia as well as certain CIS countries. The
telecom industry in Russia and the CIS countries has been
undergoing a process of deregulation and privatization. GCEL
and the Company have just commenced marketing activities with a
view to taking advantage of the financial facilities made
available to GCEL.
Public and private telecom companies in several other
developing countries have taken an interest in the Company's
products. It is not possible to estimate the sales revenues
which will eventually be generated from the international
market, if any, since there are substantially long lead times
involved even after a contract has been executed.
In fiscal 1997, the Company made no attempt to commence
marketing activities targeted to the newly emerging domestic
market created by the Telecommunications Act of 1996. In the
second quarter of fiscal 1998, the Company commenced assembling
a sales and marketing team to explore domestic opportunities.
Target markets in the United States for the Company's switches
may be categorized as follows:
(i) Existing national interexchange carriers such a AT&T, MCI
and Sprint which will be building local networks both to compete
with the incumbent local exchange carriers and also to protect
their long distance market share.
(ii) Newly formed telecommunications companies which are
building local networks and which offer both local and long
distance service. Examples are ICG Communications and GST
Telecom.
(iii) Start up competitive local exchange carries which build
local networks and offer long distance service to their
customers by resale of other companies' long distance network
offerings.
(iv) Large companies such as electric utilities with certain
rights of way and other capabilities in place which are studying
whether and where to enter the telephone business.
(v) Independent telephone companies which must upgrade their
networks rapidly or risk losing their franchise to aggressive
competition.
(vi) Any large telephone user which believes that it can
operate its own telephone company in a more efficient and cost
effective manner than can be provided for it by others.
Examples include government at all levels, universities,
utilities and real estate operators.
Government Contracts
A significant portion of the Company's business since its
inception has consisted of sales under United States government
contracts. Certain of these contracts are competitive bid
contracts, which were awarded after a formal bid and proposal
competition among suppliers. Virtually all of the Company's
United States government contracts are fixed price contracts,
pursuant to which the Company agrees to provide a system for a
fixed price and assumes the risk of cost overruns. The Company
has not experienced cost overruns on fixed price contracts. As
more fully set out in "Management Discusssion and Analysis"
below, revenues from Government contracts became insignificant
in fiscal 1997. The Company is now concentrating on its
marketing efforts in international and domestic non-governmental
markets; however, it will nevertheless bid on select government contracts.
Competition
The telecommunications and related networking industries are
characterized by intense competition. The Company competes with
numerous well-established foreign and domestic companies, many
of which possess substantially greater financial, marketing,
personnel and other resources than the Company and have
established reputations for success in the development, sale and
service of high-speed digital switching and networking and
related products.
Products which perform many of the functions of the Company's
systems are readily available from several competitors,
including Lucent Technologies, Nortel, Ericsson, DSC, Alcatel,
Siemens, Fujitsu and NEC. These competitors also have the
research and development capabilities and financial and
technical resources necessary to enable them to respond to
technical advances as well as evolving industry requirements and
standards.
The Company believes its products have the following three
strengths in the United States marketplace: (a) the installed
cost of Cyber Digital's switching networks is less than those
of the competition; (b) the switches can be engineered, installed
and put into service much more quickly, and (c) the Company's distributed
architecture fits with the marketing strategy of the competitive
local exchange carriers who will target specific customers
rather than entire geographic areas. The Company's architecture
will allow these carriers to tailor their local networks to
their marketplace successes without stranding capacity and
capital.
The Company's innovative architecture and, in particular, CDCO
and CRX have been specifically designed to meet market trends
which have emerged in just the last two years both in developing
countries and in the United States. Consequently, the Company
could not, until recently, raise sufficient capital to establish
a significant market presence for its products. Nevertheless,
lack of adequate capital and a large installed base.
Proprietary Technology
The Company does not hold any patents or copyrights, nor has it
filed any patent or copyright applications, relating to its
products or software technology. The Company regards its
software technology and certain components of its system
hardware, including the iSTs, as proprietary and relies for
protection upon copyright and trade secret laws and
confidentiality agreements with its employees. In addition, the
Company requires customers to enter into a license and
confidentiality agreement permitting the customer the exclusive
use of the system operating software, which is furnished to the
customer in object form.
The Company believes that these protections are
sufficient to protect the Company's rights as to its
systems and software. Despite these protections, however, it
is possible that competitors, employees, licensees or others
may copy one or more of the Company's products or its technology
or obtain information that the Company regards as proprietary.
In addition, there can be no assurance that others will not
independently develop products or technologies similar to those
of the Company, that confidentiality agreements will not be
breached or that the Company will have adequate resources to
protect its proprietary technology. The Company believes,
however, that because of the rapid pace of technological change
in the digital switching and networking industries, protection
for its systems is less significant than the knowledge, ability
and experience of the Company's employees, the frequency of
product enhancements and the level of service and support
provided by the Company.
Government Regulation and Industry Standards
The telecommunications and related networking industries in
which the Company competes are highly regulated in both the
United States and internationally. Imposition of public carrier
tariffs and taxation of telecommunications services could
materially adversely affect demand for the Company's products.
Furthermore, regulation or deregulation of public carrier
services by the United States and other governments, including
recent proposals to permit local carriers to manufacture
switching equipment, may determine the extent to which the
Company will be able to enter and penetrate markets in the
United States and internationally and may result in
significantly increased competition, which would significantly
impact the Company's future operating results. In addition, the
Company's products must comply with equipment, interface and
installation standards promulgated by communications regulatory
authorities, including the Federal Communications Commission.
In addition, the Company is required to obtain a license from
the Department of Commerce prior to export sales to certain
countries. A denial of an export license to the Company would
be based upon a policy which likewise affects all other American
companies exporting similar products.
Industry standards bodies such as ITU and BELLCORE have created
committees to address the matter of standards within the
telecommunications industry. The purpose of such standards is
to facilitate the interoperability of products from various
vendors and, through standardization, create a competitive
environment which is anticipated to result in lower product
costs. During the past few years, many new standards have been
adopted and more are pending. The International Standards
Organization ("ISO"), one of the primary standard setting bodies
in the communications industry, has developed a framework for
network standard called the Open System Interconnection
Reference Model (the "OSI Model"). The OSI Model represents a
standard approach by which information can be communicated
throughout a network, so that a variety of independently
developed computer and communications devices can interoperate.
The design of the Company's products incorporates the OSI Model
and accommodates most existing and pending ISDN standards,
including applicable BELLCORE and ITU specifications. In most
foreign countries, government departments or ministries set
industry standards.
Changes in government policies, regulations and interface and
installation standards or industry standards imposed by domestic
and foreign carriers in the future could require the Company to
alter methods of operation, resulting in additional costs, which
could have a material adverse effect on the Company.
Production and Supply
The Company engages in manufacturing, software programming,
assembly, system testing and quality assurance operations at its
facility in Hauppauge, New York. The Company's operations
involve the creation of the required system software, the
inspection of system components manufactured by third parties,
programming of microchips and microprocessors, assembly of the
components of the system hardware and quality and testing to
certify final performance specification. The Company believes
that it has sufficient excess production capacity to satisfy any
increased demand for the Company's systems in the foreseeable
future.
The Company is dependent on third-party arrangements for the
manufacture of all of the component parts incorporated into the
Company's systems. The Company purchases its component parts
from numerous third-party manufacturers and believes that
numerous alternative sources of supply are readily available.
The Company currently purchases all of its requirements of
specially designed plastic parts for the iST from a single
source supplier. The Company believes that alternative sources
of supply for such components are available. The Company is
substantially dependent on the ability of its suppliers, among
other things, to satisfy performance and quality specifications
and dedicate sufficient production capacity for plastic parts
within scheduled delivery times. The Company does not maintain
contracts with any of its suppliers and purchases system
components pursuant to purchase orders placed from time to
time in the ordinary course of business. Failure or delay by
the Company's suppliers in supplying necessary components to the
Company would adversely affect the Company's ability to obtain
and deliver products on a timely and competitive basis.
The Company offers a one-year warranty for sales in the United
States, covering operating defects during which period the
Company will replace parts and make repairs to the system
components at its expense. To date the Company, has not incurred
any significant warranty expense.
Research and Development
Since its inception, the Company has devoted substantial
resources to the design and development of the Company's
systems. For the fiscal years ended March 31, 1997 and
1996, the Company expended approximately $109,322 and $41,679,
respectively, on research and development. Although the
Company's basic systems have been developed, the Company is
continually seeking to refine and enhance its systems, including
enhancements to comply with emerging regulatory or industry
standards or the requirements of a particular customer or
country.
The markets for the Company's products are characterized by
rapidly changing technology and evolving industry standards,
often resulting in product obsolescence or short product
lifecycles. Accordingly, the Company's ability to compete will
depend in large part on its ability to introduce its products to
the marketplace in a timely manner, to continually enhance and
improve such products and maintain development capabilities to
adapt to technological changes and advances in the
communications industry, including insuring continuing
compatibility with evolving industry standards such as Signaling
System No 7 which the Company is currently developing. There
can be no assurance that the Company will be able to compete
successfully, that competitors will not develop technologies or
products that render the Company's systems obsolete or less
marketable, or that the Company will be able to keep pace with
the technological demands of the marketplace or successfully
enhance and adapt its products to satisfy industry standards.
Service and Support
The Company believes that service, support and training are
important factors in promoting sales and customer satisfaction.
Service and support include system planning, site preparation,
installation, customer training, and maintenance. In the United
States, the Company typically charges an annual fee for ongoing
support services.
Because the Company's system hardware consists of a cabinet
with shelves having printed circuit boards inserted into
physical slots, a substantial part of repair and maintenance can
be accomplished by simply substituting the component in need of
repair. In addition, the Company's systems are designed to be
accessible by computer from the Company's headquarters, allowing
the Company's service personnel to remotely call up, diagnose
and otherwise support systems and reducing response time and
cost.
In addition, the Company intends to enter agreements with third
party service providers to provide customer support on a local
basis in foreign markets.
Employees
As of the date hereof, the Company had eighteen full
time employees, of which five were engaged in marketing and
sales activities, four were engaged in research and development
and support engineering, five were engaged in production and
operations, and four in administration. None of the Company's
employees is represented by a labor union. The Company
considers its employee relations satisfactory.
ITEM 2 - Description of Property
The Company's executive offices and assembly
operations are located in approximately 8,200 square feet of
leased space in Hauppauge, New York. The lease expires on March
31, 1998, with renewal option and an annual rental payment of
$51,250. The Company believes that its facility is adequate for
its current and reasonably foreseeable future needs. The
Company believes that additional physical capacity at its
current facility will accommodate expansion, if required.
ITEM 3 - Legal Proceedings
On or about August 5, 1996, Brockington Securities, Inc. ("Brockington")
commenced an action, in the Supreme Court of the State of New York,
County of Suffolk, against the Company for wrongful termination of
a purported agreement for investment banking services. Brockington
is seeking damages in the amount of (i) $775,000 based upon the
alleged net aggregate value of the shares of the Company's Common
Stock upon which Brockington alleges it had a purchase option and
(ii) $1 million for the alleged wrongful termination.
The Company has asserted counterclaims based upon Brockington's
wrongful conduct and is seeking damages in the amount of $428,000 or,
in the alternatvie, recission of the alleged contract and the return
of the 100,000 shares previously issued to Brockington.
The Company believes that Brockington's claims are without merit and
intends to vigorously defend its position.
ITEM 4 - Submission of Matters to a Vote of Security Holders
None.
PART II
ITEM 5 - Market for Common Equity and Related Stockholder Matters
The Company's Common Stock is traded in the over-the-counter
market and quoted on the National Association of Securities
Dealers' Electronic Bulletin Board (the "Bulletin Board") under
the symbol "CYBD" since its initial public offering in 1984.
The following table sets forth, for each of the fiscal periods
indicated, the high and low trade prices for the Common Stock,
as reported on the Bulletin Board. These per share quotations
represent inter-dealer prices in the over-the-counter market, do
not include retail markups, markdowns or commissions and may not
represent actual transactions.
<TABLE>
<CAPTION>
Price Per Share
_____________________
High Low
_____ _____
<S> <C> <C>
Fiscal Year Ended March 31, 1997
First Quarter $6.93 2.43
Second Quarter 7.50 3.62
Third Quarter 4.18 1.93
Fourth Quarter 3.06 1.75
Fiscal Year Ended March 31, 1996
First Quarter $1.43 $0.87
Second Quarter 1.09 0.68
Third Quarter 3.50 0.68
Fourth Quarter 3.93 2.25
</TABLE>
On March 31, 1997, the closing trade price of the Common Stock
as reported on the Bulletin Board was $1.81 per share. As of
such date, there were approximately 560 holders of record of
the Company's Common Stock.
To date, the Company has not paid any dividends on its Common
Stock and does not expect to declare or pay any dividends in the
foreseeable future. Instead, the Company intends to retain all
earnings for use in the Company's business operations.
ITEM 6 - Management's Discussion and Analysis or Plan of
Operation
Overview
The Company was incorporated in April 1983 to develop,
manufacture and market high performance software controlled
digital switching and networking systems providing simultaneous
voice and data communications over standard telephone lines.
Since completion of development of its first technology in 1987,
which resulted in the development of CSX, CLAN and CHUB systems
for private communications networks, the Company has been
engaged in limited marketing activities targeted to federal
government agencies with respect to CSX systems only and,
therefore, generated limited revenues. The Company did not
attempt to commercialize CLAN and CHUB office switching systems
as it was devoting most of its efforts to the marketing of CSX.
The Company targeted the federal government market since its
early products received certification from the General Services
Administration. This drastically reduced the Company's
marketing expenses. Furthermore, sales to Federal Government
agencies (which included the U.S. Air Force and Navy) proved the
efficacy of the Company's products in a challenging operating
environment. Nevertheless, the Company's available working
capital was stretched to the limit in view of the long selling
and receivables cycles typical of the Government market.
Furthermore, although the Company was the lowest qualified
bidder in some larger Government contracts, it was not awarded
the job in view of its limited financial resources. Vendor
financing as is typically available for export contracts is not
available for Government contracts. Export financing available
for the international market led management to concentrate its
efforts in that market segment in fiscal 1996 and 1997.
As part of the Company's plans to expand its marketing efforts
in foreign countries with favorable regulatory environments and
which are seeking to upgrade their telecommunications network
infrastructure, the Company completed the initial development of
CDCO and CRX systems in late fiscal 1994 and continued
enhancements of these systems in fiscal 1996 and 1997. In
December 1995, the Company signed a manufacturing license
contract with NTC, pursuant to which NTC will assemble the systems in
Egypt with parts provided by the Company. In addition, NTC will
market, install, maintain and service the Company's systems in
Egypt, Tanzania, Uganda, Sudan, Yemen, United Arab Emirates and
Qatar. Consistent with this strategy, the Company is seeking to
enter into long-term contracts, licensing, joint venture or
other similar arrangements with government authorities which
typically operate public telephone networks. As at present, NTC
is engaged in training personnel to fulfill its obligations
under the agreement, and no revenues have been generated from
the contract with NTC. NTC has been delayed in its performance
for a variety of reasons.
In August 1996, the Company signed a non-exclusive
manufacturing licensing contract with GCEL which will
assemble and sell the Company's systems in Russia and certain
CIS countries. GCEL received the benefit of certain financing
facilities pursuant to intergovernmental agreements between the
Government of India and these countries. The telecommunications
industry in Russia and some CIS countries have been going
through a process of deregulation and privatization. As at
present, GCEL and the Company have just commenced their
marketing activities in Russia.
In view of long lead times involved, it is impossible to
project the volume of revenues which may be generated from the
contracts with NTC and GCEL.
During fiscal 1996 and 1997 the Company invested significant
management time and financial resources to focus on research and
development for the completion of CRX and CDCO systems and the
initial introduction of these systems to targeted foreign
countries such as Egypt, India and Russia. However, there can
be no assurance that the Company will be successful in
establishing a reasonable business in such countries.
Results of Operations
Year Ended March 31, 1997, Compared to Year Ended March 31, 1996
Net sales
The Company's net sales for the year ended March 31, 1997, were
$45,385, representing a decrease of $307,316 or approximately
87% from $352,701 for the year ended March 31, 1996. The
decrease in net sales was primarily attributable to management's
focus on completing the development of new products and
introduction of these products to the international market. In
fiscal 1997, the Company did not sell any of its systems, and
revenues were limited to an insignificant amount received from
maintenance of and add-ons to systems sold earlier by the
Company.
Gross margin
The Company includes in its cost of sales the materials and
labor used, subcontractor costs and overhead incurred in the
manufacture of its systems. The Company's gross margin
decreased from 78% to 42% of net sales from fiscal 1996 to 1997.
Fluctuations in gross margins are primarily attributable to
inventory changes, material price changes and changes in sales
mix by system.
Selling, general and administrative
Selling, general and administrative expenses increased from
$469,656 in fiscal 1996 to $849,491 in fiscal 1997, representing
a increase of $379,835 or approximately 44%. The absolute
dollar increases in selling, general and administrative expenses
from fiscal 1996 to fiscal 1997 were principally the result of
increased selling expenses incurred with respect to introductory
and exploratory marketing efforts in Egypt, India and Russia.
Such efforts have not resulted in any sales to date to these
countries.
Provision for bad debt
Bad debt expense amounted to zero in fiscal 1997 as well as
fiscal 1996.
Research and development
Research and development expenses increased from $41,679, or
11% of net sales, in fiscal 1996 to $109,322, or 240% of net
sales, in fiscal 1997. These dollar increases in research and
development expenses were primarily due to development of CDCO
and CRX. All development costs are expensed in the period
incurred. The Company expects to continue to commit reasonable
resources to research and development in the future,
particularly for certification of CDCO and CRX in foreign
countries, and as commercialization of ISDN applications for the
CSX continue to be developed in the U.S. and digital voice
applications in the developing countries.
Income (loss) from operations or income (loss) before
extraordinary item
Loss from operations in fiscal 1997 was $(939,548) or $(.06)
per share as compared with $(234,870) or $(.02) per share in
fiscal 1996.
Extraordinary item
Extraordinary gain on debt restructure in fiscal 1997 was
$291,756 or $.02 per share as compared to $912,974 or $.06 per
share in fiscal 1996.
Net income (loss)
As a result of the foregoing, the net loss in fiscal 1997 was
$(414,346) or $(.02) per share as compared to a net income of
$625,859 or $.04 per share in fiscal 1996.
Liquidity and Capital Resources
The Company's ability to generate cash adequate to meet its
needs results primarily from sale of preferred and common stock
and cash flow from operations; it is anticipated that export
financing will also play a role in the foreseeable future.
Total working capital increased $5,599,233 to $5,732,593 at
March 31, 1997 from $133,360 at March 31, 1996. The current
ratio increased to 136.6 to 1 as at March 31, 1997 from 1.2 to 1
as at March 31, 1996. Current levels of inventory are adequate
to meet short term sales. The Company believes that its current
sources of liquidity will be sufficient to meet its needs for
the foreseeable future. The Company believes that, if needed,
it will be able to obtain additional funds required for future
needs.
The Company used $26,071 and $2,399 during fiscal 1997 and 1996
respectively, for investing activities. The cash used for
investing activities relates primarily to purchases of equipment
in fiscal 1997 and 1996.
Net cash provided by financing activities was $5,570,417 and
$559,841 for fiscal 1997 and 1996, respectively. The increase
in net cash provided by financing activities from fiscal 1996 to
1997 was principally due to issuance of preferred stock.
The Company made principal payments of long-term debt of $489,482
(inclusive of cash settlements, given below) and
$5,219 in fiscal 1997 and 1996, respectively. The payments of
long-term debt principally relate to amounts owed to JDA and RDC
in each of the fiscal years during which years both JDA and RDC
agreed to revise the payment terms. In July 1996, all of the
Company's indebtedness to RDC was settled for $100,000 cash and
the issuance of warrants to purchase 100,000 shares of Common
Stock at $1.00 per share. In July 1996, all of the Company's
indebtedness to JDA in the amount of $591,756 was settled for $300,000.
In October 1996, the Company also repaid in full a loan of $100,000
from Dr. Agarwal inclusive of all accrued interest by conversion to
45,286 shares of common stock.
Pursuant to the completion of the Series A and Series B
Preferred Stock Transactions on July 16, 1996 and December 30,
1996, respectively, resulting in the Company receiving aggregate
net proceeds of approximately $8.8 million, the Company's
current sources of liquidity have significantly improved, and
together with expected cash flow from operations and export
financing, the Company believes its liquidity will be sufficient
to meets its needs for the next 24 months.
Impact of Inflation
Inflation has historically not had a material effect on the
Company's operations.
ITEM 7 - Financial Statements
The Financial Statements of the Company are listed in
the "Index to Financial Statements and Schedule" filed as part
of this Form 10-KSB.
ITEM 8 - Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.
None.
PART III
ITEM 9 - Directors, Executive Officers , Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act.
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
Name Age Office
<S> <C> <C>
Jawahar C. Chatpar 49 Chairman of the Board, President, and
Chief Executive Officer
Jack P. Dorfman 59 Director and Secretary
Dr. Anil K. Agarwal 55 Director
Jatinder Wadhwa 59 Director
Robert G. Keller 52 Vice President - United States
Larry S. Shluger 58 Vice President of Operations
</TABLE>
Jawahar C. Chatpar is a founder of the Company and has served
as Chairman of the Board, Chief Executive Officer and President
since March 1991, as Chairman of the Board, Chief Executive
Officer and Secretary from November 1986 until March 1991, and
as President and Chief Executive Officer since inception until
November 1986. Mr. Chatpar has also served as a director since
inception. Mr. Chatpar founded the Company in 1983 as a
successor to a Canadian corporation of the same name which he
founded in 1982. From 1980 to 1982, Mr. Chatpar was employed by
Bayly Engineering Limited, a manufacturer of digital
telecommunication systems and a member of A.E.G. Telefunken
Group, as a Manager of Digital Transmission and Fiber Optics
Engineering (research and development). From 1974 to 1980, Mr.
Chatpar served in various engineering, management and marketing
positions with Northern Telecom.
Jack P. Dorfman joined the Company as a Director in November
1993, and served as Secretary since October 1995. Since 1992,
Mr. Dorfman has served as consultant and manager for an
independent community pharmacy. From 1990 to 1992, he served as
a management consultant for Clark Container, a division of Mark
IV Industries, a conglomerate. From 1988 to 1990, he served as
Vice President and Treasurer of US Distribution, a
transportation company. Prior to 1988, he owned, managed and
operated an independent community pharmacy for over fifteen
years.
Anil K. Agarwal, M.D., joined the Company as a Director in
November 1993. Since 1976, Dr. Agarwal has been practicing at
the Omaha Orthopedics Clinic and Sports Medicine, Omaha,
Nebraska and at Orthopedic Clinic, Iowa, as an American Board
Certified Orthopedic Surgeon. In addition, he has active
appointments with Bergen Mercy Hospital and Jenny Edmundson
Hospital. From 1977 to 1991, he also taught at the Creighton
University School of Medicine.
Jatinder Wadhwa has served as a Director of the Company since
1986, and was Secretary of the Company from 1993 to 1995. Since
1992, Mr. Wadhwa has served as a management consultant to Sealy
Mattress. From 1990 to 1992, Mr. Wadhwa had served as a
management consultant to Gibbons Goodwin van Amerongen, an
investment banking firm, and Wells Aluminum Corporation, a
manufacturer of aluminum extrusion products. From 1970 to 1990,
Mr. Wadhwa had served as Chief Operating Officer and Vice
President of Operations of EZ Por Corporation, a manufacturer of
aluminum products.
Robert G. Keller joined the Company as Vice President - United
States in June 1997. Since 1991, Mr. Keller was engaged in
various consultancy assignments. From 1986 to 1991, he was Vice
President and Chief Operating Officer of NYNEX Mobile
Communications Company. Between 1970 and 1986, Mr. Keller held
several management positions initially with New York Telephone
and later with NYNEX.
Larry S. Shluger has been Vice President of Operations of the
Company since August 1996. From 1991 to 1996, Mr. Shluger was
Director of Purchasing and Operations at Cashtek Corporation, a
company which designs, develops and manufactures computerized
gaming systems. From 1975 to 1991, he was Director of
Purchasing and Operations at Kenilworth Systems Corporation
until its acquisition by Cashtek Corporation. Prior to 1975 he
was employed in various management positions at Ecologic
Instruments Corporation, a company which designs, develops and
manufactures test equipment for the environment and pollution
control fields, and Dynamic Instruments Corporation, a
manufacturer of battery charges.
There is no family relationship among the Directors and
Officers of the Company.
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), requires the Company's directors and executive
officers, and persons who own more than ten (10%) percent of a
registered class of the Company's equity securities, to file with
the Commission initial reports of ownership and reports of changes
in ownership of Common Stock and other equity securities of the Company.
Reporting persons are required by Commission regulations to furnish
the Company with copies of all Section 16(a) forms they file.
The Company's knowledge, based solely on review of the copies of
such reports furnished to the Company, the following persons failed to
file, on a timely basis, the following reports required by Section 16(a) of
the 1934 Act: J.C. Chatpar failed to timely file a Form 3, and in
connection with the receipt of certain stock options, a Form 5 in each
of the fiscal years ended March 31, 1992, 1994 and 1996. Jatinder
Wadhwa failed to timely file a Form 3, and in connection with the
receipt of certain stock options, a Form 5 in each of the fiscal years
ended March 31, 1992, 1994 and 1996. Anil Agarwal failed to timely
file a Form 3, and in connection with the receipt of certain stock
options, a Form 5 in each of the fiscal years ended March 31, 1994, 1996
and 1997. Jack Dorfman failed to timely file a Form 3, and in connection
with the receipt of certain stock options, a Form 5 in each of the fiscal
years ended March 31, 1994 and 1996. Larry Shluger failed to timely file a
Form 3 in the fiscal year ended March 31, 1997. These forms are currently
being prepared for filing.
ITEM 10 - Executive Compensation
Summary Compensation Table
The following table sets forth information concerning the
compensation for services in all capacities for the fiscal years
ended March 31, 1997 and March 31, 1996 of those persons who
were, at March 31, 1997, the chief executive officer and the
most highly compensated executive officers of the Company the ("Named
Officers"). No executive officer of the Company received compensation
in excess of $100,000 in fiscal years ended March 31, 1997 and March 31,
1996 other than J.C. Chatpar.
<TABLE>
<CAPTION>
Annual Compensation (1) Long Term Compensation
______________________
Awards Payouts
____________________________________________________________________________________
Name and Year Salary Bonus Other Restricted Securities LTIP All
Principal Annual Stock Underlying Payouts Other
Position Compen- Awards Options/ Compensa-
sation SARs(#) tion
____________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J.C. Chatpar,
Chairman of 1997 $130,000(2) $100,000(2) None None None None None
the Board, 1996 80,000 None None None 440,000 None None
President
and Chief
Executive
Officer
_________________________________________________________________________________
</TABLE>
(1) The Company has concluded that the aggregate amount of
perquisites and other personal benefits paid to each of the
executive officers named in the table for the 1997 and 1996
fiscal years did not exceed the lesser of 10% of such officer's
total annual salary and bonus for the 1997 and 1996 fiscal years
or $50,000; such amounts are not included in the table.
(2) Mr. Chatpar's salary was raised from $80,000 per annum to
$150,000 per annum effective August 12, 1996.
Option Grants in last Fiscal Year
The following table sets forth information concerning stock option
grants made during fiscal 1997 to the Named Officers. The Company has
not granted any stock appreciation rights.
<TABLE>
<CAPTION>
Individual Grants
___________________________________________________
Number of % of Total
Securities Options
Underlying Granted To
Options Employees Exercise
Granted in Fiscal Price Expiration
Year 1997 ($/Share) Date
Name (#) (1) (2) (3)
____ ___ ___ ___ ___
<S> <C> <C> <C> <C>
Larry S. Shluger 10,000 66.7% $4.50 8/25/2006
</TABLE>
(1) During fiscal 1997, options to purchase an aggregate of 10,000 shares
granted to Mr. Shluger and options to purchase an aggregate of 5,000
shares were granted to another employee.
(2) The exercise price of the options granted were equal to the fair market
of the underlying stock on the date of grant.
(3) Grants vest over a period of four years from the date of the grant at
rate of 25% thereof per annum.
Aggregated Fiscal Year-End Option Values
The following table sets forth information concerning the
number of unexercised options and the fiscal 1997 year-end value
of unexercised options on an aggregated basis held by the Named
Officers. The Company has not granted any stock appreciation
rights and no options were exercised in fiscal 1997.
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised Unexercised In-The-Money
Options at Fiscal Year-End (#) Options at Fiscal Year-End ($)(1)
____________________________ __________________________
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
J.C. Chatpar 480,000(1) 0 $375,000 0
</TABLE>
(1) Options are "in-the-money" if, on March 31, 1997, the market
price of the Common Stock ($1.81) exceeded the exercise price
of such options. The value of such options is calculated by
determining the difference between the aggregate market price
of the Common Stock underlying the options on March 31, 1997
and the aggregate exercise price of such options.
Compensation of Directors
The directors of the Company are paid $250 per Board meeting.
In addition, the Company currently reimburses each director for
expenses incurred in connection with his or her attendance at
each meeting of the Board of Directors or a committee on which
he or she serves.
Employment Agreements and Insurance
The Company has entered into an employment agreement with Mr.
J.C. Chatpar for a three year term commencing on March 1, 1992.
Such three-year term shall be automatically extended for another
three-year term commencing on the third anniversary date of the
current term. The Board, however, has the authority to terminate
such extension either based upon cause or without cause. "Cause" is
defined as proven material dishonesty or fraud. Mr. Chatpar is
entitled to receive a salary of $150,000 per annum. In recognition
of the complex scientific and technical leadership which Mr. Chatpar
brings to the Company, the Company has also agreed that its Board
of Directors may raise his salary during the three-year term as soon
as the financial resources of the Company and other business
conditions permit. In such event Mr. Chatpar's salary would be at a level
comparable to that of chief executive officers of other
comparable technology-driven publicly held companies.
In addition to his base salary, Mr. Chatpar shall be entitled
to receive a bonus based upon the following formula: (a) 1% of
gross revenues for each fiscal year in excess of $3 million
provided, however, that the Company shall be profitable, (b)
plus 5% of net income after deduction of the bonus provided for
in (a) above, and (c) plus 10% of the increase in net income
over that of the prior fiscal year after deduction of the bonus
provided for in (a) above. In the event of a termination of Mr.
Chatpar's employment without cause prior to February 28, 1998,
Mr. Chatpar shall receive an amount equal to 5% of gross
revenues earned by the Company each month beginning on the date
of termination and continuing for a period of five years.
The Company does not have employment contracts with any other officer
or director.
The Company currently maintains a $500,000 term life insurance
policy on the life of J.C. Chatpar with benefits payable to the
Company. The Company offers basic health, major medical and life
insurance to its employees. No retirement, pension or similar
program has been adopted by the Company.
ITEM 11 - Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth certain information known to the
Company regarding beneficial ownership of the Common Stock as of
March 31, 1997, for (i) each person o group that is known by the
Company to be a beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each of the Named
Officers and directors, and (iii) all directors and executive
officers of the Company as a group. Except as otherwise
indicated, the Company believes that such beneficial owners,
based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject
to community property laws, where applicable.
<TABLE>
<CAPTION>
Names and Address of Number of Shares Percentage Owned(1)
Beneficial Owners
<S> <C> <C>
J.C. Chatpar(2)
400 Oser Avenue
Hauppauge, NY 11788 5,205,712 30.5%
Dr. Anil Agarwal(3)
804 Meadow Drive
Omaha, NE 68152 675,286 4.0%
Jack P. Dorfman(4)
21 Rosewood Drive
Williamsville, NY 14221 160,000 *
Jatinder V. Wadhwa(5)
400 Oser Avenue
Hauppauge, NY 11788 157,812 *
All Directors and Officers
as a group:(4) persons 6,198,810 36.3%
*less than 1%
</TABLE>
(1) For purposes of computing the percentage of outstanding
shares of Common Stock held by each person or group of persons
named above, any security which such person or persons have
or have the right to acquire within 60 days is deemed to be
outstanding but is not deemed to be outstanding for the purpose
of computing the percentage of ownership of any other person.
(2) Does not include 476,000 shares owned by Sylvie Chatpar, his
wife, and 175,000 shares owned by certain other relatives, as to
which shares beneficial ownership is disclaimed. Includes
480,000 shares as to which Mr. Chatpar holds non-qualified stock
options, which are exercisable at any time.
(3) Includes 230,000 shares as to which Dr. Agarwal holds
non-qualified stock options and warrants which are exercisable
at any time.
(4) Includes 40,000 shares as to which Mr. Dorfman holds a
non-qualified stock option which is exercisable at any time.
Does not include 360,000 shares owned by his wife, Sandra
Dorfman, as to which beneficial ownership is disclaimed.
(5) Includes 70,000 shares as to which Mr. Wadhwa holds
non-qualified stock options which are exercisable at any time.
ITEM 12 - Certain Relationships and Related Transactions
In August 1995, the Company issued to Jatinder Wadhwa, Dr. Anil
Agarwal, J.C. Chatpar and Jack Dorfman, directors of the
Company, non-qualified stock options to purchase 40,000, 20,000,
40,000, and 20,000 shares of Common Stock, respectively, at an
exercise price of $1.00 per share.
In October 1995, the Company issued to J.C. Chatpar and Jack
Dorfman, non-qualified stock options to purchase 400,000 and
10,000 shares of Common Stock, respectively, at an exercise
price of $1.00 per share.
In August 1996, the Company issued to Larry S. Shluger
incentive stock options to purchase 10,000 shares of Common
Stock at an exercise price of $4.50 per share. Such options
vest over a period of 4 years from the date of the grants at the
rate of 25% thereof per annum.
ITEM 13 - Exhibits and Reports on Form 8-K
(a) (1) The Registrant's financial statements together with a
separate table of contents are annexed hereto.
(2) Financial Statement Schedules are listed in the
separate table of contents annexed hereto.
(b) No reports on Form 8-K were filed for the three
months ended March 31, 1997.
(c) Exhibits: See Index to Exhibits.
(d) Financial Statement Schedules: The response to
this portion of ITEM 13 is submitted as a separate
section of this report.
<PAGE>
Index to Exhibits
Exhibit Number Description
3.1 Composite Amended and Restated Certificate of
Incorporation(incorporated herein by reference to
Exhibit 3.1 to the Company's Quarterly Report on
Form 10-QSB for the period ended December 31, 1996).
3.2 Company's By-Laws, as amended (incorporated
herein by reference to Exhibit 3(c) to the Company's
Registration Statement No. 2-87696-NY on Form S-18).
10.1 1993 Stock Incentive Plan (incorporated herein by
reference to Exhibit 10(a) to the Company's 1994 Annual Report
on Form 10-K for the fiscal year ended March 31, 1994
(the "1994 Form 10-K").
10.2 Employment Agreement between the Company and J.C. Chatpar
(incorporated herein by reference to Exhibit 10(b) to the
1994 Form 10-K).
10.3 Manufacturing License Contract between the Company and
National Telecommunications Co., dated as of December 4, 1995
(incorporated herein by reference to Exhibit 10(c) to the
Company's Annual Report on Form 10-KSB/A for the fiscal
year ended March 31, 1996).
10.4 Amendment to Employment Agreement, dated December 4, 1996,
between the Company and J.C. Chatpar (incorporated herein
by reference to Exhibit 10.4 to Amendment No. 1 to the
Company's Registration Statement on Form SB-2 (Registration
No. 333-13999).
10.5 Manufacturing License Contract between the Company and
Gujarat Communications and Electroncis, Ltd. dated as of
May 30, 1996.
11 Statement regarding Computation of Loss Per Share.
27 Financial Data Schedule.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 30, 1997
CYBER DIGITAL, INC.
By:/s/ J.C. Chatpar
----------------
J.C. Chatpar
President
In accordance with the Exchange Act, this report has been signed below
by the following person on behalf of the registrant and in the capacities
and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ J.C. Chatpar Chairman, President and June 30, 1997
- ---------------- (Principle Executive
J.C. Chatpar Accounting and Financial
Officer)
/s/ Jack P. Dorfman Secretary and Director June 30, 1997
- -------------------
Jack. P. Dorfman
/s/ Jatinder Wadhwa Director June 30, 1997
- -------------------
Jatinder Wadhwa
- ------------------- Director
Anil Agarwal
<PAGE>
TABLE OF CONTENTS
Page No.
INDEPENDENT AUDITORS' REPORT. .. . . . . . . . . . . F-1
FINANCIAL STATEMENTS
Balance Sheets. . . . . . . . . . . . . . . . . . F-2
Statements of Operations. . . . . . . . . . . . . F-3
Statements of Changes in Shareholders' Equity (Deficit).. F-4
Statements of Cash of Flows. . . . . . . . . . . . . . . F-5
Notes to Financial Statements . . . . . . . . . . . F-6 - F-16
All schedules omitted are not required, not applicable, or
the information is provided in the financial statements or notes
therein.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Cyber Digital, Inc.
Hauppauge, New York
We have audited the accompanying balance sheets of Cyber
Digital, Inc. as of March 31, 1997 and 1996 and the related
statements of operations, shareholders' equity, and cash flows
for 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the accompanying balance sheets referred to in
the first paragraph presents fairly, in all material respects,
the financial position of Cyber Digital, Inc. as of March 31,
1997 and 1996 and the results of its operations and its cash
flows for the years then ended in conformity with generally
accepted accounting principles.
Hauppauge, New York
June 18, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
CYBER DIGITAL, INC.
BALANCE SHEETS
March 31, 1997 and 1996
ASSETS 1997 1996
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 5,002,773 $ 156,027
Accounts receivable 327,377 336,166
Inventories 434,473 433,582
Prepaid and other 10,243 4,007
--------- -------
Total Current Assets $ 5,775,866 $ 929,782
Property and Equipment, net 44,098 30,691
Other Assets 10,392 10,680
--------- -------
$ 5,829,356 $ 971,153
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable,
accrued expenses,and taxes $ 42,273 $ 48,385
Current maturities of
long-term debt 0 748,037
_________ ________
Total Current Liabilities $ 42,273 $ 796,422
Long-Term Debt,
less current maturities 0 148,997
_________ ________
$ 42,273 $ 945,419
Commitments and Contingencies
Shareholders' Equity
Convertible preferred stock
- -Series A $.05 par value;
authorized 9,991,940 shares;
issued and outstanding, 86
and -0- shares at March 31, 1997
and 1996, respectively $ 4 $ 0
Convertible, cumulative and
participating preferred stock -
Series B-1 $.05 par value;
authorized 3,225 shares;
issued and outstanding 2,000 and
- -0- sharesat March 31, 1997
and 1996, respectively 100 0
Preferred Stock - Series B-2
cumulative, convertible and
participating $.05 par value;
authorized 4,835 shares;
issued and outstanding; none 0 0
Common Stock - $.01 par value;
authorized, 30,000,000
shares; issued and outstanding,
17,095,176 shares and 15,110,311
shares at March 31, 1997 and 1996,
respectively 170,952 151,103
Additional paid-in capital 13,919,241 6,253,146
Retained deficit (8,303,214) (6,378,515)
----------- -----------
$ 5,787,083 $ 25,734
___________ ___________
$ 5,829,356 $ 971,153
=========== ===========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
CYBER DIGITAL, INC.
STATEMENTS OF OPERATIONS
Years ended March 31, 1997 and 1996
1997 1996
<S> <C> <C>
Net Sales $ 45,385 $ 352,701
Cost of Sales 26,120 76,236
______ _______
Gross Profit $ 19,265 $ 276,465
Operating Expenses
Selling, general and
administrative expenses $ 849,491 $ 469,656
Research and development 109,322 41,679
_______ _______
Total Operating Expenses $ 958,813 $ 511,335
_______ _______
Loss from Operations $ (939,548) $ (234,870)
_______ _______
Other Income (Expense)
Interest income $ 176,702 $ 2,992
Interest expense (11,231) (5,268)
Other Expense 51,911 (46,543)
Loss on disposal of
fixed assets (387) 0
_______ ______
Total Other Income (Expense) 216,995 (48,819)
_______ _______
Loss Before Income Taxes $ (722,553) (283,689)
and Extraordinary Item
(Benefit) Provision for
Income Taxes (16,451) 3,426
_______ _______
Loss Before Extraordinary Item $ (706,102) $ (287,115)
Extraordinary item
(less applicable income taxes) 291,756 912,974
_______ _______
Net Income (Loss) $ (414,346) $ 625,859
========= =======
Earnings per share calculations
Loss before extraordinary item
per common and common
equivalent share $ (0.04) $(.02)
Extraordinary item 0.02 0.06
_______ _______
Net (Loss) Income $ (0.02) $ 0.04
======= =======
Weighted average number of
common shares outstanding 16,959,095 14,570,469
========== ==========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
<TABLE>
CYBER DIGITAL, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
Year Ended March 31, 1997 and 1996
_____________________Preferred Stock________________
Series A Series B-1
Shares Amount Shares Amount Total
______ ______ ______ ______ _____
<S> <C> <C> <C> <C> <C>
Balance at
March 31, 1995
Exercise of
stock options
Prior period adjustment
Net income
Balance at March 31, 1996
Exercise of stock options
Preferred stock issued
- -Series A 805 $40
Preferred stock issued
- -Series B-1 2,000 $100
Conversion of preferred stock
- -Series A (496) (25)
Partial Redemption of
Series A preferred stock (223) (11)
Net Loss
_____ _____ _____ _____ ______
Balance at March 31, 1997 86 $ 4 2,000 $100 $ 104
</TABLE>
<TABLE>
<CAPTION>
-------Preferred Stock-----Common Stock-------
Series B-2
Shares Amount Shares Amount Total
------ ------ ------ ------ -----
<C> <C> <C> <C> <C>
Balance at
March 31, 1995 13,752,801 $137,528 $137,528
Exercise of
Stock Options 1,357,510 13,575 13,575
Prior period adjustment
Net income
----- ----- ---------- ------- -------
Balance at March 31, 1996 15,110,311 151,103 151,103
Exercise of stock options 109,286 1,093 1,093
Preferred stock issued
- -Series A
Preferred stock issued
- -Series B-1
Conversion of preferred stock
- -Series A 1,875,579 18,756 18,756
Partial redemption of
Series A preferred stock
Net Loss
_____ _____ _________ ________ ________
Balance at March 31, 1997 0 $ 0 17,095,176 $170,952 $170,952
</TABLE>
<TABLE>
<CAPTION>
Additional Paid- Retained
in Capital Deficit Total
---------------- -------- -----------
<C> <C> <C>
Balance at
March 31, 1995 $ 5,801,661 $(6,982,819) $(1,181,158)
Exercise of stock option 451,485 451,485
Prior Period Adjustment (21,555) (21,555)
Net income 625,859 625,859
----------- ----------- ----------
Balance at March 31,1996 6,253,146 (6,378,515) (125,369)
Exercise of stock options 141,203 141,203
Preferred stock issued
- -Series A 7,049,460 7,049,460
Preferred stock issued
- -Series B-1 1,684,900 1,684,900
Conversion of preferred stock
- - Series A 743,364 (762,095) (18,731)
Partial redemption of
Series A preferred stock (1,952,832) (748,258) (2,701,090)
Net Loss (414,346) (414,346)
___________ _________ __________
Balance at March 31, 1997 $13,919,241 $(8,303,214) $5,616,027
</TABLE>
See notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
CYBER DIGITAL, INC.
STATEMENTS OF CASH FLOWS
Years Ended March 31, 1996 and 1997
1997 1996
<S> <C> <C>
Cash Flows from
Operating Activities
Net income (loss) $ (414,346) $ 625,859
Adjustments to reconcile
net income (loss) to net
cash used in operating activites
Depreciation 12,277 9,608
Amortization 0 10,155
Loss on sale of fixed assets 387 0
Forgiveness of debt (291,756) (912,974)
(Increase) decrease in
operating assets:
Accounts receivable 8,789 (319,734)
Inventories (891) 60,719
Prepaid and other assets (5,948) 54,133
Increase (decrease) in
operating liabilities:
Accounts payable, accrued
expenses, and taxes (6,112) (11,069)
_________ _________
Net Cash Used in Operating
Activities $ (697,600) $ (483,303)
_________ _________
Cash Flows from Investing Activities
Purchase of equipment (30,183) (2,399)
Proceeds from sale of
fixed assets 4,112 0
________ _______
Net Cash Used in Investing
Activities $ (26,071) $ (2,399)
Cash Flows from Financing Activities
Issuance of common stock $ 26,500 $ 465,060
Payments of long-term debt (489,482) (5,219)
Proceeds from long-term debt 0 100,000
Issuance of preferred stock 8,734,500 0
Redemption of preferred stock (2,701,101) 0
__________ _________
Net Cash Provided by
Financing Activities $ 5,570,417 $ 559,841
__________ _________
Net Increase in Cash and
Cash Equivalents $ 4,846,746 $ 74,139
Cash and Cash Equivalents
at Beginning of Period 156,027 81,888
_________ _______
Cash and Cash Equivalents
at End of Period $ 5,002,773 $ 156,027
========= ========
Supplemental Disclosures of
Cash Flow Information:
Cash paid during the
period for:
Income taxes $ 3,328 $ 421
Interest 42 4,606
Supplemental Schedule of Non
Cash Investing and
Activities Financing
Issuance of common stock
in exchange for consulting
services $ 0 $ 51,700
====== ======
Issuance of common stock in
exchange for legal services $ 10,000 $ 20,000
====== ======
Issuance of common stock in
exchange for debt 115,796 0
======= ======
</TABLE>
See notes to financial statements.
F-5
<PAGE>
CYBER DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1997 and 1996
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Cyber Digital, Inc. (the "Company") was incorporated in the
state of New York in April 1983. The Company designs,
develops, manufactures and markets digital switching and
networking systems that enable simultaneous communication of
voice and data to a large number of users. The Company's
systems are based on its propriety software technology which
permits "modemless" transmission of data between a variety of
incompatible and dissimilar end-user equipment, such as personal
computers, printers, work stations and data terminals, over
standard telephone lines.
Operating and Financing Matters
Since inception, the Company has devoted substantial resources
to the design and development of the Company's systems. As
such, the Company has not achieved revenue growth and has
incurred operating losses. At March 31, 1997, the Company had
an accumulated deficit of $8,303,214 and a shareholders' equity
of $5,787,083. The increase in equity from March 31, 1996 to
March 31, 1997 is due mainly to the issuance of preferred stock
and an extraordinary gain on the forgiveness of debt as more
fully described in Note 13. The Company had working capital of
$5,732,593 at March 31, 1997 relating largely to cash and cash
equivalents from the issuance of preferred stock as discussed in
Note 8. The Company historically has sufficient cash flow
generated mainly from the issuance of debt and equity securities
and funding from state and local agencies as discussed in Note
6, Note 8 and Note 13.
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company has a number of financial instruments, none of which
are held for trading purposes. The Company estimates that the
fair value of all financial instruments at March 31, 1997, does
not differ materially from the aggregate carrying values of its
financial instruments recorded in the accompanying balance
sheet. The estimated fair value amounts have been determined by
the Company using available market information and the
appropriate valuation methodologies. Considerable judgment is
necessarily required in the interpreting market data to develop
the estimates of fair value, and, accordingly, the estimates are
not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company
considers highly liquid temporary cash investments with an
original maturity of three months or less to be cash equivalents
Accounts Receivable
Accounts receivable are presented net of a zero allowance for
doubtful accounts at March 31, 1997 and 1996. The allowance is
based on prior experience and management's evaluation of the
collectibility of accounts receivable. Management believes that
the allowance is adequate. However, additions to the allowance
may be necessary based on changes in economic conditions.
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
The Company uses a cost system which approximates the first-in,
first-out method. Inventories are valued at the lower of cost
or market.
Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation and amortization are computed by the
straight-line method over their estimated useful lives. Repairs
and maintenance are charged against operations as incurred.
Deferred Financing Costs
Deferred financing costs consisting of loan origination fees,
legal, accounting and other fees associated with obtaining loans
from the Buffalo and Erie County Regional Development
Corporation ("RDC") and the New York State Job Development
Agency ("JDA"), have been capitalized and were being amortized
on a straight-line basis over the original term of the related
credit agreements. The amortization of deferred financing costs
was $-0- and $10,155 for the years ended March 31, 1997 and
1996, respectively.
Revenue Recognition
The Company recognizes product system sales upon shipment and
acceptance by the customer. Component part and software sales
are recognized upon shipment to the customer.
Income Taxes
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to
differences between the bases of assets and liabilities for
financial and income tax reporting. The deferred tax assets and
liabilities represent the future tax return consequences of
those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for operating losses that are
available to offset future federal income taxes. The Company
accounts for investment tax credits using the flow-through
method, and thus reduces income tax expense in the year the
related assets are placed in service.
Research and Development Costs
Research and development costs are charged to expense when
incurred.
Warranty Expenses
The Company records warranty expense as incurred and does not
make a provision as shipments are made. Such expense is not
significant.
Impairment of Long-Lived Assets
The Financial Accounting Standards Board recently issued
Statement No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" (FASB 121)
which the Company is required to adopt effective April 1, 1996.
FASB No. 121 requires that long-lived assets and certain
unidentifiable intangibles held and used by the Company be
reviewed for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. FASB No. 121 also requires that long-lived
assets and certain unidentifiable intangibles held for sale be
reported at the lower of carrying amount of fair value less cost
to sell. The Company adopted FASB No. 121 effective April 1,
1996 and determined that no impairment loss need be recognized
for the applicable assets.
Reclassifications
Certain prior period amounts have been reclassified to conform
with the current financial statement presentation.
Earnings (Loss) Per Share
Net income (loss) per share is based on the weighted average
number of shares of common stock and dilutive common share
equivalents outstanding during each period. Dilutive common
share equivalents include stock options.
Recently Issued Pronouncement
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" (FASB 128), issued in February 1997, establishes
standards for computing and presenting earnings per share and is
effective for periods ending after December 15, 1997. This
standard requires the Company to present basic earnings per
share and diluted earnings per share. The impact of adopting
this standard has not yet been determined.
Note 2 - Accounts Receivable
Pursuant to a federal government agency contract that was
terminated at the convenience of the government, the Company was
requested by the government to bill the government for actual
costs incurred plus a reasonable mark-up for profit. In
accordance with this request, the Company has billed the
government agency $263,219 and has included this amount in
accounts receivable at March 31, 1997 and 1996.
Note 3 - Inventories
Inventories consist of:
<TABLE>
1997 1996
____________ ____________
<C> <C>
Raw materials $ 277,532 $ 276,593
Work-in-process 46,718 33,123
Finished goods 110,223 123,866
____________ ____________
$ 434,473 $ 433,582
============ ============
</TABLE>
Note 4 - Property and Equipment
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996 Useful Lives
__________________
<S> <C> <C>
Machinery and equipment $ 66,345 $ 625,060 5 years
Furniture and fixtures 58,120 53,988 7 years
Leasehold improvements 2,920 -0- lease term
__________ _________
127,385 679,048
Less:
Accumulated depreciation 83,287 648,357
_________ __________
$ 44,098 $ 30,691
========= =========
</TABLE>
Note 5 - Other Assets
Other assets consist of security deposits, and cash surrender
value on officers' life insurance.
Note 6 - Long-Term Debt
The Company's Plan of Reorganization was confirmed by the United
States Bankruptcy Court for the Eastern District of New York in
June 1990. Pursuant to the Plan, the Company is required to
repay an aggregate of $1,102,557 and $788,032 of principal to
the Buffalo and Erie County Regional Development Corporation and
the New York State Job Development Agency, respectively.
The unsecured creditors are as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
BUFFALO AND ERIE REGIONAL DEVELOPMENT
CORPORATION ("RDC")
Collateralized by substantially
all of the Company's assets,
including its software technology;
payable in accordance with the Company's
Plan of Reorganization (as noted above).
In November 1995, RDC has agreed to
revise the payment terms to a
lump sum payment of $100,000 which was
paid in July 1996, and five year warrants
to purchase 100,000 shares of the
Company's common stock at a purchase
price of $1.00 per share in settlement
of the entire debt. (see note 13) $ -0- $ 100,000
NEW YORK STATE JOB DEVELOPMENT AGENCY ("JDA")
Collateralized by substantially all of
the Company's assets,including its
software technology; payable in accordance
with the Company's Plan of Reorganization
(as noted above). In May 1996, JDA has agreed
to revise the payment terms to a lump
sum payment of $300,000, which was paid
in July 1996, in settlement of the entire
debt. (see note 13) -0- 591,756
DR. ANIL AGARWAL
Collateralized by substantially all of
the Company's assets,including its
software technology. This loan is
due and payable in full, four (4) years
from the date of issuance. Interest
will be applied to the outstanding
balance at a rate of 15% per annum.
In October 1996, this debt was
converted into common stock. (see note 12) -0- 100,000
LOAN PAYABLE-BANK OF SMITHTOWN
Secured by an transportation
equipment payable over sixty
months at $158 per month
including interest at 8.4%,
final payment was made in
July 1996. -0- 5,144
UNSECURED CREDITORS
Pursuant to the reorganization plan,
the unsecured creditors have selected
either of the following two options:
Option I - unsecured creditors will
receive 100% of their allowed claims
commencing July 1990, paid quarterly
without interest over a seven year
period as follows: year 1 - 5%,
year 2 - 10%, years 3 - 5 - 15%
and years 6 and 7 - 20%; Option
II- unsecured creditors will receive
5% of their allowed claim in July 1990
and 20% of said claim on the anniversary
of the first payment, without interest,
in full and complete satisfaction
of said claim. All claims were settled
in full during fiscal year March 31, 1997 -0- 100,134
------- -------
$ -0- $ 897,034
Less: Current maturities -0- 748,037
------- -------
$ -0- $ 148,997
======= =======
</TABLE>
Note 7 - Stock Option Plans
The Company adopted a 1983 Stock Option Plan which expired in
accordance with its terms in April 1993. Under the terms of the
Plan, 1,462,500 shares were reserved for issuance to officers,
directors and key employees meeting certain qualifications.
Under the Plan, incentive stock options are granted at 100% of
fair market value on the date of grant, and the employee's
rights to exercise the options accrued in respect to one-quarter
of the shares subject to grant each year that the employee is
employed by the Company. Options granted under the plan
automatically expire ten years from the date on which they are
granted. Options will not be granted to any stockholder owning
more than 10% of the Company's voting securities unless the
option price is at least 110% of the fair market value of the
shares covered by the option and will expire not less than five
years from the date it is granted. With an exercise price of
$.38 per share, 30,000 shares are exercisable at March 31, 1997.
Incentive stock options relative to 50,000 shares were
exercised at a price of $.25 per share during fiscal year ended
March 31, 1997.
The Company's Board of Directors adopted, on November 5, 1993, a
1993 Stock Incentive Plan (the "1993 Plan"). The 1993 Plan is a
successor to the Company's 1983 Incentive Stock Option Plan as
amended, which has expired. The total number of shares of
common stock of the Company, which may be issued pursuant to the
1993 Plan, shall not exceed 853,375, subject to adjustment in
the event of a stock split or similar action.
Pursuant to the 1993 Plan, incentive stock options, nonqualified
stock options, restricted stock and stock appreciation rights
may be granted to such officers, directors, and employees of the
Company, and to such consultants to the Company and such other
persons or entities, as the Stock Option Committee of the Board
of Directors (the "Committee") shall select. All incentive
stock options ("ISO"), which may be granted only to employees
and which provide certain tax advantages to the optionee, must
have an exercise price of at least 100 percent of the fair
market value of a share of common stock on the date the option
is granted. No ISOs will be exercisable more than 10 years
after the date of grant. ISOs granted to ten percent
shareholders must have an exercise price of at least 110 percent
of fair market value and may not be exercisable after the
expiration of five years from grant. The exercise price and the
term of nonqualified stock options will be determined by the
Committee at the time of grant.
Stock appreciation rights ("SARS") may be granted independently
or in connection with all or any part of any option granted
under the 1993 Plan, either at the time of grant of the option
or at any time thereafter. The holder of an SAR has the right
to receive from the Company, in cash or in shares as the
Committee shall determine, an amount equal to the excess of the
fair market value of the shares covered by the SAR at the date
of exercise over the exercise price set at the date of grant of
the SAR. At the request of the holder of an option, the
committee may at its discretion substitute for the exercise of
the option, compensation (in cash or in shares) in an amount
equal to or less than the excess of the fair market value of the
shares covered by the option at the request date over the
exercise price set at the grant of the option.
A restricted stock award, entitling the recipient to acquire
shares of common stock for a purchase price at least equal to
par value may be granted to such persons and in such amounts and
subject to such terms and conditions as the Committee may
determine. Shares of restricted stock may not be sold,
assigned, transferred, pledged or otherwise encumbered or
disposed of except as specified in the 1993 Plan or the written
agreement governing the grant. The Committee, at the time of
grant, will specify the date or dates on which the
nontransferability of the restricted stock shall lapse. During
the 120 days following the termination of the grantee's
employment for any reason, the Company has the right to require
the return of any shares to which restrictions on
transferability apply, in exchange for which the Company shall
repay to the grantee any amount paid by the grantee for such
shares.
Unless sooner terminated by the Board, the provisions of the
1993 Plan regarding the grant of ISOs shall terminate on the
tenth anniversary of the adoption of the 1993 Plan by the Board.
No ISOs shall thereafter be granted under the Plan, but all
ISOs granted theretofore shall remain in effect in accordance
with their terms.
In addition to these plans, the Company has issued non-qualified
stock options and warrants upon the approval by the Board of
Directors. Such options and warrants are granted at 100% of
fair market value on the date of the grant. Information with
respect to non-qualified stock options and warrants are
summarized as follows:
<TABLE>
Price Shares
----- ------
<S> <C> <C>
Outstanding, March 31, 1996 $ .05 to $1.75 1,569,000
Granted $4.50 to $6.00 275,000
Exercised $ .25 to $1.00 4,000
Canceled $4.50 to $4.50 10,000
---------
Outstanding, March 31, 1997 1,830,000
=========
</TABLE>
In October 1995, the Financial Accounting Standards issued
Statement No. 123 "Accounting for Stock-Based Compensation"
("FASB 123"), which is effective for the Company's year
beginning April 1,1996. As permitted under FASB 123, the
Company has elected not to adopt the fair value based method of
accounting for its stock-based compensation plans, but will
continue to account for such compensation under the provisions
of Accounting Principles Board Opinion No. 25. Pro forma
information regarding net income and earnings per share is
required by FASB 123, and has been determined as if the Company
had accounted for its stock options under the fair value method
of that Statement. The fair value for these options was
estimated at the date of grant using an option pricing model
with the following weighted average assumptions for the year
ended March 1997 and 1996, respectively: risk-free interest
rates of 5.2%, volatility factor of the expected market price of
the Company's common stock of 95.2, and a weighted-average
expected life of the options of 9.25 years, and a dividend yield
of 0.00%.
The options valuation model was developed for use in estimating
the fair value of options, which have no vesting restrictions
and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions
including the expected stock prive volatility. Because the
Company's stock options have characteristics significantly
different from those of traded options, and because changes
in the subjective input assumptions can materially affect the
fair value estimate, management has determined that the stock
options have no value. As such, pro forma information would not
provide different net income (loss) or earnings (loss) per share
figures than those presented herein.
Note 8 - Convertible, Cumulative and Participating Preferred
Stock
In the fiscal year ended March 31, 1997, the Company completed
two private placements of preferred stock. The Company sold 805
shares of 10% Series A convertible preferred stock, price at
$10,000 per share. The Company also sold 2,000 shares of 10%
Series B-1 convertible, cumulative and participating preferred
stock, priced at $1,000 per share.
Throughout the fiscal year pursuant to an optional conversion or
redemption of Series A preferred stock, 496 shares were
converted into 1,875,579 shares of common stock and 223 shares
were redeemed. The converted shares were converted based upon
85% of the average closing bid price for the common stock for
the five trading days prior to the conversion.
The 10% Series B-1 convertible, cumulative and participating
preferred stock is convertible into common shares at a rate of
85% of the last reported common stock price. As of March 31,
1997, there are $49,860 of undeclared dividends on the Series
B-1 preferred stock.
The 10% Series B-2 preferred stock is convertible into common
shares at a rate of 85% of the last reported common stock price.
As of March 31, 1997, this preferred stock remains unissued.
Note 9 - Income Taxes
The Company has net operating loss carryforwards for tax purposes
amounting to approximately $7.9 million that may be offset against
future taxable income which expires through 2011. In addition,
the Company has investment and research and development tax
credits for tax purposes amounting to approximately $196,000 which
expire through 2003.
Deferred income taxes are recognized for differences between the bases
of assets and liabilities for financial statement and income tax
purposes. The utilization of these tax attributes is contingent upon
the Company's ability to generate future taxable income and tax before
the tax attributes expire as well as Internal Revenue Code limitation.
As a result, a valuation allowance equal to the full extent of the deferred
tax asset has been established. The change is the deferred tax asset
(as well as the valuation account) was approximately $156,000 for the fiscal
year ended March 31, 1997.
The Company was subject to capital based taxes for New York State for the
year ended March 31, 1997. The Company was only subject to New York state
minimum tax for the year ended March 31, 1996.
Note 10 - Commitments and Contingencies
Employment Contract
The Company is obligated under an employment agreement with the
Chairman to pay him $80,000 during each of the years ended
February 28, 1996 through 1998. In December 1996, this amount
was increased to $150,000.
In addition to such base salary, the Chairman shall be entitled
to receive a bonus based upon the following formula: (i) 1% of
gross revenues for each fiscal year in excess of $3 million,
provided, however, that the Company shall be profitable, (ii)
plus 5% of net income after deduction of the bonus provided for
in (i) above, (iii) plus 10% of the increase in net income over
that of the prior fiscal year after deduction of the bonus
provided for in (i) above. In the event of the termination of
the Chairman's employment without cause prior to February 28,
1998, he shall receive an amount equal to 5% of gross revenues
earned by the Company each month beginning on the date of
termination and continuing for a period of five years. The
Chairman has waived his right to receive the bonus for fiscal
year ended March 31, 1996 (a year in which he was entitled to a
bonus).
Operating Leases
Effective April 1, 1994, the Company commenced a noncancelable
operating lease that expires on March 31, 1998, with a renewal
option, with respect to the Company's executive offices and
operations. Rent expense was $55,416 and $46,681 for the years
ended March 31, 1997 and 1996, respectively.
Operating Leases (continued)
The Company also entered into non-cancelable operating leases
for a vehicle and office equipment. The monthly rental on the
vehicle and office equipment is $303 and $205, respectively.
The amount charged to expense was $3,636 and $2,315,
respectively, for the year ended March 31, 1997 and $2,546 and
$2,504 respectively, for the year ended March 31, 1996. The
lease on the vehicle expired in February 1997.
Future minimum rentals are as follows:
<TABLE>
<S> <C>
For years ending March 31, 1998 $ 54,886
1999 3,636
---------
$ 58,522
=========
</TABLE>
Government Regulation
The Company's operations are highly sensitive to regulations
promulgated by the United States and throughout the world in
which the Company has targeted it marketing efforts. These
regulations or deregulations could affect both the competition
for the Company's product as well as the costs associated with
doing business abroad.
Cash in Excess of SIPC Limit
The Company has a money market fund with the Bank of New York,
which is insured by the Security Investors Protection
Corporation (SIPC). The SIPC insures these accounts up to
$500,000, at March 31, 1997, the uninsured balance was
$4,488,897.
Pending Litigation
The Company is a defendant in an action arising from an alleged
wrongful termination of a purported agreement with Brockington
Securities, Inc. The Company ha sasserted counter claims and intends
to vigorously defend its position. Inasmuch as discovery has not
begun in this case, the outcome and range of damages or settlement
(if any) is unknown.
Note 11 - Segment Information and Significant Customers
Significant Customers
The Company considers itself to be in a single industry defined
as the design, manufacturing and marketing of high performance
distributed digital switching and networking systems. In fiscal
year ended March 31, 1997 and 1996, the Company derived 100% of
its revenue from Federal government agencies. The accounts
receivable for this customer accounted for 100% of the total
accounts receivable at March 31, 1997 and 1996.
Note 12 - Related Party Transactions
On September 25, 1995, the Company borrowed $100,000 from Anil K.
Agarwal, a director of the Company, for working capital
purposes as stated in Note 6. The note was converted into
common stock in October 1996.
Note 13 - Extraordinary item
In November 1995 the Company entered into an agreement to
restructure the debt with the Buffalo and Erie County Regional
Development Corporation ("RDC"). The agreement calls for the
Company to pay $100,000 and issue five year warrants to purchase
100,000 shares of common stock with a purchase price of $1.00
per share. The agreement for the payment of the $100,000
expired on April 14, 1996 and was extended until July 30, 1996.
The extraordinary item in the amount of $912,974 is included in
the calculation of net income for the fiscal year ended March
31, 1996 and has been calculated as follows:
<TABLE>
<S> <C>
Debt payable to the RDC $1,012,974
Cash payable in settlement of debt 100,000
----------
Extraordinary gain on extinguishment of debt $ 912,974
==========
</TABLE>
In May 1996, the Company entered into an agreement to
restructure the debt with the New York Job Development Authority
(JDA). The agreement required the Company to pay $300,000 by
November 17, 1996. This amount was paid in full in July 1996.
The extraordinary item in the amount of $291,756 is included in
the calculation of net income (loss) for the fiscal year ended
March 31, 1997 and has been calculated as follows:
<TABLE>
<S> <C>
Debt payable to the JDA $ 591,756
Cash paid in settlement of debt 300,000
----------
Extraordinary Gain on Extinguishment of Debt $ 291,756
==========
</TABLE>
Note 14 - Prior Period Adjustment
During the year ended March 31, 1996, it was discovered that
there was an error in the calculation of the New York State
alternative minimum taxes due for the fiscal years ended March
31, 1994 and 1993. The following schedule outlines the effect
on each of the years:
<TABLE>
<S> <C>
March 31, 1993 $ 10,998
March 31, 1992 10,557
----------
Total Prior Period Adjustment $ 21,555
==========
</TABLE>
These errors have no effect on Net (Loss) Income for the fiscal
years ended March 31, 1997 or 1996.
<PAGE>
<TABLE>
<CAPTION>
Cyber Digital, Inc.
Exhibit A
Computation Of Net Income (Loss) Per Common Share
-------------------------------------------------
(In Thousands Except Per Share Amounts)
Year Ended March 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Income (Loss) $(414) $626 $(743) $(208) $(224)
====== ====== ====== ====== ======
Shares:
Weighted average
Common shares outstanding 16,959 14,256 13,653 13,039 12,739
Dilutive effect of
assumed conversion of
incentive stock options
and a non qualified
option (a) --- 1,619 --- --- ---
Weighted Average common
shares outstanding as
adjusted 16,959 15,875 13,653 13,039 12,739
====== ====== ====== ====== ======
Net Income (loss) per
common share:
Primary $(0.02) $0.04 $(0.05) $(0.02) $(0.02)
Fully Dilutive $(0.02) $0.04 $(0.05) $(0.02) $(0.02)
</TABLE>
<PAGE>
MANUFACTURING LICENSE CONTRACT
This Manufacturing License Contract ("Contract") as of May 30, 1996 by and
between the Gujarat Communications & Electronics Ltd. ("GCEL"), located
at Registered office, Anurag Commercial Centre, Race Course, Baroda - 390 005,
India, and Cyber Digital, Inc., a New York Corporation ("Cyber") with
principle offices located at 400 Oser Avenue, Hauppauge, NY 11788, U.S.A.
WHEREAS, Cyber has developed and manufactured a range of high-performance
software controlled Digital Switching Systems ("CSX", "CDCO" and "CRX") for
both public and private telephone exchange applications, and markets its
systems internationally;
WHEREAS, GCEL is interested in acquisition of certain technology for
manufacturing and selling Cyber's digital switching systems;
WHEREAS, the parties desire to establish a mutually beneficial and
harmonious business and technical relationship;
NOW, THEREFORE, it is agreed as follows:
ARTICLE 1. DEFINITIONS:
(a) "Products" or "Systems" shall mean Cyber's CSX, CDCO or CRX digital
systems and its derivatives used to provide public telephone
exchange services meeting specifications.
(b) "Public Telephone Exchange" shall comprise of digital exchanges for
cities, towns, villages and rural sites.
(c) "Line" is defined as subscriber line, trunk line, signaling line,
data line, operator line, tandem trunk line, inter-nodal digital
channnels, or a digital channel of a digital trunk (i.e. E1 digital
trunk consisting of 32 channels is construed as 32 lines and T1
digital trunk consisting of 24 channels is construed as 24 lines).
(d) "Total Number of Lines" shall be the total of all types of lines
defined in Article 1(c).
(e) "Node" is defined as consisting of 512 ports which may be used for
data, voice or trunking. Multiple nodes may be networked to obtain
the desired line size capacity.
(f) "Basic Switch" is defined as node or nodes consisting of common
equipment, combination of peripheral cards for lines as defined above
in Article 1(c), generic operating software (GOS), and standard billing
packing with software. The Basic Switch shall be powered from
standard DC power input at -48VDC.
(g) "Common Equipment" for each node consists of one Disk Drive Module
(DDM) in SKD form w/o housing, one Main Processor Unit (MPU) in SKD
form, one Time Switch Unit (TSU) in SKD form, one DC Power Supply
in SKD form, and backplanes in SKD form.
(h) "Peripheral Cards" for lines as defined in Article 1(c) consists
of Voice Interface Unit (VIU) providing 16 subscriber line sin CKD form,
T1/E1 Interface Unit (T1U/E1U) providing 2T1 or 1E1 digital trunk in
SKI form, and Voice Trunk Unit (VTU) providing 8 analog trunks in
CKD form. Each node can support a maximum of 30 Peripheral Cards.
(i) "SKD" means semi-knocked down cards which are fully tested but w/o
faceplate.
(j) "CKD" means completely knocked down cards whciha re unassembled with parts
in kit form.
(k) "Manufacturing Technology" shall mean the following technical information,
data, and know-how furnished to GCEL by Cyber under the terms of this
Contract:
(1) Know-how, methods, processes and techniques for the manufacture of
VIU and VTU peripheral cards from CKD parts provided by Cyber;
(2) Know-how, methods, processes and techniques for the manufacture,
assembly, testing and integration of System;
(3) Drawings from mechanical parts such as cabinet, housings and
faceplates for the manufacture and fabrication of such items.
(4) Know how for special jigs/fixtures, for testing of cards/system
including software.
ARTICLE 2. LICENSE TO MANUFACTURE AND SELL PRODUCTS
2.1 Cyber hereby grants to GCEL the following licenses:
(a) an non-exclusive non-transferrable license to use the Manufacturing
Technology for the purpose of manufacturing and selling Sytems
in Russia and other CIS countries i.e. Kazakhstan, Tajikistan,
Turkmenistan, and Uzbekistan. For supply to other countries
prior written consent of Cyber is to be obtained for each case.
(b) Cyber agrees to furnished GCEl with all improvements or
modifications to Systems on an ongoing basis, for a period
of seven years from the date of this Contract.
(b1) Cyber shall indemnify GCEL from all patent related issues resulting
from this transfer of know-how.
(c) GCEL must comply with the Export Administration Act of the United
States, as amended, and rules and regulations promulgated from time
to time thereunder. Accordingly GCEL agrees (1) not to engage in any
transaction involving Cyber's products which is prohibited by said
law and regulations, (2) not to re-export Cyber's products to any
country without approval, and (3) to execute and deliver to Cyber
such documentation as Cyber may request in order to satisfy the
requirements imposed by the United States from time to time.
Necessary support/guidance will be extended by Cyber for this
purpose to GCEL.
ARTICLE 3. TECHNICAL ASSISTANCE AND TRAINING
For the purposes of assisting GCEL in the use of Manufacturing
technology for Cyber Systems, Cyber agrees to provide the
following services:
3.1 Cyber shall provide technical training with respect to manufacturing,
assembly, testing, system integration, installation, database
programming, maintenance and service to sufficient number of
engineers/technicians of GCEL at Cyber's facilities free of cost.
However, the cost of travelling, lodging, boarding, etc. will be
borne by GCEL. Cyber shall, for a period of three months,
provide technical training up to ten engineers/technicians
of GCEL, including hardware engineers, data base programming
engineers, and installation/maintenance engineers.
3.2 It shall be Cyber's intent to fully train and certify the
engineers/technicians so they can perform all functions of
manufacturing, assembly, testing, installation, database
programming, maintenance and service on their own, without
assistance from Cyber, on all future systems. Cyber ensures
that the documentation and training given to GCEL will be
complete and sufficient to assemble and test the equipment
meeting the stipulated quality standards.
3.3 Cyber shall provide such other advice, design services
and consultation relating to the outside plan cabling,
transmission systems, etc. as may be reasonably required
by GCEL, from time to time, for a mutually acceptable fee
depending on the kind of services required by Cyber.
ARTICLE 4. CONSIDERATION
4.1 As Cyber's compensation for the license granted to GCEL
hereunder, Cyber shall be entitled to the following payments:
(a) GCEL shall pay to Cyber a license fee of US$ * in
three equal installments as detailed below.
i) First installment of US$ * will be paid as soon as
achieving sales in Rupee equivalent to $US * by GCEL.
ii) Second installment of US$ * will be paid on
achieving cumulative sales in Rupee equivalent of
US$ * by GCEL.
iii) Third and final installment of US$ * will be paid
on achieving cumulative sales in Rupee equivalent of
US$ * by GCEL.
(b) In addition, GCEL will pay royalty to Cyber on production
of every unit on value addition in perpetuity, if allowed
by Govt. of India, or for a period of 7 years from the
date of commencement of production.
i) * % of value addition of export sales by GCEL.
ii) * % of value addition on domestic sales.
(c) Above payments are net of taxes and shall be governed
by the prevailing rules of Reserve Bank of India/Govt.
of India at the time of payment.
(NOTE: * information redacted for confidential reasons)
ARTICLE 5. EQUIPMENT CONFIGURATION AND PRICES
5.1 Under this Contract, GCEL plans to purchase from Cyber its Basic
Switches in SKD and CKD form at mutually agreed prices. GCEL
guarantees that it shall purchase parts in SKD and CKD form
only from Cyber. It shall not seek for alternative sources
to circumvent Cyber.
5.2 All payments for equipment in SKD and CKD form shall be
through irrevocable letters of cedit in favor of Cyber
in U.S. dollars payable upon shipment.
ARTICLE 6. WARRANTY
6.1 Cyber warrants that the products manufactured as per the know
how transferred to GCEL should meet all the specifications
as claimed by Cyber.
6.2 GCEL shall provide warranty to their customer as per 6.1 above
for design and supply of equipment and spares.
6.3 GCEL agrees to comply with quality requirement of processes
and product manufacturing. GCEL agrees for third party
inspection for verification and quality norms, process
control parameters including inward goods inspection
manufacturing, assembly, testing and packing inspection
through a third party inspection or through Cyber's
authorized representative/subsidiary. The remuneration
towards these services will be paid to the concerned
agencies by GCEL in Indian Rupee as per mutally agreed
terms on case to case basis.
6.4 Cyber agrees for back to back warranty for products,
manufactured by GCEL through thsi license agreement.
In addition, Cyber's warranty shall be extended to any
orders received on behalf of GCEL.
6.5 Cyber warrants that the products shall be free from defects
in material and workmanship for a period of one year
from the date of shipment of SKD and CKD parts. Cyber's
liability shall be limited to repair or replacement of the
defective goods at no charge to GCEL during the warranty
period.
6.6 Cyber shall incur no liability under this warranty if:
(1) GCEL fails to notify Cyber promptly of any known
alleged defect or, (2) Cyber's tests disclose that the
alleged defect is not due to defects in material
workmanship, but due to any non-authorized alterations,
repairs to or mishandling, abuse or misuse of equipment
or any installation and maintenance not in accordance with
Cyber's procedures.
6.7 The warranty provided is the only warranty given by Cyber.
All othe representations and warranties, impressed or implied,
including but not limited to implied warranties of quality
and merchantability are excluded. Cyber shall have no
liability to any person or entity for any incidential,
consequential, or punitive damaes (whether for property
damage, other commercial or business loss) of any kind.
ARTICLE 7. SOFTWARE
7.1 Title to Software furnished by Cyber to GCEL shall remain in Cyber.
GCEL agrees that it shall treat the Software as the exclusvie
property fo Cyber and as a proprietary and a Trade Secret of Cyber.
For the useful life of any hardware provided by GCEL or its
customers, Cyber shall, an does hereby, grant to GCEL a
non-exclusive license to use such Software in connection
with the Cyber equipment. Cyber shall provide the Software
(Generic Operating Software) on hard disk drive only. GCEL
cannot copy, distribute or modify the Software in whoe or
in part. GCEL may sublicense use of the Software in connection
with the sale of Cyber equipment, provided the sublicensor also
strictly adheres to the provisions contained in 7.1.
ARTICLE 8. NON DISCLOSURE OF CONFIDENTIAL INFORMATION
8.1 During the term of this Contract, GCEL will not confidential,
treat as proprietary, and provide adequate safeguards against
any unauthorized disclosure of Confidential Information of
Cyber. Confidential information shall consist only of those
documents and data provided by Cyber to GCEL. Annexed herto and hereby
made part of this Contract as Exhibit A is properly executed
Confidential Information Agreement between both parties.
ARTICLE 9. TERM
9.1 The term of this Contract i sin perpetuity from the date hereof.
ARTICLE 10. FORCE MAJEURE
10.1 Neither party shall be held responsible for any delay or failure
to perform resulting from a cause beyond the control of such party,
inclduing strikes, embargoes, requirements imposed by Government
regulation, civil or military authorities, acts of God or the
public enemy, and acts or omissions of carriers.
ARTICLE 11. ARBITRATION
11.1 This Contract shall be construed and interpreted and all rights
and obligations hereunder determined in accordance with the laws
of the State of New York.
11.2 In case of any disputes which cannot be resolved by mutual goodwill,
the matter shall be resolved by submitting the dispute to the
American Arbitration Association ("AAA") in New York. If a dispute
is submitted by one party to the AAA, the other party or parties
to the dispute shall participate in the proceedings in accordance
with the rules of AAA. All parties agree to submit to the award
of the AAA which shallb e final and binding.
ARTICLE 12. ENTIRE CONTRACT
12.1 This Contract constitutes the entire agreement between the parties
with respect to the subject matter of this contract. The provisions of
this Contract supersede all prior oral and written quotations,
communications, agreements, and understanding of the parties in
respect of the subject matter of this Contract.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their representatives duly authorized and empowered thereunto,
as of the date set forth above.
Gujarat Communications & Cyber Digital, Inc.
Electronics Ltd.
By:/s/ J.N Singh By:/s/ J.C. Chatpar
------------- ----------------
Managing Director Chairman & CEO
<PAGE>
Exhibit A
Confidential Information Agreement
----------------------------------
For: Gujarat Communications & Electronics Ltd., India ("Company")
WHEREAS: Cyber Digital, Inc. ("Cyber") has designed and developed
CSX, CDCO and CRX digital switching systems;
WHEREAS: you, the undersigned Company (the "Company") have expressed
an interest in CSX, CDCO and CRX and have requested certain additional
technical and pricing information for your review; and
WHEREAS: Cyber and the Company agree that certain of the information
to be made available to the Company shall be confidential and/or
proprietary to Cyber.
NOW, THEREFORE, it is agreed as follows:
1. CONFIDENTIAL INFORMATION is defined as information relating to CSX,
CDCO and CRX which is disclosed to the Company in written, graphic,
machine recognizable, and/or sample form, being clearly designated,
labeled, or marked as confidential or proprietary. Any and all information
developed by the Company in its review of CSX, CDCO and CRX, including
data, graphics, photographs, written material, by-products in any form,
manufacturable parts, subassemblies, and assemblies shall be the
property of Cyber. All such properties, which may or may not be
marked confidential, shall remain and be treated as confidential
in perpetuity/
2. Each party agrees to receive and hold Confidential Information
provided by the other in confidence, and to provide adequate
safeguards against any unauthorized disclosure thereof in perpetuity.
3. Either party may disclose Confidenital Information to its officers,
directors, and other key employees, including consultants, for the
purpose of review of the business transaction between the parties,
provided that all such person shall first be notified or the
confidential nature of such information and agree to be bound by
the restrictions herein in perpetuity.
4. In the event of any breach, threatened or actual of the provisions of
this Agreement, it is stipulated and agreed that the party threatening
breach or committing acts which constitute a wrongful disclosure
of the CONFIDENTIAL INFORMATION may be enjoined from such acts, and the
parties stipulate further than the Supreme Court of New York, County
of Suffolk, shall have sole and complete jurisdiction in respect of
any such claim.
THE COMPANY CYBER DIGITAL, INC.
By:/s/J.N. Singh By:/s/ J.C. Chatpar
------------- ----------------
Managing Director Chairman
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 5,002,773
<SECURITIES> 0
<RECEIVABLES> 327,377
<ALLOWANCES> 0
<INVENTORY> 434,473
<CURRENT-ASSETS> 5,774,866
<PP&E> 127,385
<DEPRECIATION> 83,287
<TOTAL-ASSETS> 5,829,356
<CURRENT-LIABILITIES> 42,273
<BONDS> 0
0
104
<COMMON> 170,952
<OTHER-SE> 5,616,027
<TOTAL-LIABILITY-AND-EQUITY> 5,829,356
<SALES> 45,385
<TOTAL-REVENUES> 45,385
<CGS> 26,120
<TOTAL-COSTS> 26,120
<OTHER-EXPENSES> 51,911
<LOSS-PROVISION> 387
<INTEREST-EXPENSE> 11,231
<INCOME-PRETAX> (722,553)
<INCOME-TAX> 0
<INCOME-CONTINUING> (722,553)
<DISCONTINUED> 0
<EXTRAORDINARY> 291,756
<CHANGES> 0
<NET-INCOME> (414,346)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
