SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
--------
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______to________
Commission File No.: 0-13992
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CYBER DIGITAL, INC.
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(Name of small business issuer in its charter)
New York 11-2644640
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Oser Avenue, Hauppauge, New York 11788
- ------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (516) 231-1200
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
The number of shares of stock outstanding at September 30, 1999: 18,467,283
shares of Common Stock; par value $.01 per share.
<PAGE>
CYBER DIGITAL, INC.
BALANCE SHEETS
September 30, March 31,
1999 1999
(Unaudited) (Audited)
Current Assets
Cash and cash equivalents $2,788,550 $ 246,832
Accounts receivable -0- -0-
Inventories 492,965 482,633
Prepaid and other current assets 27,725 29,190
---------- ----------
Total Current Assets $3,309,240 $ 758,655
---------- ----------
Property and Equipment
Equipment $ 371,862 $ 366,396
Furniture and Fixtures 68,271 68,271
Leasehold Improvements 4,786 4,786
---------- ----------
$ 444,919 $ 439,453
Accumulated depreciation 224,687 188,644
---------- ----------
Total Property and Equipment, Net $ 220,232 $ 250,809
---------- ----------
Other Assets $ 14,350 $ 14,350
---------- ----------
$3,543,822 $1,023,814
========== ==========
The accompanying notes are an integral part of these statements
2
<PAGE>
CYBER DIGITAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable, accrued expenses, and taxes $ 166,585 $ 123,981
------------ ------------
Total Current Liabilities $ 166,585 $ 123,981
------------ ------------
Commitments and Contingencies
Shareholders' Equity
Preferred stock - $.05 par value; cumulative, convertible and
participating; authorized 10,000,000 shares
Series A; issued and outstanding - none at September 30, 1999
and March 31, 1999 -0- -0-
Series B-1 issued and outstanding none at September 30, 1999
and 2,420 shares at March 31, 1999 -0- 121
Series B-2 issued and outstanding - none at September 30, 1999
and March 31, 1999 -0- -0-
Series C issued and outstanding - 310 shares at September 30,
1999 and none at March 31, 1999 16 -0-
Series D-1 issued and outstanding - 3,000 shares at September
30, 1999 and none at March 31, 1999 150 -0-
Common stock - $.01 par value; authorized 30,000,000
shares; issued and outstanding 18,467,283 shares
at September 30, 1999 and 17,386,053 at March 31, 1999,
respectively 184,673 173,861
Additional paid-in capital 17,418,507 14,161,764
Accumulated deficit (14,226,109) (13,435,913)
------------ ------------
$ 3,377,237 $ 899,833
------------ ------------
$ 3,543,822 $ 1,023,814
============ ============
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE>
CYBER DIGITAL, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
1999 1998
------------ ------------
<S> <C> <C>
Net Sales $ -0- $ 182,679
Cost of Sales -0- 144,260
Gross Profit $ -0- $ 38,419
------------ ------------
Operating Expenses
Selling, general and administrative expenses $ 342,775 $ 410,474
Research and development 130,730 197,406
------------ ------------
Total Operating Expenses $ 473,505 $ 607,880
------------ ------------
Loss from Operations $ (473,505) $ (569,461)
Other Income, net 1,156 17,426
------------ ------------
Net Loss $ (472,349) $ (552,035)
------------ ------------
Net Loss Per Share of Common Stock
Net Loss-Basic $ (0.03) $ (0.03)
============ ============
Net Loss-Diluted $ (0.03) $ (0.03)
============ ============
Weighted average number of common shares outstanding 18,016,873 17,386,053
============ ============
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE>
CYBER DIGITAL, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
September 30,
1999 1998
------------ ------------
<S> <C> <C>
Net Sales $ -0- $ 264,060
Cost of Sales -0- 275,009
Gross Loss $ -0- $ (10,949)
------------ ------------
Operating Expenses
Selling, general and administrative expenses $ 575,488 $ 872,005
Research and development 217,149 370,979
------------ ------------
Total Operating Expenses $ 792,637 $ 1,242,984
------------ ------------
Loss from Operations $ (792,637) $ (1,253,933)
Other Income, net 2,441 43,783
------------ ------------
Net Loss $ (790,196) $ (1,210,150)
------------ ------------
Net Loss Per Share of Common Stock
Net Loss-Basic $ (0.04) $ (0.07)
============ ============
Net Loss-Diluted $ (0.04) $ (0.07)
============ ============
Weighted average number of common shares outstanding 18,016,873 17,386,053
============ ============
</TABLE>
The accompanying notes are an integral part of these statements
5
<PAGE>
CYBER DIGITAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
September 30,
1999 1998
----------- ----------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $ (790,196) $(1,210,150)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 35,873 32,408
Amortization 170 216
(Increase) decrease in operating assets:
Accounts receivable -0- (109,007)
Inventories (10,332) -0-
Prepaid expenses 1,465 17,462
Other assets -0- (649)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 42,604 (31,278)
----------- -----------
Net Cash Used in Operating Activities $ (720,416) $(1,300,998)
----------- -----------
Cash Flows from Investing Activities
Purchase of equipment $ (5,466) $ (83,382)
Purchase of leasehold improvements -0- (1,000)
----------- -----------
Net Cash Used in Investing Activities $ (5,466) $ (84,382)
----------- -----------
Cash Flows from Financing Activities
Issuance of preferred stock $ 3,010,000 $ -0-
Issuance of common stock 257,600 -0-
----------- -----------
Net Cash Provided by Financing Activities $ 3,267,600 $ -0-
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents $ 2,541,718 $(1,385,380)
Cash and Cash Equivalents at Beginning of Period 246,832 2,436,473
----------- -----------
Cash and Cash Equivalents at End of Period $ 2,788,550 $ 1,051,093
=========== ===========
Supplemental Disclosures of Cash Flow Information Cash paid during the period
for:
Income taxes $ 4,424 -0-
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
6
<PAGE>
CYBER DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 2000. For further information, refer to the financial statements and
footnotes thereto included in the Company's Form 10-KSB for the fiscal year
ended March 31, 1999.
NOTE 2 - INVENTORIES
Inventory of purchased parts for eventual resale to customers are valued at the
lower of cost or market, as determined by the first-in, first-out (FIFO) method
and consisted of the following:
September 30, 1999 March 31, 1999
------------------ --------------
Raw Materials $ 355,356 $ 345,024
Finished Goods 137,609 137,609
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$ 492,965 $ 482,633
======= =======
NOTE 3 - FINANCING ACTIVITY
On April 14, 1999, all of the Company's outstanding Series B-1 Preferred Stock
was converted into 861,230 shares of the Company's Common Stock at a conversion
price of $2.89 per share.
On May 28, 1999, the Company designated 1,200 of the 10,000,000 authorized
shares of Preferred Stock as Series C. On June 7, 1999, the Company concluded a
private placement of 210 of the 1,200 shares of its Series C Preferred Stock and
accompanying warrants to accredited investors priced at $1,000 per share for a
total of $210,000. On July 12, 1999, the Company closed on a private placement
of an additional 100 shares of Series C Preferred Stock and accompanying
warrants to an accredited investor priced at $1,000 per share for a total of
$100,000. As of July 12, 1999 there were 310 shares of Series C Preferred Stock
issued and outstanding. The Series C Preferred Stock was issued without
registration in reliance on Section 4(2) of the Securities Act of 1933, as
amended. No Further issuance of Series C Preferred Stock are contemplated by the
Company.
On September 30, 1999, the Company concluded a private placement of 3,000 shares
of its Series D1 Preferred Stock and accompanying warrants to an accredited
institutional investor priced at $1,000 per share for an aggregate amount of
$3,000,000. Subject to certain conditions, the institutional investor is also
required to buy and the Company is required to sell additional shares of the
Series D1 Preferred Stock and accompanying warrants for an aggregate amount of
$2,000,000.
7
<PAGE>
PART 1
Item 2
Management's Discussion and Analysis
Of Financial Condition and Results of Operations
Overview
During the year ended March 31, 1999 ("Fiscal 1999"), we made a strategic shift
to enter the fast growing, lucrative high-speed internet access market. We
rapidly developed our Cyber Business Internet Gateway (CBIG) and Cyber Internet
Access Network (CIAN) switch. We forged an alliance with AT&T Corporation to
become a provider of high-speed internet access and to create Virtual Private
Networks (VPN) for businesses using our Internet Protocol (IP) Frame Relay based
"broadband" technology. We have recently developed our Internet Protocol (IP)
Frame Relay infrastructure equipment to piggyback on AT&T's rapid deployment of
Internet Protocol (IP) Frame Relay based "broadband" internet backbone. For
further information, refer to the financial statements and footnotes thereto
included in the Company's Form 10-KSB for the fiscal year ended March 31, 1999.
Readers are cautioned not to place undue reliance on these forward-looking
statements, as referred to in the annual Form 10-KSB for the fiscal year ended
March 31, 1999, which speak only as of the date hereof.
Results of Operations
For Three Months Ended September 30, 1999
Net sales for the quarter ended September 30, 1999 were zero as compared to
$182,679 for the quarter ended September 30, 1998. The Company discontinued
direct sales in connection with its strategic shift to the high speed internet
access and Virtual Private Network (VPN) service provision business. The
Company's shift in business focus continued through the quarter ended September
30, 1999 and produced no sales. Gross profit for the quarter ended September 30,
1999 was zero of net sales as compared to $38,419 of net sales for the quarter
ended September 30, 1998. Fluctuations in gross profit margins are primarily
attributable to price changes, changes in sales mix by product or distribution
channel. Selling, general and administrative expenses decreased $67,699 or 16%
to $342,775 in the quarter ended September 30, 1999 as compared to $410,474 in
the quarter ended September 30, 1998, primarily due to decreases in sales and
service expenses. Research and development expenses for the quarter ended
September 30, 1999 were $130,730 as compared to $197,406 for the quarter ended
September 30, 1998. Net loss for the quarter ended September 30, 1999 was
$(472,349) or $(.03) per share as compared to $(552,035) or $(.03) per share for
the quarter ended September 30, 1998.
For Six Months Ended September 30, 1999
Net sales for the six month period ended September 30, 1999 were zero as
compared with $264,060 for the period ended September 30, 1998. The Company
discontinued direct sales in connection with its strategic shift to the high
speed internet access and Virtual Private Network (VPN) service provision
business. The Company's shift in business focus continued through the quarter
ended September 30, 1999 and produced no sales. Gross profit (loss) for the
period ended September 30, 1999 was zero of net sales as compared to $(10,949)
or (4%) of net sales for the period ended September 30, 1998. Selling, general
and administrative expenses decreased $296,517 or 34% to $575,488 for the period
ended September 30, 1999 as compared to $872,005 the period ended September 30,
1998. Research and development expenses for the period ended September 30, 1999
were $217,149 as compared to $370,979 for the period ended September 30, 1998.
Net loss for the period ended September 30, 1999 was $(790,196) or $(0.04) per
share as compared to $(1,210,150) or ($0.07) per share for the period ended
September 30, 1999.
8
<PAGE>
Management's Discussion and Analysis
Of Financial Condition and Results of Operations
Liquidity and Capital Resources
Total working capital increased $2,507,981 to $3,142,655 for the quarter ended
September 30, 1999 from $634,674 for the period ended March 31, 1999. The
current ratio increased to 19.9 to 1 as at September 30, 1999 from 6.1 to 1 as
at March 31, 1999. Current levels of inventory are adequate to meet short term
sales. There were no significant capital expenditures in the quarter ended
September 30, 1999. Due to the completion of the Series A, Series B, Series C
and Series D1 Preferred Stock transactions, expected exercise of options and
warrants and together with expected cash flow from operations, the Company
believes its liquidity will be sufficient to meets its needs for the next 12
months. The Company believes that, if needed, it will be able to obtain
additional funds required for future needs.
Impact of the Year 2000 ("Y2K") Issue
The Company conducted a review of its operating and computer systems to identify
the areas, which could be affected by the Y2K issue. The Company presently
believes the Year 2000 problem will not pose significant operational problems
for the Company and the estimated cost of achieving compliance is minimal and is
not expected to have a material adverse effect on the financial condition,
liquidity or results of operations of the Company.
The Company's internet gateway, digital voice switching and networking systems
which it designs, develops, manufactures, markets and services have been
designed to be Y2K compliant and the Y2K issue is not expected to have a
material effect on the Company's ability to serve its customers.
As part of the Company's assessment of the Y2K issue, consideration was given to
the possible impact upon the Company from using purchased software, suppliers
and outside service providers. The Company's efforts with regard to Y2K issues
are dependent in part on information received from such suppliers and vendors
upon which the Company has relied. While it is not possible for the Company to
predict all future outcomes and events, the Company is not aware, at this time,
of any Y2K non-compliant situations with regard to any of its purchased software
or its use of suppliers and outside service providers.
PART II
ITEM 1 - 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
(1) $775,000 based upon the alleged net aggregate value of the shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), upon
which Brockington alleges it had option and (2) $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 alternative,
recission of the alleged contract and the return of the 100,000 shares
previously issued Brockington.
9
<PAGE>
The Company believes that Brockington's claims are without merit and intends to
vigorously defend its position.
ITEM 2 - Changes in Securities and Use of Proceeds
As of the date hereof, the Company sold 310 shares of its Series C Preferred
Stock, par value $.05 per share, and accompanying warrants to accredited
investors at $1,000 per share for an aggregate proceeds of $310,000. In
connection with this placement, the Company issued warrants to accredited
investors to purchase an aggregate or 12,710 shares of the Company's Common
Stock, par value $.01 per share, at an exercise price of $6.00 per share.
As of the date hereof, the Company sold 3,000 shares of its Series D1 Preferred
Stock, par value $.05 per share, and accompanying warrants to an accredited
institutional investor at $1,000 per share for an aggregate proceeds of
$3,000,000, less $300,000 for underwriting fees. In connection with this
placement, the Company issued warrants to the accredited institutional investor
to purchase an aggregate of 190,678 shares of the Company's Common Stock, par
value $.01 per share, at an exercise price of $5.70 per share. In connection
with this transaction, the Zanett Securities Corporation, financial advisor to
the Company, has been issued a warrant to purchase 30,000 shares of the
Company's Common Stock, par value $.01 per share, at an exercise price of $5.70
per share.
The Company intends to use the proceeds received from these placements to (i)
fund the capital expenditure incurred in the deployment of a high-speed Internet
infrastructure network, which is comprised of the Company's Cyber business
Internet Gateways and Cyber Internet Access Network switches, as is planned for
rollout in New York City and Boston, (ii) accelerate marketing and indirect
sales force expansion efforts, and (iii) fund the working capital needs.
ITEM 3 - Defaults on Senior Securities.
None.
ITEM 4 - Submission of Matters to a Vote of Security Holders
None.
10
<PAGE>
CYBER DIGITAL, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS IN FORM 8-K
A) Exhibits
27 Financial Data Schedule.
B) Reports on Form 8-K
Report on Form 8-K was filed by the Registrant on October 8, 1999.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CYBER DIGITAL, INC.
DATED: November 4, 1999 By: \s\ J.C. Chatpar
----------------
Chairman of the Board,
President, Principal Financial
Officer and Chief Executive Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,788,550
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 492,965
<CURRENT-ASSETS> 3,309,240
<PP&E> 444,919
<DEPRECIATION> 224,687
<TOTAL-ASSETS> 3,543,822
<CURRENT-LIABILITIES> 166,585
<BONDS> 0
0
166
<COMMON> 184,673
<OTHER-SE> 3,377,237
<TOTAL-LIABILITY-AND-EQUITY> 3,543,822
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 792,637
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (790,196)
<INCOME-TAX> 0
<INCOME-CONTINUING> (790,196)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (790,196)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
